U.S. Treasury Secretary Henry Paulson (l) and Fed Chairman Ben Bernanke
Prosperity is the result of a cultural choice: whether to build and nourish a culture of personal responsibility, or one of forced submission to a willful aristocracy.

Prosperity, either personal or societal, does not just happen. It is, in fact, the result of a cultural choice.

That choice is over whether to build a culture of personal responsibility or one of forced submission to a willful aristocracy.

A child born to a wealthy family—which would seem to give them a huge advantage in life through no effort of their own—can quickly dissipate their fortune through a dissolute lifestyle caused by the assumption that their continued comfort and prosperity is not a matter of their own decisions but simply a matter of the luck of their birth. It happens all the time.

A child born to a poor family—which would seem to give them a huge disadvantage in life through no fault of their own—can quickly accumulate a fortune through adoption of a responsible lifestyle based on the assumption that their personal conditions will depend most greatly on their own efforts. It happens all the time.

That is the lesson we should and must draw from the current financial crisis, and it is the lesson that the supply-side economist Arthur Laffer draws in an excellent column in the Wall Street Journal. I recommend it highly, and provide excerpts here.

First, Laffer points out that financial panics will always happen, and that government’s biggest responsibility is to allow those involved to reap the consequences of their actions, regardless of how much they may complain. To do otherwise, he notes, is for the government forcibly to reward foolishness and punish wisdom:

Financial panics, if left alone, rarely cause much damage to the real economy, output, employment or production. Asset values fall sharply and wipe out those who borrowed and lent too much, thereby redistributing wealth from the foolish to the prudent. . . .

. . . Profits and stock appreciation are not rights, but rewards for insight mixed with a willingness to take risk.

This is true of the housing crisis:

People who buy homes and the banks who give them mortgages are no different, in principle, than investors in the stock market, commodity speculators or shop owners. Good decisions should be rewarded and bad decisions should be punished. The market does just that with its profits and losses.

The key is to recognize that people who were not involved in a transaction should not be forced to bear the consequences of it. that is a matter of elementary justice:

No one likes to see people lose their homes when housing prices fall and they can’t afford to pay their mortgages; nor does any one of us enjoy watching banks go belly-up for making subprime loans without enough equity. But the taxpayers had nothing to do with either side of the mortgage transaction.

The decision to intervene and "help" those under the burden of their own bad decisions may seem compassionate when we look only at the two parties involved, but the government bailout actually puts a gigantic burden on people who had no chance to from the decisions made by those being bailed out, but only get stuck with the consequences when the latter fail:

If the house’s value had appreciated, believe you me the overleveraged homeowner and the overly aggressive bank would never have shared their gain with taxpayers. Housing price declines and their consequences are signals to the market to stop building so many houses, pure and simple.

In addition, the government intervention always makes conditions much worse, because economic resources do not come from the air, they are the result of hard work and hard work only:

But unfortunately in this world there is no tooth fairy. And the government doesn’t create anything; it just redistributes. Whenever the government bails someone out of trouble, they always put someone into trouble, plus of course a toll for the troll. Every $100 billion in bailout requires at least $130 billion in taxes, where the $30 billion extra is the cost of getting government involved.

If you don’t believe me, just watch how Congress and Barney Frank run the banks. If you thought they did a bad job running the post office, Amtrak, Fannie Mae, Freddie Mac and the military, just wait till you see what they’ll do with Wall Street.

Laffer points out that the choice of who should bear the consequences of an individual’s choices will have immense consequences for the society as a whole, and that wishing things were otherwise will do nothing to change this fundamental truth of the human condition:

These issues aren’t Republican or Democrat, left or right, liberal or conservative. They are simply economics, and wish as you might, bad economics will sink any economy no matter how much they believe this time things are different. They aren’t.

Although we Americans are intensely loath to admit it, every society has an aristocracy. The only question is whether admission will be by merit—personal actions that benefit others—or by ambition. Our society’s aristocracy is greatly populated by the latter means and as a result has become increasingly predatory and coercive.

So when a leading presidential candidate tells you he just wants to take some of the productive person’s money and "distribute" it "more fairly," what he’s speaking to is the culture of forced submission to an even more predatory and coercive aristocracy. That is what the American people will decide one week from today.