Says Robert Shimer via Greg Mankiw’s blog:

The U.S. has long been a beacon of free markets. When economic conditions turn sour in Argentina or Indonesia, we give very clear instructions on what to do: balance the budget, cut government employment, maintain free trade and the rule of law, and do not prop up failing enterprises. Opponents of free markets argue that this advice benefits international financiers, not the domestic market. I have always believed (at least since I began to understand economics) that the U.S. approach was correct. But when the U.S. ignores its own advice in this situation, it reduces the credibility of this stance. Rewriting the rules of the game at this stage will therefore have serious ramifications not only for people in this country but for the future of global capitalism. The social cost of that is far, far greater than $700 billion.

This is perhaps the most compelling argument I’ve seen against the bailout so far; or, for that matter, against our entire manner of financing government over the past thirty years or so. We’ve failed miserably on “balance the budget,” and we may very soon be said to have failed miserably on “do not prop up failing enterprises” as well.

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