Liberty Maven

Listening to the news every day, one of the biggest problems as I see it is the prevailing attitude that it’s a bad thing when housing prices fall or poorly-run businesses fail.  Why do they not see that housing prices have been far too high for years (thanks to artificially low interest rates), and that it’s a sign of a healthy market when good companies thrive and bad businesses fall?  Today’s article at the Ludwin von Mises Institute addresses the concept of bankruptcy:

Bankruptcy is a normal part of economic life, covered by laws that guarantee stockholders will be compensated as much as possible. More efficient firms move in to take over what is left of bankrupt firms, buying what can be put to productive use. There is no crime in bankruptcy and, if handled quickly, little economic harm. When the largest US energy company Enron went bankrupt a few years ago, there was not even a ripple in the energy markets, much less the economy. Bankruptcy is not criminal and should not be a surprise, but it can be unnerving if large, well-known firms go bankrupt.

Naturally, Big Government’s natural inclination is to intervene further into the private marketplace in attempt to stop necessary declines, which only makes the problem worse, distorts the market even more, and often rewards bad behavior.

One part of the evolving financial bailout is the government using taxpayer money to help people who have not been able to pay their mortgage. The government is taxing those who have paid their mortgages and transferring the money to those who have not. It is not a good idea to reward inefficiency.

The article goes on to discuss the detriments of the recent financial bailouts and the government scrambling to “fix” the problem it created by doing more of what cause the problems in the first place.

Read the article here.