What Should Be Done About the Financial Markets?

by Stuart M. Butler, Ph.D., Alison Acosta Fraser, and James L. Gattuso

The widening and accelerating turmoil in the world’s financial markets is so severe that it threatens gridlock throughout the economy. That in turn threatens dislocation and enormous damage to the economy, resulting in a continuing torrent of bankruptcies and job losses in otherwise sound sectors.

As a general principle, the federal government should not intervene to stave off the consequences of unwise business decisions—even when those decisions are influenced by bad incentives or regulations emanating from the government. Bailing out firms that have miscalculated in the market shoulders taxpayers with costs that should be borne instead by those who made the mistakes. And any indication from government that it......