Is letting the economy crash a good thing?

A lot of folks seem to think so, for fear of the alternative.

I’ve read quite a bit of talk online that the government is bailing out both firms and the average taxpayer. One libertarian-leaning blog commenter, talking about Wall Street apparently borrowing directly from the Fed, predicted “economic devastation in the very near future” because of this. Plus, there’s been a lot of news recently about the President and the Cabinet proposing new government powers to control the economy. (Links here and here; I believe they’re talking about the same thing, but I’m not sure.

Seeing all this, some people (especially the aforementioned libertarians) don’t think that simply letting the companies and individuals crash and burn would hurt the overall economy (or not enough to make it worthwhile to intervene). But there are others who think it would… but that the crash would be a good thing, IN COMPARISON TO the consequences they see if the government tries to prevent it. One writer claimed that the government bailing folks out from the dotcom bubble caused the housing bubble, and that this cycle would basically cause bigger and bigger bubbles to form until the eventual pop destroys everything.

Any thoughts?

(BTW, I know there’s a “is the mortgage crisis a good thing” thread, but I can’t see another thread that’s asking what I am here.)

I think letting the economy re-balance itself is a good thing, yes. And yes, I think the government sticking it’s six thumbs into the pie is a bad thing…mainly because they are trying to ‘fix’ the economy in such a way as to A) Look like they are Doing Something™ and B) Doing Something™ in such a way as to garner votes.

IMHO all this government intervention is likely to accomplish is to make things worse in the long run…and not really do a hell of a lot in the short term either except to reward or at least excuse the folks who fucked up in the first place.

I’m absolutely positive that MMV on this however…and that there will be few who agree with my own viewpoint here.


The government bailed folks out from the dotcom bubble?

Hmm. Now that I reread, I misstated that particular person’s argument. What he SAID was, “The Fed inflated the economy to shield us from the dot-com bust…” Not quite the same thing. Apologies.

The Fed inflated the economy to shield us from the dotcom bust? The Fed typically cuts interest rates during periods of slow or negative growth, but that S.O.P. They also raise interest rates when the economy is growing fast or if inflation looks like it’s getting out of hand. That’s their job.

We don’t agree on much, but we agree on this.

Okay, I can’t explain or defend any further. I just quote what he asserted. Take it as you will. :slight_smile:

But there is a difference between Interest Rates, which is one means of controlling the economy, and the Money Supply, or amount of money in the economy.

The economy has been ‘inflated’ through growth in the money supply, which in turn has seemed to feed the various bubble growths as people seek places to put all this money. First dotcom, then housing, now commodities.

It is not just a mortgage bust.

This article indicates wall street is scared stiff. Banks under financed. Credit cards not getting paid. The mortgage meltdown has just started.

I think the problem was that they kept interest rates low for lower than usual, partly I’m sure because the recovery was very weak, and partly to protect the administration.

Lending money to the investment banks just parallels what is done already for the other banks. If the Fed is going to lend money, then clearly they need to be able to regulate who they lend money to.

Sure this will mean that some banks won’t make gigantic profits for a while before they crash, and that some bank execs won’t make hundreds of millions of bucks. Boo-hoo. The purpose of the Fed is to moderate swings in the markets, and what we’re seeing now is an example of one, bank runs and all. There will still be swings, of course, but not as great.

Now, anyone saying a crashed economy is a good thing needs to talk to someone who suffered through the Depression. And hope the person is too old to beat the crap out of him or her with his cane. The Depression caused untold suffering - anyone who wants people to go through that for the cause of economic purity is just immoral. I’m sure no one here objects to some government intervention to prevent a new Depression, right?

In the Times today former (Bush) Treasury Secretary Paul O’Neill had the best image of the problem I’ve seen.