Economics 101: Let's try nothing

The enormity of death is simply beyond what Lincoln would have called "our poor power" to alter.

To some extent, players in the federal economic rescue efforts are doing the same thing financially-banging on the chests of entities in which the heart has stopped, but it's too soon for rigor mortis to have set in.

American International Group. Fannie Mae. Freddie Mac. CitiGroup. They're still tanking, and there's no end in sight.

General Motors, Ford Motor and Chrysler Corp. might be rushed in on the next fleet of gurneys. They, too, might have their corpses injected with federal treasure. If not now, then after the change in administration in January.

Results of the rescue plan so far aren't what anyone had in mind. Let's see. The stock market dropped another 2,000 points after the Emergency Economic Stability Act was passed on Oct. 3. Another million people have filed for unemployment benefits. Housing prices have dropped another 9 percent. A barrel of crude oil is down to $50, and consumer prices have fallen a full 1 percent.

Twitter message to Congress: It ain't workin'.

In fact, the question that keeps bugging me is, how would things be different if the government didn't spend a dime?

Here's my theory on why this might have been the better option: If there is fundamental demand for a commodity or product - be it credit, mortgage loans, or automobiles - in a free market economy such as we tell ourselves we have, some entity will arise to fill it. Industry has always been served by bottom feeders.

But where was it revealed to Moses at Sinai that the government-backed Federal National Mortgage Association shall be the key player in mortgage backed securities for eternity?

For that matter, the auto market in the U.S. was quite healthy until recently. The United States is a reliable 16 million-17 million unit market for cars. It just hasn't been so great for the Detroit Big Three. Car demand was filled quite nicely by a variety of nameplates from around the world.

So what if we let the Fannies and Freddies and AIGs just die? What's so bad about letting the sharp vultures in the private sector swoop in and clean up the carrion? That would be a far more efficient process than what the country is going through now and probably help the country get back to firm financial footing a lot quicker.

I know this sounds like blind faith in the unseen hand of the market. But the substitute hand now on the throttle is all thumbs.

Imagine on January 21 President Barack Obama saying, "You know what, my fellow Americans? We're going to try something new. It might hurt worse in the short term, but I believe it will make us much stronger in the long run. And that is get the government out of this hopeless bailout effort and let the organism heal itself. And, maybe, avoid adding another trillion dollars to the federal deficit."

Now, that would be change.

Tom Temin is one of the co-hosts of The Federal Drive and consultant with 25 years of experience in journalism, specializing in technology and government. For 15 years he was editor in chief of Government Computer News. Reach him at ttemin@federalnewsradio.com.