12.03.2008

Bailouts mean the government will "tax you more for a very long time"

Even in Michigan, Not Everyone Wants a Lifeline

Excerpt:

Jeffrey Kerr, a real estate developer who lives in the Lake Michigan town of Saugatuck, objects to the personal costs that he says come with bailouts. “When the government starts bailing out private companies,” Mr. Kerr said, “what they’re basically saying is, ‘We’re going to tax you more for a very long time.’ ”

Pat Weber, a construction manager who was laid off last year in Fennville, near Saugatuck, largely agreed. “A bailout will cause a snowballing effect,” Ms. Weber said, “and it’s way too scary how it will come back on all of us.”

At the shop where Mr. Raterink makes tools and machinery, there used to be 15 men. Now there are five.

“They weren’t offered any bailout,” he said of those who lost their jobs. Then, of the Big Three and the mismanagement he perceives, he added, “The wolf you let loose is at your door.”


Comment: Interesting read about how the average Michigan "Joe" is disinclined to auto bailouts. See George Will column below for his view that government intervention actually exasperates recessions.

Same Old New Deal?

Excerpts:

In a 2004 paper, Harold L. Cole of the University of California at Los Angeles and Lee E. Ohanian of UCLA and the Federal Reserve Bank of Minneapolis argued that the Depression would have ended in 1936, rather than in 1943, were it not for policies that magnified the power of labor and encouraged the cartelization of industries. These policies expressed the New Deal premise that the Depression was caused by excessive competition that first reduced prices and wages and then reduced employment and consumer demand. In a forthcoming paper, Ohanian argues that "much of the depth of the Depression" is explained by Hoover's policy — a precursor of the New Deal mentality — of pressuring businesses to keep nominal wages fixed.


Furthermore, Hoover's 1932 increase in the top income tax rate, from 25 percent to 63 percent, was unhelpful. And FDR's hyperkinetic New Deal created uncertainties that paralyzed private-sector decision making. Which sounds familiar.

...

Barack Obama says that the next stimulus should deliver a "jolt." His adviser Austan Goolsbee says that it must be big enough to "startle the thing into submission." Their theory is that the crisis is largely psychological, requiring shock treatment. But shocks from government have been plentiful.


Unfortunately, one thing government can do quickly and efficiently — distribute checks — could fail to stimulate because Americans might do with the money what they have been rightly criticized for not doing nearly enough: Save it. Because individual consumption is 70 percent of economic activity, St. Augustine's prayer ("Give me chastity and continence, but not yet") is echoed today: Make Americans thrifty but not now.


Obama's "rescue plan for the middle class" includes a tax credit for businesses "for each new employee they hire" in America over the next two years. The assumption is that businesses will create jobs that would not have been created without the subsidy. If so, the subsidy will suffuse the economy with inefficiencies — labor costs not justified by value added.

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