Even some congressmen are asking good questions. "Where does this stop? We started with financial services, we went from banks to insurance companies. Does it end with manufacturing? What about retail?" asked Rep. Spencer Bachus of Alabama, ranking Republican member of the House Financial Services Committee.
The uncertainty, with all its recovery-squashing consequences, has an eerie precedent: the Great Depression. Today's problems are nowhere close to the 1930s, with its 25 percent unemployment and rapidly shrinking GDP. In one respect, however, there is a similarity: the way that Franklin Roosevelt's administration created what economic historian Robert Higgs calls "regime uncertainty." Higgs writes:
"[T]he economy remained in the Depression as late as 1940, because private investment had never recovered. ... [T]he insufficiency of private investment from 1935 through 1940 reflected a pervasive uncertainty among investors about the security of their property rights in their capital and its prospective returns. This uncertainty arose, especially, though not exclusively, from the character of federal government actions and the nature of the Roosevelt administration during the so-called Second New Deal from 1935 to 1940. ... [T]he willingness of businesspeople to invest requires a sufficiently healthy state of 'business confidence,' and the Second New Deal ravaged the requisite confidence. ... "
As usual, government's stumbling, bureaucratic "solutions" exacerbate problems that free people, allowed to pursue their own self-interest, would address on their own. We'd still suffer some tough times -- it's painful when bubbles pop -- but recovery comes sooner when businesses must quickly fix their own mistakes -- or die.
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