Howard Rich's Blog

March 27, 2009

Control Freaks

This is a great editorial from Inverstors Business Daily

Reform: Treasury Secretary Tim Geithner’s proposed sweeping reform of our nation’s financial system puts the nation’s banks, insurers and hedge funds under direct government control — where they least need to be.

Geithner said Thursday that President Obama’s administration needs to impose “not modest repairs at the margin, but new rules of the game” for America’s banks, finance companies, insurers and hedge funds.

The only problem is, the old rules of the game were set by the very people in Congress who will set the new ones. This means the new rules likely won’t be much of an improvement — if any.

The irony of this, of course, was pointed out by political scientist Michael Barone, who notes the bank bailout plan unveiled by Geithner earlier this week actually relies heavily on mostly unregulated companies to bail out regulated ones.

Now, Geithner wants control of even those unregulated companies, though they’re guilty of nothing other than being successful.

Recall how the first President Bush was ridiculed for seeking a “new world order”? Well, what the Treasury now proposes constitutes nothing less than a “new economic order,” one that will take away much of the autonomy of our extraordinarily successful free-market economy and smother it with new rules.

Nor is this the only power grab by government of late. President Obama, for example, wants to force what he calls a “major restructuring” on troubled U.S. carmakers GM and Chrysler, pushing them ultimately to make green-friendly cars central to their businesses — no matter what consumers might want.

Meanwhile, the Federal Reserve wants sweeping new powers to regulate, punish and oversee the financial industry, and to intervene if it thinks it needs to. And of course, in the middle of all this sits Congress itself, which will write the new laws and regulations.

Yet, with all these plans to exert ever more control over the economy, few people are asking the appropriate question: Do those in government have the knowledge and ability to run our economy?

The answer, put bluntly, is no. This could be seen in Postmaster General John Potter’s trip to Congress Wednesday, begging for more money for the ailing postal service. “We are facing losses of historic proportion,” he said. “Our situation is critical.”

This from the head of a government-run company that has a virtual monopoly in its business — the delivery of first-class mail — and still can’t make a profit. Losses last year totaled $2.8 billion.

Two other major government enterprises — Fannie Mae and Freddie Mac — were largely responsible for the mess we’re in now. Managed mostly by former Democratic politicians, they too had a virtual monopoly, holding $5.4 trillion of the total $12 trillion in U.S. mortgages, and still went bust.

Such managerial acumen hardly inspires confidence. Who’s going to make the decisions, anyway? Some Treasury functionary? President Obama, whose private-sector experience is virtually nil? How about his top aide, Rahm Emanuel, who served a stint on Freddie’s board during its period of greatest excess?

Economist Friedrich Hayek noted in his 1945 classic “The Use of Knowledge in Society” how ill-equipped governments are to collect, organize and act upon the millions and millions of market signals sent each day by private markets.

The result, inevitably, is economic chaos, confusion, misallocation of resources and enormous waste — as in the old USSR.

Hayek’s insights, which eventually won him a Nobel Prize, are as relevant today as then. Letting bureaucrats and politicians direct our economy isn’t the end to our troubles. It’s only the beginning.


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