The video is a few weeks out of date, but remains a good indictment of the inherent unfairness of bailouts. Happy viewing:
When facing a crisis, government officials have developed a troubling tendency. Instead of carefully weighing the situation and then developing thoughtful, meticulously planned strategies to deal with the situation, politicians and their economic advisors plunge headlong into often conflicting plans of action. Discovering new and better tactics and making course corrections on the fly, the instability inherent in such an approach stifles investment and risk taking at the time they are needed most.
George Will has written an excellent piece on this subject titled “Is U.S. repeating history?”, published by the Washington Post. Mr. Will’s column follows. See also Prudence Takes A Beating.
“Early in what became the Great Depression, John Maynard Keynes was asked whether anything similar had ever happened. ‘Yes,’ he replied, ‘it was called the Dark Ages and it lasted 400 years.’ It did take 25 years, until November 1954, for the Dow to return to the peak it reached in September 1929. So caution is sensible concerning calls for a new New Deal.
The assumption is that the New Deal vanquished the Depression. Intelligent, informed people differ about why the Depression lasted so long. But people whose recipe for recovery today is another New Deal should remember that America’s biggest industrial collapse occurred in 1937, eight years after the 1929 stock crash and nearly five years into the New Deal. In 1939, after a decade of frantic federal spending — President Herbert Hoover increased it more than 50 percent between 1929 and the inauguration of Franklin Roosevelt — unemployment was 17.2 percent.
In ‘The Forgotten Man: A New History of the Great Depression,’ Amity Shlaes of the Council on Foreign Relations and Bloomberg News argues that government policies, beyond the Federal Reserves tight money, deepened and prolonged the Depression.
The policies included encouraging strong unions and wages higher than lagging production justified, on the theory that workers’ spending would be stimulative. Instead, corporate profits — prerequisites for job-creating investments — were excessively drained into labor expenses that left many workers priced out of the market.
In a 2004 paper, Harold L. Cole of UCLA and Lee E. Ohanian of UCLA and the Federal Reserve Bank of Minneapolis argued that the Depression would have ended in 1936, rather than 1943, were it not for policies that magnified the power of labor and encouraged the cartelization of industries. These expressed the New Deal premise that the Depression was caused by excessive competition that first reduced prices and wages, and then employment and consumer demand.
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.
Bear Stearns? Broker a merger. Lehman Brothers? Death sentence. The $700 billion is for cleaning up toxic assets? Maybe not. Writes Russell Roberts of George Mason University:
‘By acting without rhyme or reason, politicians have destroyed the rules of the game. There is no reason to invest, no reason to take risk, no reason to be prudent, no reason to look for buyers if your firm is failing. Everything is up in the air and, as a result, the only prudent policy is to wait and see what the government will do next. The frenetic efforts of FDR had the same impact: Net investment was negative through much of the 1930s.’
Barack Obama says the next stimulus should deliver a ‘jolt.’ His advisor Austan Goolsbee says it must be big enough to ’startle the thing into submission.’ Their theory is that the crisis is largely psychological, requiring shock treatment. 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.
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.
Here we go again? A new New Deal would vindicate pessimists who say that history is not one damn thing after another, it is the same damn thing over and over.”
Posted by Jerry Pomeroy in Best Of the Web, Economics, Government Blunders, Video