EDITORIAL: Fear-conomics

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke told Congress this week that failure to pass the Bush administration’s proposed $700 billion bailout will lead to dire consequences for the economy. Mr. Bernanke said that if the plan were not enacted, markets would be further embattled. This would result in higher unemployment, more foreclosures and an economic contraction. In simple terms: In their opinion, without immediate action, there will be a recession. Yet we know a better term for recession: market correction. Why are we suddenly so afraid of an economic downturn – to the point that we have to gamble $700 billion of taxpayer money?

Since the inception of capitalism in the 18th century, there have been periods of boom followed by periods of bust. Despite the attempts to mitigate these with government intervention since the Great Depression, there have still been periods of boom and bust. This is the natural result of the law of supply and demand. Recently, we had a housing bubble in which investors made huge profits; now the bubble has burst and investors are losing money. That’s capitalism. Let those who invested wisely, soar; and those who did not, fall. It’s called an economy for grown-ups.

This “crisis” has been brought on by homeowners, lenders and bankers who made bad judgments. Let them bear the consequences of their actions. Furthermore, by the account of most analysts, a recession is coming our way, regardless of whether there is a $700 billion bailout. And Americans will weather it, as we have so many times before. Since 1854, there have been 32 cycles of expansions and contractions.

Are we really now heading toward a Great Depression? The answer is: no. Are Americans a little spoiled? Yes. Are these uncertain economic times? Absolutely. Is a bailout the answer? Absolutely not.

Recall that similar fears have been stoked before. The savings and loan crisis of the 1980s and 1990s, the dot.com collapse of 2000, and the accounting scandals that afflicted MCI WorldCom, Tyco and Enron were all moments of turbulence. The fearmongers then also predicted economic meltdown - and it did not happen. It is also well to remember that there remains great debate about the cause of the 1929 stock-market crash and its relationship to the Great Depression. Parallels to today’s vastly different market are overstated.

Attempts to prevent the market from meting out reward and punishment are not to be feared. What is cause for concern are meddlesome government initiatives - otherwise known as socialism - that emerged in the bailout framework.