Over the past month, JBS CEO Art Thompson has explored, in a series of brief articles, how we might rescue the failing economy. Thompson’s prescription can be characterized simply as smaller government, less spending, less regulation. In other words, free the market and let people run their own lives and businesses.

In contrast, the solutions coming out of Washington have been focused simply on transferring taxpayer dollars to weakened financial institutions. From a free market perspective, this seems likely only to perpetuate and possibly accentuate the problems already evident. At some point in the future, we will likely pay for the extravagant bailout plans enacted in the last year.

This is particularly ironic and unfortunate because it was government policy and government regulation that got us into this mess in the first place. Inflating the money supply led to a bubble. No surprise there -- free market economists were warning of this outcome years ago. But, when the economy is in full melt down, it is cold comfort indeed to reflect on the perspicacity of one’s predictions.

Going forward, it might be nice if the lessons of the past were learned and a new course charted. At the very least, it might be encouraging if the world’s top business leaders and billionaire investors would suggest that maybe instead of embracing government power the right course would be to turn to the market and allow prices to be set by supply and demand, like they teach in some college-level economics courses.

Why take that risky position, though, when one of the world’s wealthiest billionaire investors thinks that it is time for the government to do something. That, essentially, is the outlook of the reliably leftist George Soros.

Having made billions as a hedge-fund manager and investor, Soros is seemingly ready to abandon the free market in favor of economic planning. In an interview with the German news magazine Der Spiegel, the billionaire investor doesn’t put it in exactly those terms, but he does make it plain that the government should have done more, and it should continue to do more.

For instance, asked if the government should have supported Lehman Brothers rather than let it go bankrupt, Soros responds: “It was a fatal mistake. I would have never expected that the authorities let such a big investment bank go.”

And should other banks find themselves in Lehman’s position in the near future: “We have learned not to allow the financial market to collapse. We will spend all the money in the world to prevent that from happening,” Soros said.

What that equates to, according to Soros, is hundreds of billions more on top of the $700 billion bailout already passed by Congress. “I think we need a large stimulus package which will provide funds for state and local government to maintain their budgets,” Soros told Spiegel. “In addition, another infrastructure program is necessary. In total, the cost would be in the 300 to 600 billion dollar range.”

That’s easy for Soros to say. He and his billionaire big government pals can afford to see a few billions wiped from their bottom lines without even having to worry about canceling their winter vacations in Dubai.

For the vast majority, though, these government bailouts and an expansionary monetary policy can have a real impact. When the Fed increases the money supply, the value of the dollar is diminished. Anyone under such circumstances, who has been saving money, sees the value of those holdings diminish as a result. Again, not too much to worry about if your net worth is $7 billion. But what if your net worth is $50,000? What if it is less than that?

It might be worth pondering this for just a minute. For the vast majority of people who find their net worth to be closer to 50k than $7 billion, it might mean that you stop spending some of the money that you do have. The shrinking value of your meager holdings means you might not choose to use that value to purchase a big screen TV or to take that vacation to the Caribbean or to buy that expensive Christmas present for your second cousin on your father’s side. It might be more important to buy milk for the kids instead.

This, in fact, what is behind the drop in consumer spending. In such circumstances, inflating the money supply is not going to reverse the trend, but it might very well make it worse.

Moreover, bailouts, which might get their initial funding through increases in the money supply or from increased taxation, can only exacerbate the problem, from the point of view of the average citizen’s wallet. If Washington, as Soros advises, trots out another bailout, this time to fund state and local governments, that money is going to come from somewhere, or more accurately, from someone: John Q. Citizen. It will either be taken directly through taxation or through reduction of the value of the dollar via further increases in the money supply.

This will, perhaps, keep Wall Street happy for a while and it might prop up state and local governments for bit, but in the end, the market will not be deterred. Supply and demand will eventually have to find an equilibrium. The market is trying hard to let that happen, and the harder Washington fights the inevitable, the more painful the ride will become.

(Photo by Jeff Ooi)