Financial regulations, bailouts & broader state of economy

The Kansas City Star believes it’s “time to put the brakes on big business bailouts,” and in this I could not agree with the newspaper more. Much of the piece though, highlighted by Real Clear Politics today, focuses on financial system regulation.

Which makes one ask: If there were less bailouts – by definition, the government keeping failed businesses in business – wouldn’t there be less need for regulation? Letting irresponsible corporations own their fate would seem to naturally be part of a healthy marketplace.

For one, the bad actors in question go away. Additionally, other potential bad actors know the government won’t be there to bail them out if they get themselves into a jam by way of taking out-sized risks or engaging in other foolish behaviors. So they are more likely to avoid such activities.

Anyway, some good thoughts from the Star here. The editorial recognizes that bailouts do not encourage responsible risk-taking. My point is that the government is engaging in two contradictory and mutually defeating activities: attempting to discourage and police bad behavior through more and more regulations, while encouraging reckless risk and rewarding bad behavior by giving bailouts to failed businesses. I suppose that’s what happens when we let politicians try to manage the economy.

Additionally, I would like to see the Star devote the same concern to government debt as it is to corporate debt. Perhaps editorials have run on this subject, but if so they’ve escaped my attention.

Present deficits and the total public debt are at historic levels and represent a serious long term threat to the economic health of the nation. One of the only saving graces (and it’s not really saving us, it’s just softening the pain a little) is that interest rates on the debt are also at relatively low levels. If debt service cost us what it did in previous years, the running interest on today’s bill would amount to even more than the already substantial six percent or so of the federal budget it consumes today. One of the real costs of debt is that the interest paid on it could be used for other things, such as tax relief (my preferred option) or government services (such as education).

For the first time in seventy years – perhaps ever – national debt will eclipse the country’s GDP next year, according to Office of Management and Budget historical tables for fiscal year 2010. Yes, the government has historically run deficits. This statistic, however, indicates the unprecedented current scale of the total national debt situation.

The Star’s notion that a financial “system with less debt and more capital will be better prepared to weather a crisis,” could – and should – be applied even more so to our federal government. Let’s hope more of our public servants begin to realize that it’s time to get our fiscal house in order.

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1 Comment

Filed under Bailouts, Economy

One response to “Financial regulations, bailouts & broader state of economy

  1. Pingback: GOP casts doubt on “stimulus” package « Principally Political

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