The Government Bailout IS the Problem

The Failout and Krugman
02/29/09 - Angry-Economist by Russ Nelson

The economy is bad because no one can predict the future with a big government elephant stomping around. The elephant can't solve the problem, and it scares away the elves who can solve the problem. The elves are small, but they are smart and there are a lot of them. The economist Paul Krugman has spun a theory for recovery. Will he bet on its success?

[edited] The problem here is simple: credit is scarce because nobody wants to lend and nobody wants to buy. The Federal Government is threatening to borrow and spend a TRILLION dollars.

If you are bank, would you loan money if you knew that an A-grade customer was going to be spending a TRILLION dollars soon? Of course not. Even if they choose not to get their loan from you, the price of lending is going to go up. It must go up when a TRILLION dollar buyer is showing up. So nobody is lending now.

And why would anyone buy anything now. You want to be positioned correctly for the TRILLION dollars which is going to enter the market soon. You don't want to invest your money in something, only to find that the market has shifted and your investment is toast.

The failout is not the solution to our problems. It is the CAUSE of our problems, merely by being threatened as a government action.

Why is this not obvious to everyone? I blame Krugman.

I wonder if Paul Krugman has borrowed huge amounts of money and spent it already? If he hasn't done it, then why should we do it? If he doesn't trust his own theory for his own household, then why should we trust his theory for our country?

Of course he hasn't done it, because his theory requires that many people behave differently together than each person would for himself. The group is made up of individuals, so how can that be?

Krugman's theory has no legs. That dog don't hunt.

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Why the Slow Recovery?
02/03/10 - Cato at Liberty by David Boaz

(edited excerpt)

President Obama wonders why banks aren’t lending, employers aren’t hiring, and investors are holding back. Answer: Taxes, regulation, and uncertainty. Some headlines:

• Wealthy Face Higher Taxes.
• Big Firms Would Face Deeper Tax Bite.
• A Red-Ink Decade/Obama Budget Sees Years of Deficits.
• Obama to target overseas tax breaks.
• Higher Taxes for All in Obama Budget, $1.6 Tril 2010 Deficit.
• Obama budget would spend billions more.

The Economic Policy Institute illustrates this with a graph, at the link.

Employers, investors, and entrepreneurs are discouraged by higher taxes, more regulation, a larger share of GDP shifted to government, and expected Fed monetization of the soaring debt.

Obama budgeteers are flipping through the tax code for ideas.

Robert Higgs observes that regime uncertainty prolonged the Great Depression. Investors were worried about what FDR might do next.

Will Wilkinson:  Treasury Secretary Tim Geithner has said that businesses need certainty today to make long-term plans for tomorrow. But, creating completely irresponsible, economically chilling regime uncertainty appears to be the intent of the Obama administration.