Practical Hazard

Tim Harford may not comprehend the Moral Hazard in its full context. The Government Policy of saving all Entrepreneurial Risk if it goes bad will be destructive, even the implication of such before the Risk is taken. Risk-Taking under such circumstances will become a fictional farce. One cannot have a vibrant economy when all Risk is protected by a Cover, at least until the Risk is so great that no Insurance of any kind could be found. This leads to another Question which I fear We will have to Answer: Where is the Point where the magnitude of Risk exceeds the efforts of any Economy to reduce it?

All Markets were withholding Sell orders yesterday until Bush had signed the Bailout bill. The Markets then tanked because economic fundamentals preclude any Boom generated by the excess Cash, there being entirely too much Money to lose in the Markets. All economic indicators are going South in a big way, with major distortions appearing in intra-Sector transferences. Incentives are disappearing in the Moonlight, and not to be seen in the light of Day. All Traders are attempting simply to close their Accounts without losses, a Practice which is the exact opposite of Risk-Taking, or Progressive Growth. The Bailout Package will never be Stimulus, only replacement of losses for bad Managers.

The entire Scenario cannot possibly alter the economic state; the only effectual effort now must be efforts to stimulate Consumer Consumption. Said Stimulus will not come with Consumers expected to pay higher Consumer Product prices without aid. Consumers actually need what Business refuses to countenance: Wage increases. Mortgage Payments, Utilities, Food, and Intermediate Goods are all increasing in Price, but Business is in full-bore Wage suppression. Everyone gets a break except Households. The Land of the Business Tax Credits above All else will learn the effect of denuding the Consumer, I am afraid. lgl