Column on Bailouts versus bailouts

Bailouts versus bailouts

Tibor R. Machan

The current focus on bailouts brings to the fore a widespread confusion.
Perhaps it can best be understood by comparing the bailouts many of us who
are parents have performed, versus the government’s bailout of banks, car
companies, etc.

As a parent of three grown children I have on and off been approached by
one or another of them asking me to please bail them out of, for example,
credit card debts. The sums are not inconsiderable, given my economic
standing, but I could usually manage, if only by going into temporary debt
myself. Say my child maxed out his or her credit card to the tune of two
or three grands. Being something of a pushover parent and not wishing to
saddle them with bad debt early in their lives, I would comply with their
requests. And I have done this several times, actually.

Each time, however, I would dip into my own savings or borrow on terms my
lenders and I could agree on. I would not ransack the homes of my
neighbors or friends in these undertakings. I certainly would not even
think of using other people’s resources without their consent (for
instance, that of my my bank). Nor would I gather citizens of my community
and use a democratic process to confiscate their wealth.

When you borrow money from other people on mutually agreed to terms, they
assume a risk but with full awareness that this is what they are doing.
And if they are at all economically savvy, they would make sure the terms
insure them against loss and even bring in some profit by way of the going
interest money would fetch at the time.

Now this kind of family bailout may have its downsides, of course. First
of all it can send very bad signals to your children about the way money
needs to be earned. Simply providing them with the bailout can suggest, if
only implicitly, that money just grows on trees, at least on family trees.
And in time this can come to haunt parents since they will at some point
stop earning enough to keep increasing their savings, or have made some
unwise investments, or the politicians and bureaucrats in Washington and
other centers of economic interference have managed muck up the system so
that one’s money has come to be nearly worthless.

There are innumerable other ways that the parents (or grandparents) can
start becoming less and less capable of doing these bailouts. Hopefully
the children are mature enough that they, too, appreciate all this and
begin to be more prudent, manage their resources more sensibly and stop
needing and asking for bailouts. My own have nearly reached this point
although not yet, even though they are now in their late or mid 20s. My
idea is, however, what else am I to do with my resources if not first of
all provide support for my children, hoping that I will be sensible about
it and not send bad signals to them. (Some, by the way, are more eager for
bailouts than others!)

When the federal government provides bailouts of the sort it has been
doling out recently the situation is very different. And the central, most
crucial difference, is that the government has no resources of its
own–Mr. Obama and his team do not bail out anyone, nada. They do not go
to their savings accounts and dip into these so as to help out failing
banks or auto companies. They do not refinance their homes in order to
enable them to do these bailouts. What Mr. Obama & Co. do, along with all
the politicians and bureaucrats involved in these endeavors, is to place
millions of Americans who have no say in the matter into very serious
debt, a debt that will have to be paid by imposing confiscatory taxes on
them, including their children and grandchildren who aren’t even around to
have some kind of electoral say about the matter. Mr. Obama & Co. view the
country as their firm, a company they own that has resources they can use
at their discretion, a company that can assume debt as would one in a free
market place, only of course these assumptions are way off.

Sure, maybe the majority of the voters can be taken to have agreed to
assume the debts incurred by the Obama team but what about those who
didn’t? Does democracy really mean one may vote on other people’s use of
their resources? Then why not on what religions they must subscribe to,
what they may think and say? In fact, that’s what many people argue, in
effect taking it that the United States of America is a huge voluntary
cooperative or corporation or commune or something and its political
leaders are like conductors of orchestras. They completely ignore that
fact that the country was founded on principles of individual rights to
one’s life, liberty, pursuit of happiness, etc., matters not subject
majority rule! They ignore that the whole point of a country such as the
US was meant to be–as per the Declaration of Independence–is to make
these rights secure, including secure from the majority, not just some
British king.

When parents bail out their kids it may not always be wise and prudent but
it is honest. When Mr. Obama & Co. do a bailout it is dishonest since they
do it always with the resource or future resources of millions of citizens
who haven’t consented to the policy and whose own purposes are thus just
as severely thwarted as if a criminal had burglarized their homes and run
away with what they own.

Machan holds the R. C. Hoiles Chair in business ethics and free enterprise
at Chapman University, Orange, CA. His collection of columns (unproofed)
may be found at

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