http://online.wsj.com/article/SB122541582835686689.html
Don't Just Do Something. Stand There.
by Russell Roberts
.....
"A recession is coming (or has already arrived) no matter what happens in
Washington. The question is whether the attempt to forestall it is going
to make it worse and turn it into another Great Depression.
By acting without rhyme or reason, 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 through
much of the 1930s.
The next administration is unlikely to do any better. Mr. Bernanke is
perhaps the greatest living authority on the Great Depression, yet
he has failed to stem the damage. Messrs. Paulson and Bernanke are
confronted with a sick patient. They have antibiotics. They have a
scalpel. But is there any evidence from the last seven months that they
understand the underlying cause of the illness, or how to cure it?
Worst of all are the political incentives that are unleashed when
Washington promises to spend a trillion dollars (and counting). No
one can spend such money wisely even if they want to. The information
about who needs to be bailed out and who needs to fail is too
complicated. Inevitably, such decisions will begin to be more about
politics than economics.
The banks were first. Then the insurance companies. The car makers
are getting a cut. Who's next? The governors, probably. Homeowners
are waiting. Then there will be the hedge funds. Once the line forms,
companies will stop trying to save themselves and focus on being saved
by Washington. The resulting spiral will be devastating.
Unfortunately, there is no consensus about a preferable alternative. The
economists are almost as clueless as the politicians. At such a time,
inaction may be the wisest course of action."
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