Monday, December 1, 2008

It's Getting Crazier: Now $8.5 TRILLION in bailouts and handouts (plus more in boondoggles)

The Los Angeles Times estimates that the proposed bailouts and handouts will cost $8.5 TRILLION. That is fully half of this year's U.S. economic output! 

And that's not even counting the big-spender states and municipalities planning to join the bailout conga line! Nor does it count the hundreds of billions in alternative energy and education boondoggles (See below.)

We're going to take that inconceivably large amount of money from the good people who are productive enough to pay taxes to give to the businesses and people who managed themselves into or near bankruptcy? To spend on Sloppy Thousandths: the alternative energy schemes that no private company felt worthy to invest in? To spend yet more on education despite study after study demonstrating that spending more, especially on Obama's pet liberal ideas, does not yield more results?

Japan tried the strategy of massive government bailouts, handouts, and boondoggles (prettied up with the word "stimulus") in the '90s and it failed.  

And that is supposed to be the spending that will replace our house-of-cards economy with a sturdy one? That will increase the U.S's ability to survive against competition from China, India, etc.?  The government bailout/handout/boondoggle spending approach is more likely to drive the U.S. into a depression of unprecedentedly painful proportions. 

Why are free-market voices not being heard here?


Anonymous said...

When I saw this post, the only thing I could think was: how long will it be before we start using the word "quadrillion" to describe the US national debt?

And when I looked up "quadrillion" to see if it was a real word (it is), I saw something else on their 2008 word of the year, the word that received the highest intensity of lookups on Merriam-Webster Online over the shortest period of time, is ... "bailout."

Anonymous said...

"why are free market voices not being heard?"

There is no such thing as a free market. If you have a government and you have laws, you have imposed rules on the market.

I find it very entertaining that in the face of 4T in loan guarantees, 4T in actual or potential direct funding the conservatives are doing three things:

1) Blame Obama for the Bush bailout and the Bush regulatory climate that precipitated the fear leading to them. (He's noot president yet; one of his key economic picks trained under Bush's appointee Paulson. The stock market shot up when they heard about the appointment.)

2) Complain in general terms about what's happening. Reserve specific venom for small subsets of fund recipients which they don't like.

3) Claim the loan guarantees are exactly the same as the handouts. (Many of the loan guarantees are the Federal Reserve moving into the commercial paper market, to keep the money market funds and midsize businesses afloat. The default rate on commercial paper has historically been very low, which is why so many money market funds invest in it.)

In your case, you hammer away again and again on new energy sources. You repeatedly claim these are poor choices, because the Invisible Hand and the Free Market would already have brought them online if they were any good at all.

See above; there is no free market.

The technology which you use to blog (and a lot of the tech used to air your radio show, which relies heavily on packet switched networks and ISDN) rests in very important ways on "the internet"

The internet was a giant government boondoggle for years. Who would want a slow, creaky, weird, difficult way to connect hideously expensive computers?

Now, you libertarians all love it to death and act like it sprang naked, gleaming and paid for directly from Ayn Rand's forehead.

It didn't. It was a massive government subsidy that took it down the production curve from astronomically costly to extremely competitive, even against cable TV for audio/video delivery.

Likewise, with new energy: it will be competing against coal (4000 years or so down its production curve) and oil (150 years or so down its production curve.)

Why are you so convinced that any new energy technology must be poor and inefficient compared to setting wood or blubber on fire?

Sod Buster said...


Your picture could pass for my Dad's Okie family. My grandparents worked WPA in the 1930's, ran a restaurant during WWII and had to buy supplies on the black market due to rationing. During the war years, they also watched a son contract polio and become permanently disabled. They persevered and were finally able to purchase a farm in Nebraska in 1949. In other words, they went through almost 20 years of "hard times."

Anonymous said...

I just saw the following:

It's a press release from Congressman Louie Gohmert. He wants to propose a bill that would declare January & February 2009 a federal tax holiday for all Americans.

Instead of that being deducted from your paycheck, you would get to keep it and, theoretically, use it as you would see fit. The idea is that this taxpayer money would be returned to the average taxpayer instead of failing businesses that are "too big to fail." Supposedly this would cost less than the original $700B bailout plan.

Rep. Gohmert has also proposed returning all 2008 income tax to the taxpayers, but I don't think there is a bill for that.

Any thoughts?

Anonymous said...

So this is the end of our free marketing. Big corporations got bailout from bigger brothers to keep on producing cars nobody wants to buy. This sounds like Soviet Union before the slumping finale.

The great Japanese bailouts in the 90's left Japan a long recession over a decade and a notorious government full of corrupted bureaucrats who misbelieved that they were smarter than their merchants and bankers in manipulating the economy as well as their business.

What other option do we have other than apathy?

Marty Nemko said...

Responses to Anonymous:

Just because there are laws, doesn't mean that there couldn't be a relatively free market.

I blame Bush/Paulsen for starting the bailout conga line, and Obama for greatly increasing it.

I am not selectively picking bailouts I don't like--I wouldn't have bailed out Bear Stearns, Lehman Bros, none of 'em. But the outrageousness of an the auto bailout seems most apparent: they'll still make worse cars than the Japanese--and so, the public will still buy Japanese until you get rid of the lifetime-job-security workers and management that insists on using shorter-life, more breakdown-prone parts than do the Japanese, yet no one's talking about changing that--merely building greener cars. A green GM car will still likely be less desirable than a green Toyota.

I hammer away at alternative energy because the science behind their viability suggests they will not become energy sources of choice. And, indeed, if--even in a 10-year time horizon if, for example, solar, wind, etc., were likely to be viable, wouldn't companies invest in them? Nuclear really is the most viable road to energy independence and, if it really is substantially manmade, mitigating climate change.

And if the govt hadn't invested in DarpaNet (the military precursor to the Internet,) the private sector would have quickly done so.

Anonymous said...

The government did the tcp/ip work for a long time without private industry doing anything other than taking out contracts to do the work.

Until there were a critical mass of connected nodes, no one understood the value of the internet; there was not a substantial interest in investing in that infrastructure until an enormous investment had been made in building it out. (Not unlike alternative fueling stations for vehicles; you have to have Federally deep pockets to build enough nodes.)

Nuclear power is a classic example of the lack of a free market in energy. The Federal government has absorbed

- most of the risk of nuclear power plant construction
- most of the risk of spent fuel disposal

The former, by writing laws guaranteeing that losses above a nominal sum will not be the liability of the nuclear industry itself. This permits them to buy insurance at insanely discounted rates. Today it's relatively less likely that a power plant will catastrophically fail. In the 50s and 60s when the plants were first being built, it was considered highly likely, and the potential damage remains immense. (Loss of life, health and property values consequent to a reactor vessel failing.)

Now, we have decades of spent fuel being stored, waiting for the legal guarantee of Federally subsidized storage to be honored. A major breach or terrorist incident at a holding facility is probably more likely now than a reactor failure.

And again, the Feds have guaranteed to should most of the costs associated with an event like that.

Nuclear is a beautiful example of the lack of a free market and the government picking winners.

The Feds underwrote most of the costs associated with taking nuclear power out of notebooks in Europe in the 30s and making it a somewhat managable civilian power source.

In nuclear, the Feds agreed to subsidize the insurance costs. Much as in the financial sector, they nationalized the risk while privatizing the profit. Everyone in a suit wins!

This kind of business model, where profits can be concentrated rather than decentralized, seems to find favor with conservative commentators.

The thing with the car companies is that one large reason they're taking it in the teeth right now is that fewer people can even get loans for cars.

The cost / jobs preserved ratio in the auto bailout is pretty favorable; as with making adjustments that favor individual mortgage owners, this kind of populist assistance seems very threatening to the conservative project of Reagan and Bush, which amounts to "sabotage anything Roosevelt started."

Marty Nemko said...

Re the Gohmert plan, I merely have an intuitive response: that more good would accrue from returning money to the taxpayers than bailing out failed companies that are unlikely to burgeon as a result. Do you really believe that if we bail out GM, people are going to stop buying Toyotas and buying Chevys?

Marty Nemko said...

My approach:

1. No bailouts. Let the good-guy taxpayers keep their hard-earned money.
2. Replace little-used academic courses (e.g., geometry) with entrepreneurship, ethics, conflict resolution, financial literacy.
3. Severely control immigration: only admitting people quite likely to, over their lifetime, be substantial net contributors to American society.
4. Restore ability grouping to classes, eliminate tenure, eliminate the inane teacher preparation programs, institute merit pay, all of which would encourage brighter, more interesting people to become teachers.
5. Encourage thrift--a consumption-based economy is a shallow one. Also, borrowing should only be for a home, not a car, certainly not furniture or vacations. If you can't afford it, you can't afford it.

Marty Nemko said...

You can cherry-pick a few things the government has spent wisely on, but their overall return on investment of OUR money is terrible. Even the things that worked out likely would have worked out better without the govt.

Truly the govt. is the main cause of our crisis: artificially lowering interest rates, strong-arming lenders into lending to the unqualified, etc.

And with regard to making credit available for car loans, I do not believe people should--except for a home--buy what they cannot afford to buy in cash. That's what built our house-of-cards economy.