Monday, October 20, 2008

Why only a libertarian could engineer the bailout

Richard Nixon visited Communist China in 1972, which was a turning point in US-Chinese relations because previously the two countries had been highly estranged. This was a controversial act but Nixon was able to get away with it because he had always been viewed as tough on Communism. Authors Tyler Cowen and Daniel Sutter summarize this theory in their IDEAS paper, explaining that "only a right wing president can credibly signal the desirability of a left-wing course of action."

Today, Tyler Cowen writes that Ben Bernanke is well-known for libertarian tendencies, which at first glace is odd because the bailout is not in line with libertarian philosophy. However, once we apply the Nixon Paradox to the situation, it makes perfect sense. Indeed, only a libertarian could engineer the bailout and nationalize parts of these banks.

Perhaps if you are very scared of a certain policy you should support proponents of the policy, not opponents. At the very least the proponents will have to go through all of the usual constitutional checks and balances.