by  Lance Thompson

Any parent with a child away at college is familiar with the phone call, e-mail or text message that reports a financial crisis.  If the dire news comes by phone, it is likely to include all manner of dire consequences if supplementary funds are not supplied–getting kicked out of the dorm, being unable to buy necessary textbooks, having to drop out of college entirely.  If the message is delivered by the currently more popular terse media, it may be as brief as “send money.”  But all are similar in that there is a request for funds, there is not a moment to lose, and disaster will be the punishment for delay.

You will also notice this is exactly the same message the federal government sent out to  all taxpayers last fall.  One difference is that the party in question was not a spendthrift college student, but a spendthrift national government.  The other difference is that in the case of the college student, the parent has a choice, while in the case of the taxpayer, there is none.

The college parent can immediately provide supplementary funds–either by an infusion of cash into an account, providing a credit card with a higher limit, or by paying off debt incurred by the student.  But if the financial crisis is a result of profligate spending or irresponsible fiscal habit, then the parent might choose the wise course of ceasing to supplement such behavior and allowing the consequences to apply.

This course is not available to the taxpayer, and thus we now have the endless series of bailouts that began with the collapse of the inflated home mortgage industry.  With each new failure of a business or industry, the cry goes out from the federal government that we must send cash, or severe calamity will befall us.

Home mortgages and home values collapsed because the government coerced lending institutions to make loans to those who could not afford to repay them.  The crisis was not, as Democrats claimed in the recent presidential campaign, due to deregulation, but rather to over-regulation.  Such regulations were virtually all due to Democrat initiatives.

The solution, the government told us, was to bail out the various lending institutions lest all the credit dry up and the economy grind to a halt.  This solution was championed by the Bush administration, both presidential candidates, and an embarrassing bipartisan majority in Congress.  Once the staggering $700 billion initial price tag was swallowed by taxpayers, the price has continued to rise, and the scope of essential industries has steadily widened to include car companies, media outlets and who knows what else.

But bailouts, while possibly extending the lives of struggling enterprises, do nothing but weaken the overall economy.  They accomplish this mischief by contravening the ruthlessly fair hand of the free market, which penalizes unsuccessful companies and rewards successful ones.

In a free market, a company that provides a popular product or service at the best price will be rewarded with increased business and revenue.  A company that fails to do so will be punished with decreasing business and revenue.  The free market ensures that the most efficient provider of products and services will thrive, while less efficient ones will fail.  This is the strength of the American economy.

But when government steps in to “save” businesses or industries, their largesse rewards the least efficient companies, ensuring that their inefficiencies will continue.  By a like amount, bailouts punish efficient companies by giving unfair advantage to their competitors and negating the hard-earned market share that good management has provided.  The government is not merely picking winners and losers in the marketplace.  They are using our money to punish sound business practice and reward those who can’t compete.  No program would better guarantee the eventual breakdown of the American free enterprise system than this ever-expanding policy of bailouts.

Just as a parent who wishes to teach his or her college age child responsibility should allow the consequences of poor financial decisions to bring that lesson home, so should the federal government allow the free market to pick winners and losers in the economy.  Yes, the government is to blame for the crisis, but that surely means they should not be trusted with trillions of our dollars to provide a solution.

With a liberal President and Congress, it is unlikely that free market forces will be allowed to return the economy to health in the short term.  It is much more probable that further regulation, subsidy, and central planning will continue to distort the free market and extend the cost of recovery.  And the “send money” messages will continue to arrive from the government.  At least until the free-spending students of policy in Washington enroll in Econ 101.