Education vs Job Creation

First and foremost, I truly believe an educated workforce is a top priority in our state and in our nation. But let's look at the mechanics of it a little more closely.

I am considering going back to school and pursue a law degree. Do we need more lawyers? Probably not. But in my field, the knowledge of law is a very important tool in the toolbelt. I repeat, knowledge is a very useful tool.

However, if this consideration becomes reality, I will use this knowledge to be a better entrepreneur. I truly think America's greatest gift to us is the ability to own our own business or be self-employed. In my opinion, that is the American Dream.

My concern then, on the political front, is the roadblocks that seem to be popping up and the direction our nation is moving.

This blog entry from Stacey Campfield sums it up pretty well.

Education and jobs or independence and growth?

George Korda does an interesting article on the need for education in being the lynch pin to get good paying jobs. While he makes many great points (As usual) I tend to see the need in areas bigger then education.

What? Impossible you say? Education is the end all be all for a good future and life. Right?

Well, lets do some math. In the article it talks about how 40,000 people had already applied for a job at the new VW plant. 100,000 were expected to try and fill the 2,000 positions. Probably the known stipulation that a two year diploma was required to get a job kept some away.

Fine. Lets just say at least half of them knew and fit the requirement going in. No, Lets make it even harder then that. Lets say only one in ten had the requirement. Even though Tennessee has a much higher college graduation rate then that (it is in the mid 20's) we still have at least 4,000 well educated and qualified people to fill 2,000 job openings and that is an absolute minimum. I would expect it is more like half to two thirds knew and have the education and qualifications to fit the bill. That is more like ten people trying to fill every position. If we double the number of college graduates or even tripled it, would that suddenly in and of itself produce more jobs? No. You would just have 8,000 or 12,000 qualified and educated people trying to fill those same 2,000 jobs. Lack of a good education is obviously not the only thing holding people back from a good future.

The problem is clearly more a lack of jobs no matter what the qualifications are. Not the lack for educated people to fill those positions. What are we competing against? places like India, China and Japan who have an innovative, educated workforce willing to work at the same type job for pennies on the dollar compared to US employees.

This leaves us a few alternatives. Raise barriers to foreign imports? If we do that a few things will happen. The world will do the same thing to some of our goods. We would loose the high end products we have been selling overseas but would gain back the low end textile product manufacturing we lost. A mixed bag.

Increase taxes on foreign owned companies or products sold in the U.S.? We would loose some of the foreign owned employers who employ large numbers of people such as VW, Toyota and others, but it would probably allow the US owned companies to bounce back a little. Expect the same thing to happen back to our world wide brands as well. a mixed bag.

Lower our standard of living, minimum wage and regulation to compete with the foreign factories over seas? (not something most politicos want to put on a mail piece for their next election) A mixed bag.

Lastly. The one many people seem to never talk about is creating or growing our own market and brands. America is full of independent, intelligent, hard working people. The problem is we have gotten into a mind set of thinking we need someone else to give us a job. That having a job in a big factory is the American dream. That is the ultimate goal now.

When did that happen? It used to be owning the factory, being the employer or the boss was the American dream!

I think all this talk about "Evil profits", class warfare and the "terrible big boss" have made us think that achievement is somehow bad. That, heaven forbid we ever start a company and succeed we might make money and have employees! What would the world think of us then? "Better not climb too high or dream too big. Might have people attack you and call you names. You'll get taxed and regulated more. Better just get an education and hope to get on at some factory job."

That kind of negative talk has to stop or we are in big trouble as a nation. What has to happen more then anything, is just like what happened when baseball became a battle of the "haves" and the "have nots". We need to look to starting up or reinvigorating our farm team system. We need to incentivize business ownership and entrepreneurship. Reward it. Let it profit, champion those who work, innovate, succeed and grow. Remove barriers and the stigma of starting businesses.

Education is great and yes, it is an important part. But if we do not start developing our own next generation of inventors or business people like Henry Ford (who they say couldn't print his own name) then no matter how educated we are, we will be in trouble. Our governors and presidents will forever be recruiting factories overseas. We will forever be begging for scraps off another mans table instead of dining at our own banquet of success.

I wish our guber candidates, instead of always talking about how with a new super educated student what a great foreign job recruiter they will suddenly be, would once in a while talk about how they will start motivating, incentivizing our own people and companies to start, expand and stay here.

American Dream

As I sit here juggling 7 different projects in 5 different fields of expertise, I start to scratch my head and laugh. Living in paradise has its complications.

I live pretty simply, but there are things in my life that need to be funded. When I moved to the mountains, I traded a "normal" life for one that required a great deal of creativity to survive financially. There are not that many jobs locally that need a great PR gal (or can afford one), so I started finding other opportunities that could capitalize on my unique skillsets. My current resume reads like a person with ADD. It is all over the board.

The common denominator is an entrepreneurial spirit. I totally understand the hardships associated with being out on your own. Insurance, taxes, liability, employees, liability, taxes, insurance, economy, overhead, taxes, liability, insurance. Each start-up business has its demons, but the benefits to making your own way by your own expertise is truly a thrilling and fulfilling endeavor...in fact, second only to being a parent. Owning your own business is truly the great American Dream.

So as we try to figure this economy thing out, I am thinking some of the greatest businesses were started during the worst of times. We are Americans and that is what we do best. That stimulus money should be stimulating us.

Entrepreneurs are best stimulus for the economy
Posted by Carl J. Schramm/ NJ Voices Guest Blogger March 04, 2009

The day after the House of Representatives voted on the stimulus package, I met with a Democratic member of Congress.

He told me, "I know the package won't begin to create enough jobs and certainly not now when we need them." Worse, he worried, "The voters will be on to this by the 4th of July and they won't support more spending then because they don't support it now.

"How," he asked, "do we get out?"

Those in charge in Washington think they know the answer: take a pledge from the Keynesian playbook. Spend (and borrow) massively and hope that government will spur demand and revive the economy.


The congressman knows better. This bill had everything to do with necessary political theater, and nothing to do with basic economics. Anecdotal experience and observation have taught him what drives growth: individual activity in thriving communities.

But what drives that activity is the "animal spirits" of entrepreneurs. And no one understood that better than another long-dead economist - one whose work is vastly more sound than John Maynard Keynes' and directly applicable to current times.

Joseph Schumpeter is best known for the concept of "creative destruction," which asserts that economies flourish only to the extent that entrepreneurs disturb the status quo. Entrepreneurs are job creators. More entrepreneurs mean more growth and more prosperity for all. Or, to put the equation in terms fit for our times, E=R: entrepreneurship equals recovery.

Only private enterprise -- in particular high-growth start-ups -- will create the jobs and the wealth to right America's listing economy. That is, if we let them.

What our economy most needs is another outbreak of entrepreneurial energy. It is waiting to happen all around us. As people face layoffs, many take with them wonderful ideas for entirely new products and services. Layoffs are tough, but they need not spell doom. The average age of those who found high-tech companies in this country is 39. In fact, twice as many founders are older than 50 as are younger than 25. The end of one career can be the beginning of another.

Some people getting pink slips might have ideas that could become entire new industries. Indeed, some of America's largest and most successful firms were started in recessions or bear markets or both -- including General Electric (founded in the wake of the Panic of 1873), IBM (started in the last year of the recession that followed the Panic of 1893), United Technologies (same year as the 1929 crash), Microsoft (1975 depth of "stagflation") and Guess (1981, worst post-World War II recession to date).

If Schumpeter were available to take a 3 a.m. call from a nervous president unsure if his stimulus policy will stimulate, he would say that the most important thing government can do is step out of the way and let the talented next generation of entrepreneurs do their work unhindered. But he might also recommend certain modest steps -- most of them not incorporated into the stimulus bill -- to help entrepreneurs work their magic.

First, encourage risk-taking through tax policy: exempt entrepreneurs from payroll taxes. In fact, a year-long moratorium on payroll taxes could have the economy back up inside of a year.

Second, exempt entrepreneurial businesses from capital gains taxes. The president promised as much during the campaign. Somehow, the Congressional scribes forget to get it into the stimulus package. Sen. Chuck Grassley (R-Iowa) tried to reinsert it as an amendment, but was blocked by members of the president's own party. Perhaps the president could prevail on the Congressional leadership to reintroduce this provision as a separate bill.

Third, focus on the needs of new businesses for affordable health coverage by telling insurance companies they can compete across state lines with a bare bones "entrepreneurs' policy."

Fourth, encourage the world's brightest students to come here, study, and become entrepreneurs. Over 40 percent of the growth of the Silicon Valley in the 1990s came at the hands of foreign-born entrepreneurs.

Finally, put some government spending into research and development for defense. We need more sophisticated protections against biologics and tactical terrorist weaponry, including cyber-assaults. Spending in these areas would bring forth thousands of new companies whose innovations and new jobs would be of great benefit to our economy, while helping America focus on the one place in modern society where seeking order is well-advised, namely, world affairs.

This is the way out. Over half of Americans aspire to start a business. In other words, the people who will save our economy are not mysterious: they are you and me. President Obama promised, "Yes we can!" American entrepreneurs are ready. They just need a little help. Schumpeter, not Keynes, shows the way.
Carl J. Schramm is president and CEO of the Kauffman Foundation and coauthor of Good Capitalism, Bad Capitalism.

Personal Responsibility

A friend of mine suggested that I attend a local Lent service last night because he thought it fit perfectly into my personal spiritual quest. Being intrigued, I decided to attend. He was right, it was a very moving experience which led me to do a little more research on the practices of Lent and the meaning behind them since I am relatively new to the organized program. My church handles Lent differently than the church I went to, but the premise is really still the same. A personal, thoughtful and giving journey before the Easter celebration. There is also alot of personal sacrifice involved in the journey. That hit home.

Well you know I will find a way to relate politics in pretty much everything that I do. It is a worldview I can't seem to escape. As a conservative, I feel personal sacrifice and personal responsibility are the cornerstones of my political convictions. Government is not the answer, it is up to each and every one of us to step up to the plate. During this economic downturn, we are all going to have to cinch our belts, quit whining and remember what is important in life. Lent is just a great reminder to do so.

Chuck's mom and my Grandma Nell are two peas in a pod.

An 87-Year-Old's Economic Survival Guide
by Chuck Norris
Posted 02/24/2009 ET
Updated 02/24/2009 ET

An old Spanish proverb says, "An ounce of mother is worth a pound of clergy." I believe that value holds, in or out of a recession. And seeing as my 87-year-old mother lived through the Great Depression, I think her value (and that of those like her) will increase through these tough economic times because her insider wisdom can help us all.

Mother was about 10 years old when her eight-member family endured the thick of those recessive days in rural Wilson, Okla., which only has a population of 1,600 today. The recurring droughts across the heartland during that period dried up the job market, making it worse in the Midwest than it even was in the rest of the country. Over the years, my grandpa worked multiple jobs, from the oil fields to the cotton fields, and he was even a night watchman. The family members did what they could to contribute, but most of them were simply too young to play a major part.

In 1933, when President Franklin Roosevelt took office, his administration, through the Works Project Administration, brought about the employment of millions in civil construction projects, from bridges to dams to airports to roads. My grandfather traveled about 90 miles for a day's work to help build the Lake Murray dam. But with a far smaller ratio of jobs to potential laborers, if Grandpa worked five days a month (at $1.80 a day), it was a good month.

Like most families, my mother's family didn't have running water or electricity. And Granny did her best to keep the outhouse clean, with Grandpa helping by regularly depositing lye to control the odors. (You can imagine how the hot, humid Oklahoma summers turned that outside commode into one smelly closet-sized sauna.) A "scavenger wagon" came by once a week and cleaned out the hole, which had a small chairlike contraption over it with the center punched out. (They once had a two-seater in there, which allowed for two people to enjoy each other's company and conversation. Mom told me that she always felt a little upper-class when she sat with someone else!) By the way, and I'm not trying to be crude, toilet tissue wasn't around, so they used pages from Montgomery Ward catalogs (and you wondered why the catalogs were so thick). No joke -- they preferred the non-glossy pages. I'll let you figure out why.

Got the picture? With that in mind, I turn to a recent conversation I had with my mother. I asked her, "How would you encourage the average American to weather the economic storms of today?"

Here's her advice, in her words:

-- "Get back to the basics. Simplify your life. Live within your means. People have got to be willing to downsize and be OK with it. We must quit borrowing and cut spending. Be grateful for what you have, especially your health and loved ones. Be content with what you have, and remember the stuff will never make you happy. Never. Back then, we didn't have one-hundredth of what people do today, and yet we seemed happier than most today, even during the Great Depression.

-- "Be humble and willing to work. Back then, any work was good work. We picked cotton, picked up cans, scrap metal, whatever it took to get by. Where's that work ethic today? If someone's not being paid $10 an hour today, they're whining and unwilling to work, even if they don't have a job. The message from yesteryear is don't be too proud to do whatever it takes to meet the financial needs of your family.

-- "Be rich in love. We didn't have much. In fact, we had nothing at all, compared to people today, but we had each other. We were poor, but rich in love. We've lost the value of family and friends today, and we've got to gain it back if we're ever to get back on track. If we lose all our stuff and still have one another and our health, what have we really lost?

-- "Be a part of a community. Today people are much more alone, much more isolated. We used to be close with our neighbors. If one person had a bigger or better garden or orchard, they shared the vegetables and fruits with others in need. Society has shifted from caring for one another to being dependent upon government aid and welfare. That is why so many today trust in government to deliver them. They've forgotten an America that used to rally around one another in smaller clusters, called neighborhoods and communities. We must rekindle those local communal fires and relearn the power of that age-old commandment, 'Love thy neighbor.'

-- "Help someone else. We never quit helping others back then. Today too many people are consumed with their own problems and only helping themselves. 'What's in it for me?' is the question most are asking. But back then, it was, 'What can I do to help my neighbor, too?' I love Rick Warren's book The Purpose Driven Life, and especially his thought, 'We were created for community, designed to be a blessing to others.' Most of all, helping others gets our minds off of our problems and puts things into better perspective.

-- "Lean upon God for help and strength. We didn't just have each other to lean on, but we had God, too. We all attended church and belonged to a faith community. Church was the hub of society, the community core and rallying point. Today people turn to government the way we used to turn to churches. It's been that way ever since Herbert Hoover's alleged promise of a 'chicken in every pot' and President Roosevelt's New Deal. Too many have abandoned faith and community. We trust in money more than God. And maybe that's a reason why we're in this economic pickle."

Now that's conventional wisdom that should be shouted and posted in every corridor of government, every community across America, and every blog on the Internet.

Call me overly pragmatic, but I think a little practical wisdom and encouragement is what we all need about now. Mom always was good for that. She still is.

Warm & Fuzzy

I am finally finishing up my catch-up list from my long weekend away from the command center I call my desk. I forget how much I juggle on any given day. I have also had a chance to catch-up on my news reading and if I wasn't a pretty centered person looking at this mess as an opportunity not a catastrophe, I would be heading to the bars or the nearest ledge. In a strange way, the economic situation reminds me of a three stooges skit. But then again, there is humor in most things political.

Again, I am glad I am clinging to my guns and my bible. Many thanks to Kathy for sending this timely tidbit. Love you gal!

Rules from God for 2009

1. Wake Up !! Decide to have a good day.
"Today is the day the Lord hath made; let us rejoice and be glad in it" Psalms 118:24


2. Dress Up !! The best way to dress up is to put on a smile. A smile is an inexpensive way to improve your looks. "The Lord does not look at the things man looks at. Man looks at outward appearance; but the Lord looks at the heart."
I Samuel 16:7

3. Shut Up!! Say nice things and learn to listen. God gave us two ears and one mouth, so He must have meant for us to do twice as much listening as talking. "He who guards his lips guards his soul." Proverbs 13:3

4. Stand Up!!... For what you believe in. Stand for something or you will fall for anything.. "Let us not be weary in doing good; for at the proper time, we will reap a harvest if we do not give up. Therefore, as we have opportunity, let us do good..." Galatians 6:9-10

5. Look Up !!... To the Lord.
"I can do everything through Christ who strengthens me."
Philippians 4:13

6. Reach Up !!... For something higher. "Trust in the Lord with all your heart, and lean not unto your own understanding. In all your ways, acknowledge Him, And He will direct your path."
Proverbs 3:5-6

7. Lift Up !!... Your Prayers.
"Do not worry about anything;
Instead PRAY ABOUT EVERYTHING."
Philippians 4:6

Super Bowl 2009

Just like the pleasure I get from the pomp and circumstance of our Inauguration process, I enjoy all the fun surrounding our Super Bowl. Unlike the Inauguration, I rarely care who is playing in the actual game. I like the get-togethers, the betting pools, the retrospectives and player background commentary, the surreal performances that come out of close games and finally and most importantly, I LOVE the commercials!

This year was a little disappointing. I was wondering how the economy was going to affect the commercials this year and I got my answer. The big money stuff didn't play well in my mind, I don't think our marketers have caught up with the economy change yet. People are hurting and just like Obama said about us "clinging to our guns and bibles" during hard times, more people are wanting to see hope and inspiration not rich people still living rich. The Super Bowl is a mass media product and the majority of people in the US are just in a different frame of mind this year, no matter what their station in life.

That is why I have to pick this commercial as one of my favorites. When things get tough, people reevaluate priorities and life in general. I just really got a big kick out of this one (The E-trade commercial came in a close second), the koala bit was just sooo over the top.

Us vs Them

I really liked the point of this story.

A Boss Who Tells it Like it Is.....
To All My Valued Employees,

There have been some rumblings around the office about the future of this company, and more specifically, your job. As you know, the economy has changed for the worse and presents many challenges. However, the good news is this: The economy doesn't pose a threat to your job. What does threaten your job however, is the changing political landscape in this country.
However, let me tell you some little tidbits of fact which might help you decide what is in your best interests.

First, while it is easy to spew rhetoric that casts employers against employees, you have to understand that for every business owner there is a back story. This back story is often neglected and overshadowed by what you see and hear. Sure, you see me park my Mercedes outside. You've seen my big home at last years Christmas party. I'm sure; all these flashy icons of luxury conjure up some idealized thoughts about my life.

However, what you don't see is the back story.

I started this company 28 years ago. At that time, I lived in a 300 square foot studio apartment for 3 years. My entire living apartment was converted into an office so I could put forth 100% effort into building a company, which by the way, would eventually employ you.

My diet consisted of Ramen Pride noodles because every dollar I spent went back into this company. I drove a rusty Toyota Corolla with a defective transmission. I didn't have time to date. Often times, I stayed home on weekends, while my friends went out drinking and partying. In fact, I was married to my business -- hard work, discipline, and sacrifice.

Meanwhile, my friends got jobs. They worked 40 hours a week and made a modest $50K a year and spent every dime they earned. They drove flashy cars and lived in expensive homes and wore fancy designer clothes. Instead of hitting the Nordstrom's for the latest hot fashion item, I was trolling through the discount store extracting any clothing item that didn't look like it was birthed in the 70's. My friends refinanced their mortgages and lived a life of luxury. I, however, did not. I put my time, my money, and my life into a business with a vision that eventually, some day, I too, will be able to afford these luxuries my friends supposedly had.

So, while you physically arrive at the office at 9am, mentally check in at about noon, and then leave at 5pm, I don't. There is no "off" button for me. When you leave the office, you are done and you have a weekend all to yourself. I unfortunately do not have the freedom. I eat, and breathe this company every minute of the day. There is no rest. There is no weekend. There is no happy hour. Every day this business is attached to my hip like a 1 year old special-needs child. You, of course, only see the fruits of that garden -- the nice house, the Mercedes, the vacations... you never realize the back story and the sacrifices I've made.

Now, the economy is falling apart and I, the guy that made all the right decisions and saved his money, have to bail-out all the people who didn't. The people that overspent their paychecks suddenly feel entitled to the same luxuries that I earned and sacrificed a decade of my life for.

Yes, business ownership has is benefits but the price I've paid is steep and not without wounds.

Unfortunately, the cost of running this business, and employing you, is starting to eclipse the threshold of marginal benefit and let me tell you why:

I am being taxed to death and the government thinks I don't pay enough. I have state taxes. Federal taxes. Property taxes. Sales and use taxes. Payroll taxes. Workers compensation taxes. Unemployment taxes. Taxes on taxes. I have to hire a tax man to manage all these taxes and then guess what? I have to pay taxes for employing him. Government mandates and regulations and all the accounting that goes with it, now occupy most of my time. On Oct 15th, I wrote a check to the US Treasury for $288,000 for quarterly taxes. You know what my "stimulus" check was? Zero. Nada. Zilch.

The question I have is this: Who is stimulating the economy? Me, the guy who has provided 14 people good paying jobs and serves over 2,200,000 people per year with a flourishing business? Or, the single mother sitting at home pregnant with her fourth child waiting for her next welfare check? Obviously, government feels the latter is the economic stimulus of this country.

The fact is, if I deducted (Read: Stole) 50% of your paycheck you'd quit and you wouldn't work here. I mean, why should you? That's nuts. Who wants to get rewarded only 50% of their hard work? Well, I agree which is why your job is in jeopardy.

Here is what many of you don't understand ... to stimulate the economy you need to stimulate what runs the economy. Had suddenly government mandated to me that I didn't need to pay taxes, guess what? Instead of depositing that $288,000 into the Washington black-hole, I would have spent it, hired more employees, and generated substantial economic growth. My employees would have enjoyed the wealth of that tax cut in the form of promotions and better salaries. But you can forget it now.

When you have a comatose man on the verge of death, you don't defibrillate and shock his thumb thinking that will bring him back to life, do you? Or, do you defibrillate his heart? Business is at the heart of America and always has been. To restart it, you must stimulate it, not kill it. Suddenly, the power brokers in Washington believe the poor of America are the essential drivers of the American economic engine. Nothing could be further from the truth and this is the type of change you can keep.

So where am I going with all this?

It's quite simple.

If any new taxes are levied on me, or my company, my reaction will be swift and simple. I fire you. I fire your co-workers. You can then plead with the government to pay for your mortgage, your SUV, and your child's future. Frankly, it isn't my problem any more.

Then, I will close this company down, move to another country, and retire. You see, I'm done. I'm done with a country that penalizes the productive and gives to the unproductive. My motivation to work and to provide jobs will be destroyed, and with it, will be my citizenship.

So, if you lose your job, it won't be at the hands of the economy; it will be at the hands of a political hurricane that swept through this country, steamrolled the constitution, and will have changed its landscape forever. If that happens, you can find me sitting on a beach, retired, and with no employees to worry about....

Signed,
Your boss

Econ 101

Government intervention into our economy scares the crap out of me. I know way too much about how things work to feel any sense of confidence in the solutions being offered up by our wiley Congress and economy chiefs. I like this article on the subject.

Econ 101: Financial Bailouts and the Rule of Law
Rule of law - not rule of men - is necessary for economic stability.

By Gary Wolfram
Business & Media Institute
12/4/2008 12:46:15 PM

Friedrich Hayek wrote of the importance of what he called the rule of law over the rule of man. His point was that in order to be free to act according to our own plans we must know what the rules of the game are, for what reason they are promulgated, under what conditions they will hold, and that these rules are the same for everyone.

This is consistent with James Madison’s comments in Federalist #62: “It will be of little avail to the people that the laws are made by men of our own choice, if the laws be so voluminous that the cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man who knows what the law is today can guess what it will be tomorrow.”

If we are under the rule of man, such as a lord in the Middle Ages, the rule changes with the whim of the man who makes it. This allows for a coercive government and it severely constrains innovation and investment, since these require some certainty of the rules in order of estimate the payoff from undertaking risk.

One of the major difficulties with the recent actions of the Federal Reserve and the U.S. Treasury is that they appear much more to be the rule of men rather than the rule of law. Bear Stearns ran into financial problems when it relied upon risky and volatile short term borrowing to finance longer term higher yielding assets.

When rumors surfaced that Bear Stearns would run short of cash, the Federal Reserve invoked a clause of its charter that, according to Alan Greenspan, had last been used in the 1930s. The clause allowed the Fed to give JP Morgan a $29 billion non-recourse loan to help finance an emergency takeover of Bear Stearns that it had engineered along with Treasury.

AIG, then the world’s largest insurer, was given a loan of $85 billion on Sept. 16 and another $37.8 billion loan on Oct. 8, with further access to another $20.9 billion through the Fed’s commercial paper program. This was followed by a further restructuring of the bailout in November resulting in a total commitment of more than $150 billion.

On the other hand, Lehman Brothers was allowed to go into bankruptcy.

The Treasury within days of proposing the Troubled Asset Relief Program (TARP) was given $700 billion to purchase troubled assets. Treasury Secretary Henry Paulson later declared that Treasury would not use the $700 billion to buy troubled assets, but would instead use it to take equity positions in banks. Investment banks, such as Goldman Sachs, were allowed to quickly become bank holding companies in order to be eligible for the TARP funds. Other financial institutions, such American Express, a credit card company, followed suit, with GMAC also applying. Citigroup was given more than $300 billion in loan guarantees.

The point is that this does not appear to be rule of law, but rule of men. This creates uncertainty in the markets in the short term as investors become uneasy about investing in a company because the next day some new rule may change the economic landscape. And in the long term, how long will the federal government own large shares in our financial institutions and will Congress begin to micro-manage the banking sector.

One reason that there is no rule of law during the current crisis may be that there is no economic theory that is generally agreed upon on how to restore credit markets while minimizing the transition costs of the de-leveraging that must occur in order to clear out the mortgage-based derivatives market.

Paulson and Federal Reserve Chairman Ben Bernanke may be just making it up as they go along. If this is the case, then this is not likely to inspire confidence that government action is likely to get to the correct answer. If Paulson and Bernanke do have some theory behind their actions, then this should be made explicit so economic actors may make the best decisions possible for them given the rules.

To quote Alan Greenspan’s book The Age of Turbulence, “We need laws that specify and limit the conditions for bailouts—laws that authorize the Treasury to use taxpayer money to counter systemic financial breakdowns transparently and directly rather than circuitously through the central bank, as was done during the blow-up of Bear Stearns.” Without such laws and transparency market participants will be saddled with uncertainty and the transition to market equilibrium and renewal of economic growth will be delayed.

There is a long term danger in moving from rule of law to rule of men. Even if it were the best solution to our current economic problem, granting unrestrained and uncertain powers to the governmental authorities will damage both the economy and jeopardize out freedom. Hayek argued in his book, The Constitution of Liberty, that it would be better in the long run to abide by the constitution and fail to solve a particular economic problem than to allow government arbitrary power even under special circumstances. We may be setting a precedent that will be used in ten years in ways unimagined by the Congress that voted for the Federal Reserve Act of 1913 or the Troubled Asset Relief Act of 2008.

Gary Wolfram is the William Simon Professor of Economics and Public Policy at Hillsdale College and a Business & Media Institute adviser.