The Washington Post recently reported that the federal government has changed the rules of the $1 trillion program to relieve banks of toxic assets. President Obama’s administration is back-pedalling on promises it made to financial institutions only a month ago that they would not face executive compensation restrictions—ala AIG bonuses—if they participated in the program. Now the Treasury Department is saying that they may face such restrictions after all. This is quite startling, because they gave these assurances to banks precisely in order to persuade them to participate.
In essence, what we’re seeing is the government’s proclivity for erratically changing and ignoring its own rules and commitments. If this was an exception our evaluation might be more forgiving, yet the capriciousness with which the government conducts itself has become habitual. The AIG bonus fiasco mentioned above is another noteworthy example; President Obama had no qualms about forcing AIG employees to return the bonuses they were contractually promised. The infamous Troubled Asset Relief Program (TARP) is a further case in point. Since its inception, the government has changed its mind multiple times on how it would use the 700 billon taxpayer dollars—after Congress authorized its use. The auto bailouts are yet another example. First, the government told us that these companies were too big to fail and poured billions of dollars into them. Now President Obama has hinted that if they don’t shape up, we may have to let them go bankrupt. He also said that the federal government will not run these companies, and then promptly did the exact opposite—firing General Motors’ CEO and promising to honor its warranties. This is a small sampling of the unpredictability of Washington’s governance.
When the rules of the game keep changing, how can businesses and individuals make long-terms plans? There are many places in the world where laws change arbitrarily according to the whims of politicians. In the past, we looked critically upon such capriciousness, pitied the citizens of these nations, and prided America on typifying a free country where law and order, guided by individual rights, reigned supreme—but no longer. With each political about-face, with each broken promise, and with every law that strays from the Constitution, we take a step towards what the Founders feared most: that rather than being the protector of our rights and freedoms, the government would become the worst of its violators.