Given all the talk about bailing out U.S. automakers, Citigroup, AIG, American banks, and others, the focus has primarily been on whether the bailouts will be successful, at least in terms of resolving the economic and financial crises facing America. That’s the basic rationale government officials provide for bailing out these companies.
We should, however, never lose sight of the fundamental immorality of what exactly is taking place with these bailouts. What government officials are doing is forcibly taking money from one group of people and transferring it to another group of people.
How moral is that? When private people do something like that, we call it theft and robbery.
Suppose I own a company that produces hats. For decades, the hats have been extremely popular with consumers, resulting in enormous sales and profits for my company. But one day, consumer tastes suddenly shift. People no longer like wearing hats. Sales plummet, profits disappear, and we start suffering losses.
I decide to take matters into my own hands. I hire some goons who proceed to go out in the street and begin accosting people. Holding a gun to their heads, they hold them up and extract $25 from each of them, which is the average cost of one of my hats. At the end of the month, they return with the loot and hand it over to me. After giving the goons their cut, it turns out that good times have returned to my firm. Profits are up, bonuses are paid, and everyone is happy again.
Everyone can easily see the wrongfulness of what I’ve done, right? I have stolen people’s money to make up for my losses from a drop in sales brought about by a change in consumer tastes. I will be indicted for the criminal offenses of theft and robbery, and rightfully so.
Suppose my company was in the top 10 of the Fortune 500, operated in all 50 states, and employed thousands of people. Would that make any difference? No, not in a moral sense. Taking people’s money against their will would still constitute theft and robbery no matter how much good it does my company, its employees, and the nation.
The basic moral principles is this: It’s wrong for me to take someone else’s money by force. The fact that I’m saving my company and keeping thousands of people from being unemployed is irrelevant. That is not a legitimate defense to stealing and robbing, either in a moral sense or a legal one.
Even though the recipients of the bailout money are using government goons, rather than private goons, to do the dirty work, the moral principle is no different. The IRS is forcibly taking money from people all over America — taxpayers — and transferring it to companies who are suffering financial losses in the marketplace.
Even if the government borrows the money to give to the companies, those loans must ultimately be paid back. The way that’s done is through taxes.
An important feature about a free-market economy is that the consumer, not the producer, is the sovereign. Anyone is free to start a business but he takes the chance that no one will buy his product. If people aren’t interested in his product, he has no right to force them to purchase it or to take their money from them when they don’t.
Thus, in a free-market system consumers decide which sellers are going to stay in business and which ones are not going to stay in business. And consumers can be fickle and heartless. Most of the time, they’re only interested in buying the best product for the least amount of money, not whether businesses are going to suffer financial harm because of their consumption decisions.
Moreover, oftentimes producers make bad or incorrect decisions with respect to the investments they make with the firm’s retained earnings. Who bears the responsibility for those decisions? The consumer? The taxpayer? Of course not. The firm itself, which made the bad investment decisions, bears the responsibility.
The U.S. government does not have a giant pool of self-produced wealth that it has at its disposal to dispense to private companies. The bailouts entail government’s use of force to take money from people to whom it rightfully belongs and giving it to people to whom it does not belong. That robbery might be legal, but it’s certainly not moral.