The Problem is Philosophical

What you think about a problem has a great deal to do with how you try to solve the problem. Let’s look at one recent plant closing as an illustration.

The following quotes are from a Forbes.com article:
Instead of Spending, Cut Taxes - by Brian S. Wesbury and Robert Stein
“Keynes said that when an economy falls into such a (liquidity) trap, the government must spend because individuals and businesses won't. Milton Friedman disagreed and said that the Fed is never powerless and could always use "quantitative easing"--often referred to as dropping money from helicopters--to overcome the fact that interest rates could not go below zero. Friedrich Hayek said prices and wages should be allowed to find their own equilibrium and that government intervention was actually central planning.

For today's crisis, just about every potential tool in the toolbox is being used. Politicians are embracing Keynes and Friedman, but Hayek is being ignored.”

So what? You may be asking yourself. Nobody I know has ever heard of that Hayek guy. Like I said, the problem is Philosophical. How you view a problem has a great deal of influence on how you try to solve the problem.

“In addition, when government-directed money enters the economy, political motivations rule the day. For example, a window manufacturer closed down in Chicago recently when Bank of America decided to stop financing the business. Workers are protesting, and members of Congress are saying that because BoA got money from Treasury, it should use those funds to support the manufacturer. In other words, politics has entered the free market in an even more intrusive way.”

A New York Times Article about the window manufacturer closing, Talks Fail to End Sit-Inat Closed Factory by Monica Davey, quotes Bank of America with this statement. “When a company faces such a dire situation, its lender is not empowered to direct the company’s management how to manage its affairs and what obligations should be paid, such decisions belong to the management and owners of the company.”

Most of the politicians, and apparently managers of companies, view our current economic troubles as something that “the government” can and should handle. If you read the NY Times article, you will see that the union workers are angry for 2 reasons:

· There is a federal law that requires employers to give workers 60 days notice, or 60 days of pay, in cases of plant closings or large layoffs.

· Bank of America (according to the NY Times) received $15 billion in government bailout money.

It seems to escape the union workers attention that the federal law “provides exceptions in cases when a “faltering company” is actively seeking capital to save itself and has reason to believe announcing a possible closing might prevent it from getting that capital…” This is not about the unions; it is about management and politicians.

Since the federal government has passed a law requiring a company to warn employees that they may be laid off, employees have an expectation that they will remain employed. Without that law, the expectation would not exist. Smart workers (including former Boy & Girl Scouts) would put aside some money for a rainy day. Maybe.

Because the federal government forced Bank of America to sell stock to them in what was presented by the News Media as a “bailout for the banks” in October. The workers and managers of this window manufacturer believe that Bank of America should loan them the money. After all, they are just “giving back what the taxpayers have already given them.”

“In addition, when government-directed money enters the economy, political motivations rule the day. … In other words, politics has entered the free market in an even more intrusive way.”

It has reached the point where calling the United States of America a “Free Market Economy” is no longer a bold faced lie. It has become an intentional deception. I don’t see how you can call this much government interference in the processes of the economy “laisseze faire” with a straight face.