More reasons to oppose any bailout

Topics: Regulation
13 Jan 2009

From: Ervan

Re-insurance always runs the risk of bankrupting an even bigger entity,
in this case the government. Here is the Economists's econ editor:
> Last week, markets pegged the probability of a U.S. default at 6
> percent over the next 10 years, compared with just 1 percent a year
> ago.[1]
In fairness, the article argues for some limited bailout, but warns
about the current excesses.

Econ Nobel Laureate Gary Becker (the whole article is worth reading):
> In addition, if the private activities crowded out are more valuable
> than the activities hastily stimulated by this plan, the value of the
> increase in employment and GDP could be very small, even negative.
> [2]

>>From the American Enterprise Institute:
> We are in the midst of a crisis caused by so many financial
> institutions borrowing too much money. Somehow, a critical mass of
> policy makers now believes that the correct response is for the U.S.
> government to borrow too much money.
> [...]
> The skyrocketing spending of 2009 will be the CBO baseline for every
> year after that. It will be easy to provide health care to everyone;
> the budget space will be blocked out. Indeed, Congress can spend with
> impunity in years to come, covered by the protective shroud of the CBO
> baseline that this year delivers.
> [...]
> This year may establish a government-spending black hole with gravity
> strong enough to suck the U.S. economy over the event horizon. [3]

This brings up a point where I think the professional economists don't
have a monopoly on insight. Maybe the government should increase the
deficit in the near term and the long-term pain will be less than the
near-term gain. But, why do we have any confidence that new tax cuts to
the poor won't become permanent entitlements or that bailouts for GM
won't become a permanent nationalization of industry as Congress
continues to pass micromanagement mandates on private companies? That
is, the bailout has a political risk in addition to the economic risk of
what would happen were the money spent perfectly and only in the short
run.

I think, for example, of Katrina Vanden Heuvel on "This Week" arguing
for a "permanent investment" as stimulus. This is doubly ridiculous
because her example of "investment" was welfare, but in this context it
shows the left is using the current recession as an excuse to increase
the role of government permanently. A Keynesian stimulus, even if one
thinks it works at all, is clearly a counter-cyclical tool, not an
argument for socializing everything indefinitely.

I've heard many serious people (e.g. Krugman[4]) arguing specifically
for pouring a lot of the "stimulus" into health care as a start on the
long-rum subsidy of that. That's not a Keynesian stimulus at all.

[1]
http://www.washingtonpost.com/wp-dyn/content/article/2009/01/09/AR2009010902325.html

[2]
http://www.becker-posner-blog.com/archives/2009/01/on_the_obama_st.html

[3]
http://www.bloomberg.com/apps/news?pid 601039&refer=columnist_hassett&sid=aGgZR28hHCPk

[4] http://www.nytimes.com/2009/01/12/opinion/12krugman.html?_r=1

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