Can the Rescue Package Prevent Economic Disruptions?
Some supporters of the package are of the view that the package is necessary in order to prevent economic disruptions. They mean by this that various phony activities should be kept alive by wealth generators for a little bit longer until a proper system is established. By “proper,” they mean more controls. For a while, the government’s package can appear to be working; this is because there is still enough real savings to support both profitable and unprofitable activities. If, however, savings and capital are shrinking, nothing is going to help, and the real economy will follow up with further declines. Hence the rescue package cannot prevent so-called economic disruptions. If anything, government intervention would make these disruptions much worse. Again, a better alternative is to let the market do the job. The market’s ability to make swift adjustments without much drama was vividly illustrated only a few weeks ago when the very large investment bank, Lehman Brothers, was allowed
