We've been letting the Wall Street Journal off the hook for a while, mostly because the stunts being performed by the federal government and the Federal Reserve are, while less amusing, more panic-inducing. Today's "Review & Outlook," however, was just too off-the-wall to ignore, coming as it does from a presumed champion of free markets and limited State involvement in the economy.
Your "Review & Outlook" commentary in today's issue of the Wall Street Journal ("A Smoot-Hawley Moment?" WSJ, 03/23/09, A14) neglects one small, if significant aspect of using taxpayer money to meet the terms of a contract between AIG and certain employees. The United States taxpayer was not a party to any contract between AIG and its employees. The contract, if any, involving the United States taxpayer and his money was between the federal government and AIG, not the federal government, AIG, and AIG's employees.
All contracts involve a "meeting of the minds." If this is deemed not to have occurred, no valid contract exists. While not explicitly stated, the money was presumably given to AIG on the understanding that it would be used to bail them out from having wasted their shareholders' money speculating in assets of questionable value. All of the discussion about the bailout in the halls of Congress and the media focused on this issue, not amounts due under employment contracts, valid or invalid, earned or unearned, to which the taxpayer was not a party. By using the money to pay bonuses, AIG violated the implied terms of the contract between AIG and the United States taxpayer. As there was no meeting of the minds, there was no valid contract. AIG thus obtained the money under false pretenses.
All of this, however, is actually a diversion from the real issue: should the government be bailing out the private sector, when the free market and the legal system already have adequate remedies available in the form of Chapter 7 and Chapter 11 bankruptcies and reorganizations? A company that is "too big to fail" is, ultimately, too big to exist in terms of the free market. The idea that a company can be "too big to fail" in effect argues that it has placed itself beyond the constraints of the free market and is now an integral part of the common good, and thus subject to direct control of the State for the benefit of everyone. This is called "socialism."
The Wall Street Journal has placed itself in the uncomfortable position of trying to defend socialism with free market rhetoric; of supporting contracts by violating them; of undermining private property by alleging offenses against private property. Karl Marx couldn't have arranged it better, claiming that, "The last capitalist we hang shall be the one who sold us the rope." AIG and the Wall Street Journal are busily selling rope to politicians and bureaucrats who are all too willing to buy.