Statists Defend Their Power By Taking Markets Hostage

Megan McArdle posted a hypothetical list of what would have to stop if the government shrunk 40%, which is grabbed gleefully by folks likeKevin Drum to support the continued fiat power of government officials to demand that the public sector be as large as they, not we, want it.

Here are two examples:

The market for guaranteed student loans plunges into chaos. Hope your kid wasn't going to college this year!

The mortgage market evaporates. Hope you didn't need to buy or sell a house!

Wow - this is a great example of how statists defend their power.  Here is the basic process:

Step 1:  Take over a traditionally private offering and move it into the public domain.  Mortgage lending is a good example.  Wipe out the private sector either by fiat, or by subsidizing the government offering.

Step 2: Once the traditionally private offering has been made a public good, use its loss as a threat against any decrease in government size or power.

Just because the government does not provide the offering does not mean it won't exist.  Private mortgages and private student loans without government guarantees existed for years and can again.

Yes, it would be a mess if done overnight, but this just demonstrates that the government has gone past government service to hostage-taking.  If you threaten us and our power, we will bring everything crashing down.  It is obscene, and all the more reason, when the near term budget problems are sorted out, we need to start moving all these activities back to the private sector.

By the way, this is a great demonstration of how, while the private sector can screw up, giving the public sector power to supposedly tame the private sector just creates a worse problem.  Sure, some private mortgage lenders screwed up and contributed to the bubble.  Some even committed fraud.  But none of them had the power to shut down the entire market, as in the implied threat here.

McArdle's list may be a good reason not to let the debt limit expire, but it is an even better reason to get these activities out of the Federal government so that a few politicians can no longer hold us hostage.



  1. Matt:

    How exactly is the government different from the Mafia?

    Oh, right.

    The Mafia can be relied upon to _not_ kill you or wreck your life, as long as you pay them their protection money.

  2. sean2829:

    The party leading in this choreagraphy can change at a moment too, however. You certainly can make a good case for the government taking the healthcare market hostage but you can make an equally strong case that the healthcare industry has got the government by the short hairs when it comes to spending in this industry. How many state governments are to the point where the Medicare is their biggest budget item and the only one that they cannot stop the growth on? State and local politicians in northern California would love to tell their employees and Medical recipients not to use Sutter Healthcare hospitals because the charges are so high. But Sutter has more than 30% of the market and there are not enough other health care providers to insist that people stop using them. As a result, cost of a normal vaginal birth in the bay area is ~$25K while in So. Cal, the average cost is half. (Oddly enough, in afluent Newport Beach in ~$6K while in less properous Santa Ana, 15 miles away, its $14K but that another story.) Many rates charged by hospitals have to be approved by a Medicare board so you'd expect some consistancy but the hospital, the unions representing the hospital workers and the local congressperson show up at the Medicare offices and the three of them lobby for authorization of rate increases. The only one not at the table are the poor slobs paying the bill. So I contend, a well funded industry like healthcare is not hostage to the government. Just the opposite, in many areas, the healthcare industry has got the government held hostage to costs that continue to spiral out of control.

  3. el coronado:

    ....all of which confirms, in a sideways sort of way, the topic of this post: 'statists defend their power...'. Q: who created the deal wherein government pays for medical bills? A: government. Q: why'd they do that? A: to buy votes and thus *defend their power*.

  4. Brian:

    Sounds like some of the statists have a vanishingly small memory of recent history. Higher education and home ownership have existed for centuries; certainly people found ways to cover these expenses without loans guaranteed by other people's money.

  5. Ted Rado:


    You are so right. Another point: If I pay taxes to subsidize you, and you pay taxes to subsidize me, how have either one of us come out ahead? The only ones that come out ahead are those favored by the politicians to get more than their fair share. Is that vote-buying or what?

  6. Jens Fiederer:

    Linked that one on my Facebook earlier, along with my favorite line: "It would, for example, be eminently possible to have a private air-traffic control system. But we cannot privatize the system by August 3rd."

  7. Dr. T:

    This was my response to the same issue at "The Liberty Papers"

    The federal government is too big to survive, not too big to fail. Megan McArdle makes the absurd assumption that federal government failure is equivalent to an instantaneous shutdown of all federal functions and lockdown of all federal facilities. Has she never heard of bankruptcy proceedings, receiverships, or phased transitions?

    The activities of a failed federal government could either cease (TSA, DEA, ATF, Dept. of Education, and HHS are good examples) or get transferred to state governments, local governments, private corporations, and citizens.

    The assets of a failed federal government could be purchased by state governments, local governments, corporations, or citizens. The proceeds would pay off creditors. Extra monies could be distributed to taxpayers (the equivalent of corporate shareholders) based on their average federal tax payments over the previous three years.

    When can we start?

  8. DrTorch:

    Frankly most people's kids shouldn't be in college. Bad ROI. It would be a boon to the nation to get them out of there and working. Getting the profs and administrators out of there and making them get a job wouldn't be a bad idea either.