I’ve had several opportunities to discuss the credit crisis and bailout with my friend King Banaian. Much of what we’ve talked about is found in this article. If conservatives don’t read any other article, they’d better read this. Here’s one of the important points that King makes:

Free markets have always had booms and busts. This is the nature of Schumpeter’s “creative destruction,” of which some think this crisis is just another example. Some think this would be good for our economy.

They are wrong. Those who see in the current crisis only creative destruction underestimate the dose of simple destruction, as in a bomb going off, we are facing, and the magnitude of that destruction.

In creative destruction the boom that follows the bust needs to have credit to stoke its engines. The genius of capitalism is the movement of capital from the investor who seeks returns to the entrepreneur whose new innovation will help drive the next boom.

The current crisis threatens the engine of capitalism, finance, and hence we cannot sit idly by as the crisis deepens.

It’s vitally important that we don’t let the economy tank, which will happen if this credit crunch continues. That’s inarguable. The longer this crisis continues, the longer the ensuing recession will be. That’s in no one’s interests.

Here’s another important point King makes:

Free markets do not mean always private markets. Free markets mean markets with an absence of coercion. It is possible for government to step forward for a missing market and not be coercive. A bailout that did not consume taxpayer dollars would be one example. Forcing banks to alter their lending standards would be coercive and unfree.

John McCain did America a great favor by insisting that House conservatives be included in the negotiations this past weekend. Their involvement resulted in several important accountability provisions being adopted. Their involvement also potentially kept the costs down. Those are things that shouldn’t be taken lightly.

Unfortunately, it’s now time for a dose of reality. We’re in the minority. Though we’ve played our hand exceptionally well, we aren’t going to get everything we want. It’s time we asked whether it’s more important to fight for a great bill and lose or whether it’s more important to win significant reforms and prevent a deep recession.

It’s decision time because we won’t get both.

Here’s Captain Ed’s thoughts on King’s article too:

The net effect will be that investment capital will have to work harder to create more opportunities, even as we desperately need it to create a boom from the creative destruction of the markets.

The problems will not occur overnight, but will stretch out over a long period of decline in investment. Jobs will evaporate, and without credit, investor capital will escape into non-productive savings.

Here’s what Ed thinks happens as a result:

Existing businesses will take less risk, retreat from expansions and projects, and consumer spending will contract. Proper management on the margins can keep this from becoming a depression, but without rational pricing on credit, we’re in for a long and hard recession.

I heartily concur with Ed’s opinion. That’s why it’s important for us to make the right decisions.

In this instance, it’s vitally important that we don’t choose stubbornness over prosperity.

Technorati: Bailout, Fannie May, Freddie Mack, Credit Crunch, Free Markets, John McCain, House GOP, Reforms, Accountability, Recession, Economy