The Return of "Liquidationism"
Paul Krugman sends us to Ezra Klein. Ezra won't, but I will, say that John Tamny and Forbes have now written the worst thing I have yet seen on the recession.
Ezra Klein:
Ezra Klein: A Prescription for a Crippling Recession: I'm not quite prepared to say that John Tamny's column on "the Flip Side of Failure" is the worst piece I've read since the onset of the recession, but it's arguably the most overblown.
Tamny's thesis is pretty simple. Another way of looking at a devastating recession is that it represents "assets falling into the hands of those who can either afford them, or who possess a stated objective to use them more wisely. In short, the flipside of failure is opportunity." And Tamny, to his credit, gives examples. Buffalo Wild Wings, for instance, which has taken over eight restaurants formerly owned by the Don Pablo's chain. And Panera Bread Co., which is moving into some of the buildings previously inhabited by the now-shuttered Bennigan's. This seems, to me, like a fundamentally sad macroeconomic story: A lot of jobs were lost and a couple of jobs were gained. This is like taking consolation because you won $50 at slots even as you lost several thousand in Vegas. But Tamny is more enthused. "The failure of certain chains and restaurants has created opportunities for other eating establishments to expand," he writes.
He also quotes a Los Angeles Times article tracking a couple of different experiences in the housing market. In one, an older man lost his job due to a heart problem, and that, plus legal costs incurred by a wayward son, led him to lose his house. But wait! On the flip side of that guy's heart-trouble-related "failure" are Hilary and Mark, newlyweds who never thought they'd be able to afford a house in Los Angeles. Squeal!
Elsewhere, a Chinese company purchased the Hummer brand. "It would be impossible to calculate," writes Tamny, "but it's likely that the creation of the Hummer brand (and the factories necessary to build it) from scratch would have cost many multiples of the $500 million that Sichuan paid GM for Hummer."
For all that, the article would be an innocuous enough tour through the recession's thin silver lining if not for its conclusion:
[T]hese stories do remind us that just as the human body frequently heals itself during times of illness, the economy is ultimately comprised of self-interested individuals who, if left alone, will work in order to improve their individual financial situations.
In that sense, the answer to our sagging economy today is not more government intervention, but instead a humble federal government that will sit back and let the economy heal itself. The flipside of economic failure is economic opportunity, and it's time for Washington to get out of the way so that individuals can turn misfortune into opportunity.
That's quite a conclusion based off five anecdotal examples. Indeed, as a macroeconomic prediction, it's not even clear what it means. What would a "humble federal government" do, exactly? Shut down the stimulus projects so a couple million more people end up unemployed and a couple million other people can buy their possessions at fire sale prices? Shut down the system of financial supports which are currently sustaining a weakened lending market? Should they have held back from Detroit's collapse so that the assets of the various companies were simply liquidated, along with what was left of the Rust Belt's economy? Should they cut off economic aid to the states so infrastructure literally crumbles? I want specifics!
The idea that government should get out of the way because Panera has taken over eight of Bennigan's former locations beggars belief. At the end of the day, it will be a resuscitation of household spending and business expansion that restarts our economic growth. But for now, both have fallen through the floor, with terrible consequences for both individuals and businesses. What little demand exists is being substantially kept afloat by the massive intervention of the federal government. At this moment, federal spending does not exist in competition with household spending. It's one of the last forces sustaining it. Indeed, the idea that the economy will heal itself if the government only steps out of the way is exactly the thinking that led to the deep recession of 1937. What a pity those lessons haven't been better learned.
