In an op-ed published by the Wall Street Journal on October 27, 2008, Arthur Laffer made the essential observation that “the consequences are rarely pretty” whenever people make “panicked” decisions. Laffer was referring to the bipartisan crack-up that led to the needless, and surely “panicked” federal bailouts of errant banks and overextended borrowers the previous month. Laffer observed that when left alone, so-called financial panics don't generally restrain economic growth in any material way.
But government responses to financial panics in the form of bailouts most certainly do restrain growth, and for obvious reasons. As Laffer put it, “government doesn't create anything; it just redistributes.” In 2008 the feds would harm the prudent through the subsidization of the imprudent.
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