Lynne Kiesling
The folks at reason do us a service, albeit a sobering and disturbing one, by tallying up all of the bailout promises as of Friday. The total to date:
Rough total: $2,063,800,000,000
That’s a little over $6,800 for every man, woman, and child, or just under $15,000 for each of America’s 140 million taxpayers.
Yes, you read that correctly: over two.trillion.dollars.
This total does not include possible bailouts of the U.S. auto industry, which is the precise opposite of what should happen. This is one industry saddled with uneconomic and uncompetitive cost constraints, and bankruptcy has become the legal mechanism by which firms and unions renegotiate the terms of those contracts. Furthermore, these bailouts reinforce the myth that bankruptcy destroys the productive capacity of the assets owned by the bankrupt firm. This is patently false; bankruptcy is a mechanism for the redeployment of assets in a more productive form that the previous one.
Bailouts perpetuate the inefficiency by preventing these adaptations from occurring.
The investment required to achieve the “80% reduction in CO2 emissions by 2050” would be another $1 trillion per year over the period.
If that policy is actually pursued, what’s left of the “Big 2.5” will employ all of their workers in the “developing countries”. The increase in CO2 emissions from the developing countries, as a result, should at least offset the reductions achieved by the “previously developed countries”, like the US.
Therefore, the US would have invested ~$40 trillion to accomplish absolutely nothing, or worse, on a global scale.
Sounds like a pan only a politician could love!
I agree with your point about the auto industry bailout. And perhaps its validity is revealed by the fact that the simple substitution of a couple of words does not seem to make it any less true:
(Substituted words in brackets)
‘ [Finance] is one industry saddled with uneconomic and uncompetitive cost constraints, and [liquidation/deleveraging is] the mechanism by which firms [rearrange their balance sheets]. Furthermore, these bailouts reinforce the myth that [liquidation/deleveraging] destroys the productive capacity of the assets owned by the firm. This is patently false; [liquidation/deleveraging] is a mechanism for the redeployment of assets in a more productive form that the previous one.
Bailouts perpetuate the inefficiency by preventing these adaptations from occurring. ‘
Obviously, in this context “bailout” refers to plans to recapitalize individual banks. One of the best examples of this is Lehman Brothers, who, despite the early warnings about their balance sheet, put off raising necessary capital in the months following the bailout of Bear Sterns. After waiting so long, Lehman never had a chance to sufficiently coverer their losses, and collapsed.
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