The Bailout

Which side are you on boys
Which side are you on?
Marching down to
Washington
Which side are you on?

The old civil rights song says that sometimes we have to choose. Either “fer it or agin it”. The government is coming to our economic rescue, and while the bailout plan is probably mostly stupid and ineffectual even Contrarian is not contrarian enough to be “agin”.

The current plan is in flux, but generally it will cost about $850 billion split between tax reductions and handouts. I am dubious of both.

We have some experience with handouts. Who could ever forget, or perhaps more accurately who remembers the American Recovery and Reinvestment Plan of 2008. The government printed $170 billion and mailed it to all taxpayers - $600 per person, $1200 per couple with various income levels. The consensus is that the net effect on the economy was negligible. It appears that sending every American to the Mall for a day will not re-open 560 closed Circuit City stores or 580 Linens ‘N Things stores. That is not surprising.

We also have some experience with bailouts. The TARP program put out some $350 billion over the Fall of 2008. Although it was initially intended to relieve banks of troubled assets there are various complications with that, and the Treasury used the funds instead to provide liquidity to financial institutions who used it to shore up balance sheets rather than make loans and, unbelievably, to pay executive bonuses. I am inclined to believe that the TARP money probably did some good in preventing a collapse of the credit system.

Now we see Senator DeMint (R, S. Carolina) arguing that the bailout should be mostly tax reductions. He is demented. Rep. Barney Frank (D, Mass) correctly points out to him that he has never seen a tax cut pay for a bridge repair. The Democrats ignore the experience of the last rebate to maximize the pandering, and we can only imagine the lobbying fees paid to get an additional allocation of millions for the National Endowment for the Arts and new furniture for the Department of Homeland Security. The concept of economic stimulus was lost months ago as the hogs line up at the trough.

Which side to be on? The tax reductions are insidious and the rebates are ineffectual. The proposed infrastructure expenditures will either take years to go through the system or go to the first unworthy projects available, and the proposed bailout of state governments merely rewards their unwillingness to raise taxes to pay for their programs. I have no sympathy for the states. Raise taxes.

I am for it. I guess it is more important to appear to do something than to get it right, because there may be no getting it right. Somewhere some innovation or psychological upturn may get the economy onto a sounder footing. Although anyone should be unhappy about the proposed deficit spending, the current need for the spending merely accents how wrong it was during the Bush administration. Let’s move on.