Bailouts in Historical Perspective

23 June 2010 at 4:34 pm Leave a comment

| Peter Klein |

O&M has been consistently anti-bailout, whether recipients are banks, manufacturing firms, or homeowners. Besides encouraging moral hazard, bailouts also stymie the fundamental market process of moving productive assets from lower- to higher-valued uses. A market economy, after all, is a profit-and-loss system. Without losses, what’s the point?

A new edited volume, Bailouts: Public Money, Private Profit (Columbia University Press, 2010), explores bailouts in historical perspective, going back as far as the US financial crisis of 1792. Editor Robert Wright and his contributors try to steer a middle course, with Wright endorsing Hamilton’s Rule (formerly Bagehot’s Rule) of providing public loans to failing firms only if they have good collateral, and at “penalty” interest rates. Still, as Wright notes in his introduction, “There is no statistical evidence, however, that bailouts [of any kind] can speed economic recovery. In fact, bailouts can slow recovery by creating policy uncertainty, distorting market incentives, and in extreme cases fomenting sociopolitical unrest.”

Add to: Facebook | Digg | Del.icio.us | Stumbleupon | Reddit | Blinklist | Twitter | Technorati

Entry filed under: - Klein -, Bailout / Financial Crisis, Business/Economic History, Institutions, Recommended Reading.

Guru Drivel in Fiction Property Rights and Modularity

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Trackback this post  |  Subscribe to the comments via RSS Feed


Authors

Nicolai J. Foss | home | posts
Peter G. Klein | home | posts
Richard Langlois | home | posts
Lasse B. Lien | home | posts

Guests

Former Guests | posts

Networking

Recent Posts

Categories

Feeds

Our Recent Books

Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).