Consensus Building, Government Action, Good Words, Bad Actions

When a financial crisis comes along the many mistakes government made on the road to the crisis become apparent. Luckily in the time of crisis the past must be left in the past and the government sets about trying to fix the mess.

In the face of a serious financial crisis, where assets are no longer worth what the paper magic of Wall St made them appear to be, there are only three actions a government can do.

1) Intervene a bit to attempt support these assets (there by supporting the paper magic of Wall St)
2) Intervene hugely to attempt support these assets (there by supporting the paper magic of Wall St)
3) Do nothing - ie allow market forces to determine the value of these assets

Obviously the third option is hard to consider for governments and their economic advisers. If the crisis was allowed to happen on their watch and their stepping aside is the best solution to the crisis then they are not the saviours but the problem. High positions attract people with high ambition and opinions of themselves so the 'do nothing' choice is hard to rationalise. They usually try the first choice and when that doesn't success it leads them strongly to the second choice. Even if things get worse they have the luck of never knowing the other outcome and claim that things 'would have been even worse' but for their action. There is also the belief that enough money and brain power will eventually move the economy toward the right outcome so it's just a matter of effort and time. Therefore the road not taken, even if it could have been better, was not a big blunder at the end of the day and if everyone can be brought along with the government thinking then all the better.

So it doesn't really matter what points are made, re inefficiency, fairness of bailing out bad banks, corruption etc the government action is going to happen and eventually the solution will be achieved. Unfortunately as Mises in Human Action points out nothing can save a society from ideological inconsistencies.

"Logical thinking and real life are not two separate orbits. Logic is for man the only means to master the problems of reality. What is contradictory in theory, is no less contradictory in reality. No ideological inconsistency can provide a satisfactory, i.e., working, solution for the problems offered by the facts of the world. The only effect of contradictory ideologies is to conceal the real problems and thus to prevent people from finding in time an appropriate policy for solving them."

For a quick resolution to all of this we have to hope that Mises is wrong which seems very, very unlikely.