Economics

What You Need to Know About the Bailout (and Why You Should Be Really Worried)

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George Mason University economist and author Russell Roberts, who blogs at the always interesting Cafe Hayek, sat down with reason.tv to talk about the nation's shakey economy and the government's bailout plan. Watch this six-minute interview to learn where the problems came from, why the bailout won't address them, and what sort of hurt we're in for over the next several weeks, months, and years. "The real cost of this," warns Roberts, "is that we have said to people, 'Risk taking is not as risky as it used to be.' That's a mistake. It's a horrible mistake and it will lead to a lower standard of living down the road because investment will be more cavalier and less prudent."

Roberts' newest book is the novel The Price of Everything: A Parable of Possibility and Prosperity. Look for an upcoming reason.tv interview with him about his goals in writing fiction.

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13 responses to “What You Need to Know About the Bailout (and Why You Should Be Really Worried)

  1. Today may be the Crash day.

    The central banks all fired their cannons at the oncoming tripods simultaneously, and the tripods just laughed and shrugged it off.

    We’ll know in a few hours, I guess.

  2. BTW, I think the moral hazard argument offered here is misplaced.

    I think that given all the pain in the markets, all players pretty much have had a good object lesson in the principles of risk.

    The moral hazard is that if the bailout prevents a complete catastrophe, the state will conclude that the central bank policies that led to the current crisis were right all along, and we’ll have set precedents for all sorts of exotic central bank interventions that will become commonplace [and no longer exotic] down the line.

    There’s a moral hazard here, but it’s the state’s.

    The ongoing bailouts are kind of like the Surge in that regard: if they prevent complete catastrophe, the architects of central bank policy will use that to declare their overall policies successful and good.

  3. Damn. What was the name of that sci-fi book, with the Tripods and (this was pre-AIDS) the contraceptive rings??

  4. Thanks. I’d forgotten it was a trilogy.

  5. >I think that given all the pain in the
    >markets, all players pretty much have had a
    >good object lesson in the principles of risk.

    I may have to take issue with this statement. Sure there’s pain now, and yes many many people have lost a lot, but the question is one of returns, how much money was made during the previous x number of years leading up to this event where perhaps one could make the argument that it *was* worth it? It’s a bit like the cost-benefit analysis of breaking the law: if I break the law and the maximum fine I could get was $500,000, but I’m almost certain to make $100 million dollars, then why *wouldn’t* i do it?

  6. Epi and JMR,

    The White Mountains may have been the first sci-fi novel I ever read. Im not 100% sure of that, but there isnt a clear cut earlier one in my memory.

    I saw Star Wars opening weekend as a 6 year old, that predates any of the novels, so my love of space opera preceeded novel reading.

  7. The bailout is plain and simple corruption. Politically connected firms (e.g. Goldman Sachs) will transfer their losses to the taxpayer. There is no reason to believe this will help the economy.

  8. Not only will it not-help the economy, the potential for corruption is unrivaled, even by edifices of continual corruption like the drugwar or the “war on terror.”

  9. Don’t forget Day Of The Triffids, by John Wyndham.

  10. Most of the defaults are for people with incomes over $100k/yr, who likely don’t benefit from the CRA, and who have defaulted on their vacation homes.

  11. If Milton Friedman is in Heaven, he’s the houseboy for Hayek. Nice to see Reason finally giving some credit where credit is due. I’m still not holding my breath for the ReasonTV interview with Lew Rockwell, but that would be something.

  12. I saw Star Wars opening weekend as a 6 year old

    Funny, given his world-view, I had always pictured robc as older than I am.

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