Statists Defend Their Power By Taking Markets Hostage

Megan McArdle posted a hypothetical list of what would have to stop if the government shrunk 40%, which is grabbed gleefully by folks likeKevin Drum to support the continued fiat power of government officials to demand that the public sector be as large as they, not we, want it.
Here are two examples:

The market for guaranteed student loans plunges into chaos. Hope your kid wasn’t going to college this year!

The mortgage market evaporates. Hope you didn’t need to buy or sell a house!

Wow – this is a great example of how statists defend their power.  Here is the basic process:
Step 1:  Take over a traditionally private offering and move it into the public domain.  Mortgage lending is a good example.  Wipe out the private sector either by fiat, or by subsidizing the government offering.
Step 2: Once the traditionally private offering has been made a public good, use its loss as a threat against any decrease in government size or power.

Just because the government does not provide the offering does not mean it won’t exist.  Private mortgages and private student loans without government guarantees existed for years and can again.
Yes, it would be a mess if done overnight, but this just demonstrates that the government has gone past government service to hostage-taking.  If you threaten us and our power, we will bring everything crashing down.  It is obscene, and all the more reason, when the near term budget problems are sorted out, we need to start moving all these activities back to the private sector.
By the way, this is a great demonstration of how, while the private sector can screw up, giving the public sector power to supposedly tame the private sector just creates a worse problem.  Sure, some private mortgage lenders screwed up and contributed to the bubble.  Some even committed fraud.  But none of them had the power to shut down the entire market, as in the implied threat here.
McArdle’s list may be a good reason not to let the debt limit expire, but it is an even better reason to get these activities out of the Federal government so that a few politicians can no longer hold us hostage.