The Wall Street Journal, in a front-page retrospective on the financial crisis, writes, "With a modicum of hindsight now available, do governments and central banks deserve credit for preventing catastrophe? The early verdict from most scholars, executives and government insiders is yes."
Leaving aside the self-serving nature of "government insiders" and of bailed-out executives crediting "governments and central banks" for "preventing catastrophe," this assessment ignores the way in which these same governments and central banks contributed to creating the crisis in the first place. (You don't have to be a right-winger to think that; a New York Times editorial this morning says, "It is widely believed that the Fed's interest-rate decisions in this decade helped to inflate the housing bubble.") Also, while it's certainly possible that without any government interventions things could have been worse, it is also possible that certain government decisions did make things worse, and that what has happened is a catastrophe, or, if not a full-fledged catastrophe, at least hardly the success story that "government insiders" and "executives" and the Wall Street Journal portray. Consider all the consequences:
• large government deficits that constrain the government's range of behavior in a way that goes almost unnoticed: President Obama, for example, insists that his plan to expand health insurance coverage must be deficit neutral, when no such test was applied to the rescue of financial institutions or automakers.
• A degradation of the security of property rights and of the rule of law in America, whether they are the rights of Chrysler bondholders or of Fannie Mae, Freddie Mac, or Washington Mutual shareholders.
• An expectation of increased taxes in the future to pay for all the stimulus and bailouts, which is an expectation that has its own effects on people's willingness to risk capital. It's also an expectation that will, if it is borne out, will leave less money in the hands of those who earned it and more money in the hands of politicians and the lobbyists that influence them.
• Unemployment, foreclosures, bankruptcies.
• The creation of an expectation that if firms of a certain size become close to failing they will receive assistance from the government, which is an expectation that, rather than deterring excessive risk-taking, encourages it.
• An erosion of the stigma against government ownership that had been part of American culture.