The "Wisdom" of Bailouts

I've left this issue alone for awhile, but it won't go away. The mess Bush started by playing Herbert Hoover President Obama has continued through his bad polices and trying to out-FDR FDR (or worse).

Chrysler and General Motors, once titans of American capitalism, have both declared bankruptcy and, as one Drudge Report headline put it, "fallen into the arms" of the Obama Administration. Let's be clear about what that means: the government is now running those companies. Socialism is a system where government owns or controls the means of production. Is that not what we're facing in the banking and automotive sectors? And is there not, perhaps, more on the way? I believe so.

We now know the template, at least:

1. Government or its sympathetic partners in the media identifies a business or industry to be "in trouble."
2. Government offers funds to "rescue" said company or industry, BUT...
3. Government imposes rules or conditions on the aid that make it nearly impossible for the company/industry to do business.
4. The company/industry declares bankruptcy.
5. Despite several centuries of bankruptcy laws and traditions, the bankrupt company/industry is not liquidated among the primary creditors but kept by the government, with some of the proceeds given to political allies of the Obama administration.

So if you're a business CEO or even just an employee of a large business, you've got to wonder about your future. Contraction elsewhere in the economy means your business is going to be off, even if you're doing well otherwise. Do you take "bailout" money from Uncle Sam? The obvious answer seems to be no. But then what are your choices? Cut back on production or operations, and you have to let go of workers, creating more unemployment. Remain at full production, and you end up losing money. Remove your business overseas? Not so fast, pal. Socialism is on the march elsewhere in the world, and the Obama administration will not let you go without a punishment. Plus you face the bad media publicity of "shipping jobs overseas."

And then we have the obscene $3.5 trillion federal budget, much of which is dedicated to expanding government activities and powers, not improving the private sector, where traditionally economic activity has taken place. And this $3.5 trillion doesn't even include the additional money Obama wants to spend on nationalizing the healthcare industry. The government couldn't really afford Bush's measly $700 billion bailout scheme, and Obama just (more than) doubled down that bet. The money will only come from raising taxes on what few sectors of the economy are productive, borrowing from leery creditors overseas who are facing problems of their own, or printing more money. Sooner or later, we will be in the grip of inflation.

And let's be clear: none of these Obama-led policies is improving the economy. They are making them worse. The only thing growing is government. Given all these circumstances, I can only conclude that the results of these policies are on purpose. The president is not interested in improving the economy. He wants to grow the government. I have no idea how to stop this mess, though a logical person, seeing a man stuck in a hole, would most likely advise him to stop digging. Obama, on the contrary, has gotten a steam shovel, and is looking for an oil drill. My proposed solutions can be found here, but are summarized as follows:

I want the president to cut taxes. I want him to ease up on the private sector. I want him to stop telling businesses that it's not appropriate to travel to Las Vegas or Orlando for conventions. I want him to stop criticizing anyone able to afford a private plane. I don't want him to spend more in one year than most of the most expensive years-long projects in American history. If he's going to spend taxpayer money, let it be for basic infrastructure, basic research and development (including space exploration), quality academic and trade education, and temporary relief of economic hardship. If he really wanted to kick up the economy, he could cut the number of the federal regulations (and the bureaucracy responsible for increasing their number), bypass bailing out banks and other companies, and send every taxpayer $10,000. We would probably still come out ahead...plus, he'd stimulate consumer spending like nothing anyone has ever seen! I could get behind a program like that.

I'm willing to bet this is not the sort of change people hoped for when they voted for Mr. Obama. Though I could be wrong. In any case, this certainly IS change, isn't it?

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If you're interested, here are my other entries on this topic, going back to Bush:

• More Bank BS from Obama (April 19, 2009)
• Space Potpourri (April 19, 2009)
• Book Review: Liberty and Tyranny (April 12, 2009)
• Looking for Answers (April 6, 2009)
• The Mess That Was George Bush (April 1, 2009)
• I Want Capitalism Back (March 30, 2009)
• Why a Bailout is Bad, and Why CEOs Shouldn't Accept One (March 29, 2009)
• More on the Economy (March 24, 2009)
• Response to a Reader Re: the Economy (March 7, 2009)
• The Economy, Continued (March 6, 2009)
• What's in the Stimulus Bill? (February 4, 2009)
• Various Items and Comments Regarding the Economy (January 29, 2009)
• Book Review: The Forgotten Man: A New History of the Great Depression (January 25, 2009)
• Well, Duhhhhh... (December 1, 2008)
• Boy, I'm Sure Glad We Got that $700B Bailout! (November 20, 2008)
• Too Much Government in the Economy (November 13, 2008)
• The Bailout Widens (November 12, 2008)
• Redistribution and Taxation in America (October 31, 2008)
• Socialism, Reconsidered (October 23, 2008)
• Losing a Bet (October 18, 2008)
• Space and Science Spending in the New Economic Order (October 16, 2008)
• Airsick Yet? (October 13, 2008)
• Hmmmm (October 13, 2008)
• Socialism Continues on the March (October 9, 2008)
• And the Fun Continues (October 7, 2008)
• Tonight's Dose of Snarkasm (October 6, 2008)
• More on the Financial Mess (September 30, 2008)
• The Present Financial Mess, Again Reconsidered (September 29, 2008)
• More on the Mess (September 26, 2008)
• Think Again (September 25, 2008)
• The Current Financial Mess, Again Reconsidered (2) (September 24, 2008)
• The Current Financial Mess, Again Reconsidered (1) (September 23, 2008)
• Ex Nihilo, Ad Nihilo? (September 20, 2008)
• The Current Financial Mess and What It Means for Space (September 20, 2008)

The Economy, Continued

George W. Bush handed off a bad economy to Barack Obama. I believe we can all agree on this. However, after that, the perception of economic reality between conservatives and liberals diverges. For example, Bush took the wrong step--after cutting taxes during the '01-03 recession--of attempting a massive government bailout/intrusion into the economy. The '08-'09 recession has been the result of a collapse in home prices, credit, and some of the financial and industrial concerns that depended on the credit markets. The bail-outs under Bush and Obama, administered by the Secretary of the Treasury, have not worked. Credit remains tight, more mortgages are failing, and credit remains tight. Enter Barack Obama.

It is time to stop blaming George W. Bush for the economy. This economy has been Obama's for a month now. Gone is the soaring rhetoric of "hope" and "change." Now we are treated to grim reality, "It's going to get worse before it gets better," and more excuses for the government to intrude into the private sector.

A jolt of government spending on private-sector products and services could temporarily juice the economy, though John Maynard Keynes himself said that incentives were necessary to encourage businesses to invest and expand. Those incentives generally include tax cuts and reductions in regulations. The Obama stimulus plan has not done this. It has focused on government spending on government-focused activities that increase the federal bureaucracy but does not increase private-sector productivity, which has always been more dynamic and profitable than government activity. It has increased taxes on the people with the most money, who would be the ones paying the most taxes and investing in the most profitable businesses. He has proposed a massive new dose of federal spending that the nation cannot afford, foreign investors do not want to subsidize (or want concessions to support), and which could inflate the currency in the long run.

Furthermore, President Obama and his party in Congress have attached regulations and strings to their version of the bailout money. President Obama has criticized CEOs for flying in private jets or going on business travel to expensive places, potentially damaging businesses and jobs in those industries. The more the government interferes, the less businesses are likely to take risks, for fear of being targeted or criticized for their attempts at success.

Obama has preached about a new "era of responsibility," but the government bailing out businesses and individuals who made bad decisions guarantees more irresponsibility in the future because somewhere, somehow, people believe that the government will always bail them out if they screw up. Indeed, the bigger the screwup (billions of dollars lost), the more likely it is that a company will get a bailout!

Obama wants more Americans working, but extending unemployment benefits or upping the benefits is an incentive to stay home and let the government take care of you. And so forth.

In short, I believe President Obama's policies and public statements are making the economy worse, not better. I want my country to be rich. Heck, I want to be rich! I want my 401(k) back. I've been told I need to "give Obama a break." At what point can the voters make him accept responsibility? When the Dow doubles down a couple more times? When unemployment hits 10%? 15%? 25%, as it did under Roosevelt? At what point can we stop blaming Bush? And saying things like "Well, Bush did X worse" is not helpful, nor is it a terribly effective defense of Obama. Bush is not president anymore, Obama is, and I want him to know what he is going to do that will be good for the economy.

I want the president to cut taxes. I want him to ease up on the private sector. I want him to stop telling businesses that it's not appropriate to travel to Las Vegas or Orlando for conventions. I want him to stop criticizing anyone able to afford a private plane. I don't want him to spend more in one year than most of the most expensive years-long projects in American history. If he's going to spend taxpayer money, let it be for basic infrastructure, basic research and development (including space exploration), quality academic and trade education, and temporary relief of economic hardship. If he really wanted to kick up the economy, he could cut the number of the federal regulations (and the bureaucracy responsible for increasing their number), bypass bailing out banks and other companies, and send every taxpayer $10,000. We would probably still come out ahead...plus, he'd stimulate consumer spending like nothing anyone has ever seen! I could get behind a program like that.

Heck, if he did all that, I might vote for him in '12!

Speaking of Rome...

I'm usually not a big fan of the Lew Rockwell site, but this essay piqued my interest:

http://www.lewrockwell.com/case/case29.html

Some symptoms of the decay of the Roman Empire included:

• Lack of public health
• A marked decline in the morals and ethics among all Roman social classes
• Excessive government with its accompanying political corruption
• Excessive military spending with corresponding government projects and social programs
• Inflation, price controls, and the state’s attempt to completely regulate the Roman economy destroyed manufacturing along with the empire’s agricultural base.
• Inferior technology
• Civil war accompanied by external invasions
• Use of coercive force by the state to attain its ends

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And then there's this line of thought, which came to me this morning:

President Obama is employing quite a few “czars” and other internal advisors outside the usual cabinet members and bureaucratic appointments. This organizational structure isn’t particularly efficient, as it can lead to overlapping loyalties and chains of command. Why not just put people you trust in charge of the various agencies directly? Richard Nixon ran his White House this way, and he faced all the problems previously mentioned.

The only reason I can guess as to why Obama is doing this is that he does not fully trust the information he’s receiving from the bureaucracy and wants inputs/data from people he does trust. I find this curious, given that most of the long-term, unionized civil servants tend to be supporters of the Democratic Party.

There is a more cynical, less charitable view one could take of this approach: mainly, that Obama wants commissars or “political officers” in each of his departments to make sure they’re all following the “party line” loyally. Again, agencies within agencies, or states-within-a-state are problematic because the people who are part of the “inner circle” have more immediate access to the executive than the official bureaucratic apparatus. I must do some more reading. I still don’t understand why he doesn’t just appoint the people he wants in charge of the agencies. In any case, this structure bears watching.