No, says Russel Roberts, professor of economics at George Mason University. He says Bernanke and the experts assured us that Bear Stearns had to be propped up or the whole system would come crashing down on us. It is crashing down on us anyway. Just as in the 30's, there is no evidence that the policymakers have any understanding of what they are doing. They need to make way for the natural force of repair.
They need to let housing prices fall. They need to let firms go bankrupt. They need to let firms that are healthy thrive. They need to let the healthy firms buy the sick firms. It's time to let the impudent fail and the prudent pick up bargains.
A recession is coming, or has already arrived, no matter what happens in Washington The question is whether the attempt for forestall it is going to make it worse and turn it into another Great Depression.
Politicians have destroyed the rules of the game. There is no reason to invest, no reason to take risk, no reason to be prudent, no reason to look for buyers if your firm is failing. Everything is up in the air and as a result, the only prudent policy is to wait and see what the government will do next. The frenetic efforts of FDR had the same impact: Net investment was negative throughout the 30's.
Roberts says that Bernanke is perhaps the greatest authority on the Great Depression, yet he has failed to stem the damage. Bernanke and Paulson have the tools to treat a sick patient, but they do not understand the underlying cause of the illness nor how to cure it.
The banks were first. Then the insurance companies. The car makers are in line. The governors, probably. Homeowners are waiting. then the hedge funds. As the line forms and people and businesses wait on Washington, the resulting spiral will be devastating.
No one can spend a trillion dollars on the sickness without knowing who to cure and who to let fail. The information is far too complicated so sooner or later, such decisions will be more about politics than economics.
Unfortunately, there is no consensus. The economists are almost as clueless as the politicians. At such a time, inaction may be the more wise course of action.
Tell Merle Widmer about the 30's, my siblings and Mother and Father were stuffed into poverty I was too young to realize we were poor. But we were. I wasn't the only one in my class who wore the same sweater all winter. My older brother and seven older sisters knew it. It wasn't until after the war that the economy boomed.
Lot's of people are probably in worse shape than we were but we didn't need welfare. We all had learned how to work. I suspect some people with jobs are going to change their style of living. And those without work, may have to work harder than they ever did in their lives. Still 6 1/4pages of jobs listed in the JS this week.
Unfortunately, too many people in this world never learned how to work or to keep educating themselves for just such an emergency.
The Widmer's did and all survived without the help of any "governmental social agency".