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2008 Ron Paul Chapter 60
“The Economic Outlook”
Congressman Ron Paul
Statement before the Joint Economic Committee
September 24, 2008
2008 Ron Paul 60:1
Mr. Chairman, I believe that our economy faces a bleak future, particularly
if the latest $700 billion bailout plan ends up passing. We risk
committing the same errors that prolonged the misery of the Great
Depression, namely keeping prices from falling. Instead of
allowing
overvalued financial assets to take a hit and trade on the market at a
more realistic value, the government seeks to purchase overvalued or
worthless assets and hold them in the unrealistic hope that at some
point in the next few decades, someone might be willing to purchase
them.
2008 Ron Paul 60:2
One of the perverse effects of this bailout proposal is that the worst-performing firms, and those who
interjected themselves most deeply into mortgage-backed securities,
credit default swaps, and special investment vehicles will be those who
benefit the most from this bailout. As with the bailout of
airlines in
the aftermath of 9/11, those businesses who were the least efficient,
least productive, and least concerned with serving consumers are those
who will be rewarded for their mismanagement with a government handout,
rather than the failure of their company that is proper to the
market.
This creates a dangerous moral hazard, as the precedent of bailing out
reckless lending will lead to even more reckless lending and
irresponsible behavior on the part of financial firms in the
future.
2008 Ron Paul 60:3
This bailout is a slipshod proposal, slapped together haphazardly and forced
on an unwilling Congress with the threat that not passing it will lead
to the collapse of the financial system. Some of the proposed
alternatives are no better, for instance those which propose a
government equity share in bailed-out companies. That we have
come to
a point where outright purchases of private sector companies is not
only proposed but accepted by many who claim to be defenders of free
markets bodes ill for the future of American society.
2008 Ron Paul 60:4
As with many other government proposals, the opportunity cost of this
bailout goes unmentioned. $700 billion tied up in illiquid assets
is
$700 billion that is not put to productive use. That amount of
money
in the private sector could be used to research new technologies, start
small business that create thousands of jobs, or upgrade vital
infrastructure. Instead, that money will be siphoned off into
unproductive assets which may burden the government for years to
come.
The great French economist Frederic Bastiat is famous for explaining
the difference between what is seen and what is unseen. In this
case
the bailout’s proponents see the alleged benefits, while they fail to
see the jobs, businesses, and technologies not created due to this
utter waste of money.
2008 Ron Paul 60:5
The housing bubble has burst, unemployment is on the rise, and the dollar weakens every
day. Unfortunately our leaders have failed to learn from the
mistakes
of previous generations and continue to lead us down the road toward
economic ruin.
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