Posted by Tim Stobbs on July 23, 2008
It always strikes me as odd that companies or certain people need bail outs from a government when they get into really hot water. Why do we collective think these actions are good for us when in reality it means a higher tax burden down the road for everyone?
You see bail outs usually imply unusual times where government money isn’t sitting around in surplus. So in order to bail out a company or group of people the money has to come from somewhere. Normally the budget doesn’t have a rainy day fund to pull on so the government has to issue more debt to pay for the bailout. Hence down the road all of us are collectively paying interest (at the very least) on that bail out money.
So it strikes me that the US government’s economic stimulus cheques are really like a person up to the eyeballs in debt using a credit card to try to get out of it. The cheques don’t make any sense that I can figure out. It doesn’t create more money and if the economy is going to hell likely people will pay down their debts. So in effect the government has just shifting credit card debt and mortgage debt to the national debt. You still have to pay it off, but now your spreading the debt over everyone rather than just those who made the mess.
Perhaps a better idea is the government to examine who it got into this mess in the first place. Have their polices been causing a more unstable system? Did the cheap interest rates post 9-11 just push off the recession they were going to then until now? Or perhaps this won’t work as who in a government can be that objective to really see the forest from the trees?
In the end, I’m not a fan of bailouts. Regardless of the ship, if it is sinking, there is often a good reason why.