Saturday, November 15, 2008

Russ Roberts has a great opinion piece on discussing the bailout and the credit markets. Roberts point is that the issues with bank lending, the stock market, and consumer sentiment have little to do with liquidity—the availability of cash and credit—and everything to do with the principled risk avoidance caused by uncertainty about future policy direction. While Roberts doesn't explicitly say it, he hints at a second reason: loss of confidence in both markets and government (eg: Treasury Secretary Paulson, the bailout). Here are some key quotes:
Paulson doesn't realize that his erratic attempts at creating liquidity are creating the uncertainty that makes liquidity meaningless.

The great economist F.A. Hayek wrote that "the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."

With each improvisation, Secretary Paulson is proving how little he knows about what he imagines he can design.
Hayek and Roberts deeply understood the opening lines of William Blake's Auguries of Innocence. Paulson does not. Here they are... probably my favorite four lines of poetry:
To see a world in a grain of sand
And a heaven in a wild flower,
Hold infinity in the palm of your hand
And eternity in an hour.

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