Saturday, September 27, 2008

Chicken Little

Arizona’s John Shadegg talked to National Review Online about the state of negotiations Friday night:

...Because Secretary Paulson chose to raise the matter in the way he did — that is, to go public in a very high-profile way, not just with his concern, but with a kind of Chicken-Little, the-sky-is-falling kind of demand — it became a self-fulfilling prophecy.

That is to say, once the secretary of the Treasury announces to the world that there is a pending financial collapse, perhaps as great as the Great Depression, and Congress must act — he has sent a signal that essentially tells world markets that Congress must act. I will tell you that has been one of the most frustrating things about this since the very beginning...

Congressman Shadegg is right about the effect that signals can have. And, it is fair to question whether Secretary Paulson was premature in signaling the pending financial crisis. However, the financial news from that day tends to justify Secretary Paulson's action in asking for a "Chicken-Little, the-sky-is-falling kind of demand".