The Berger Memoranda

I know that, when we elect the President of the United States, simultaneously elect the Commander-in-Chief of our armed forces. It now seems that we also elect the CEO-in-Chief.

The President[i] has fired the CEO of a private enterprise. The President has forced major private banks to accept capital from the government. The President will announce today the results of its negotiations with Chrysler, et. al. The President has given “stress tests” to banks to determine whether these banks need more capital. The President has taken over two or three quasi private firms. And The President may convert some of the government’s loans to banks to common stock. And the list goes on.

Now, I have learned to accept the President’s role as Commander-in-Chief. After all, in that role, he does command forces paid by the government. But, I find it a little hard to swallow the President’s new role as CEO-in-Chief. In this case he has inserted himself into the operations of private enterprises. In doing so he has violated the legal relationship between businesses and their owners.

In addition to violating the rights of citizens the President cannot play this role effectively. The President will make political, not economic, decisions in running his newly acquired businesses. He will use political, not economic, means for acquiring the resources needed to capitalize these businesses. No matter how smart the President may be, he does not have the tools needed to do this job effectively.

That’s why socialism cannot work.

Socialism by any other name is still socialism. (Thank you, William Shakespeare.)

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[i] By the phrase “The President” I refer to the entire executive branch of the government, present and past.

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For those of us whose memories go back more than just a few years the current problems with Chrysler seem like déjà vu all over again, again. This company has consistently made terrible cars (NASCAR success not withstanding) and they have had varying degrees of financial problems over the years.

In 1979 the government guaranteed their debt (a measly $1.5 Billion). In 1998 Daimler-Benz purchased Chrysler, which dragged down the performance of Daimler-Benz. Then in 2007 Daimler-Benz sold its stake in Chrysler to Cerberus Capital Management. And now bankruptcy seems imminent.

We have gone from one government bail-out to another. Did we make a mistake with the first one?

This amounts to a much bigger question than just should we (or more accurately, should congress, using our credit) have saved Chrysler in 1979. We should ask, did the market have the room for one more lousy car company even in 1979, and would GM and Ford have more financial strength if Chrysler had failed then? Or, much more succinctly, should the government ever question the wisdom of the market?

The market has more and better information than the government. Let the market, not the government, pick the winners and losers.

We’ll see today what the government will do.

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“I believe in free markets, but…”

I hear some variation on this statement so often that it rings in my head like an echo.

“I believe in free markets, but sometimes they fail.”

“I believe in free markets, but they need regulation to operate effectively.”

“I believe in free markets, but these are special times.” Or…

“We need to fix the free market so this never happens again.”

What don’t these people understand about the free part of free markets? Free markets don’t fail; they cannot fail by definition. Regulating a market makes it not free. Intervening in markets has made these time special; therefore, you cannot fix the free market; you can only assure making this or something worse happen.

Please stop advocating for free markets then making inconsistent statements that refute that position. These mixed messages create obstacles to learning about free markets. But the people who make these inconsistent statements seem to want that result.

People in much of the world live in some form of socialist economy and they belief they have free markets. So now the people with the political power get what they want-citizens clamoring for more government intervention in the name of freedom.

I cannot expect the president, or any other politician, to sincerely advocate for free markets. They make a living at intervention-restricting the freedom of markets. But, I implore news commentators and others who write about economic issues to get off the propaganda band-wagon and quit referring to oppressed markets as free markets.

If people started hearing,

“I believe in socialist markets, but sometimes they fail.”

“I believe in market intervention; so markets need regulation to operate effectively.”

“I believe in statism for these special times.” Or…

“We need to fix the regulated market so that we can fix them again.”

…maybe they will realize that, in the words of Ronald Reagan, “In this present crisis, government is not the solution to our problem; government is the problem.” Or, as Milton Friedman said, “The government solution to a problem is usually as bad as the problem.“

Free markets work; controlled markets do not. No middle ground exists.

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