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Tibor Machan | Bailout-mania

It is becoming common practice for governments to intercede with their legal powers whenever politicians believe that private firms need to be bailed out after their imprudent business decisions have lead them to the brink of disaster. Interestingly, such practices are justified by the cheerleaders of government intervention on the grounds that now and then they help. For example, when Chrysler Corporation was near collapse several decades ago, the government advanced money to it, which served to keep the company in business. Chrysler did manage to recover and, in time, pay back what it borrowed.

Of course, as Aristotle taught us many moons ago, one swallow does not a springtime make. Bailouts provided by the government cannot by any means be guaranteed to rescue every faltering business. So even if this justification had any moral force, it isn’t clear at all that it supports bailouts as government policy.

Even apart from the economic imprudence of bailing out companies that cannot succeed in a free marketplace, there is also the moral consideration that government isn’t authorized, either ethically or legally, to carry out such bailouts. When it does so, it acts without proper authority.

Arguably, whether it has the legal authority to engage in bailouts is difficult to establish in a jurisprudential atmosphere in which the Constitution is widely regarded as a living document, something infirm, flexible, malleable, and largely dependent upon the ideology of sitting justices. In such a legal environment no one can say with confidence whether the acts of a government have constitutional authority.

As to morality, if one could show beyond any reasonable doubt that governments have authority to provide bailouts, then arguably bailouts might be morally acceptable. They would be policies not unlike those that government carries out when it protects the rights of the citizenry, namely, they would be policies authorized by the basic philosophy underlying our legal system.

However, bailouts are very far from resting on such legitimate authority. Although they aren’t the sole public policies today that lack a sound basis, it is important to know why they, too, are wrong.

The political philosophy of the American system of government was established in the Declaration of Independence. This was a philosophical statement, not a legal document, but as Abraham Lincoln, among others, observed, it provided the foundation for the U. S. Constitution. This is why for many decades after our founding, when something in the law was discovered to contradict the Declaration, it would be seen as unjust.

In the Declaration the task of government is identified quite unambiguously — it is “to secure rights,” the rights listed in the Declaration and ones that can be shown to derive from them. So when we consider what is justified for government to do (i.e., what just powers government possesses), the first place to seek guidance is the Declaration.

Simply put, one needs to ask whether bailing out faltering commercial enterprises amounts to securing the rights of the American citizenry. It does not. Such a public policy reaches far beyond the scope of the legitimate, just powers of the government of a free country.

Some may raise some objections to this line of argumentation based on the fact that even back at the time of the founding of our republic there were those who argued for more extensive governmental powers than what would be authorized in the terms of the Declaration of Independence. That is true. However, those were the losers in the debate on what kind of government is proper in a free society.

It is a bit more difficult to rely on the Constitution, even as originally written, because it is a document resulting from considerable political compromise. Still, if one adheres to the Bill of Rights, it is clear that the kind of taking from innocent citizens that a bailout involves is not sanctioned there. Private property may only be taken for a public purpose and with just compensation. The rights human beings have by their nature are retained by them, and the powers of government are justly limited by the very fact that citizens have those rights.

For some people the considerations summarized here will appear quite orthodox, but that is because they already accept moral and political relativism, the view that there are no stable principles by which human beings, including institutions such as a government, ought to conduct themselves. However, this view is ultimately incoherent — no one can consistently maintain and live by it.

In conclusion, for the reasons outlined above, it is beyond any reasonable doubt and quite certain that bailouts of the type being perpetrated routinely by the federal government of the United States are unjust, and proceeding with them is a violation of the oath of office of our political representatives.


– Tibor Machan holds the R. C. Hoiles Chair in Business Ethics & Free Enterprise at Chapman University’s Argyros School of Business & Economics. He is a member of the Board of Scholars of the Virginia Institute for Public Policy, an education and research organization headquartered in Gainesville.

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