Couple of Bailout and Stimulus Links

Lynne Kiesling

Going into 2009 with a recession, the discussion of a federal stimulus plan has kicked into high gear. This useful aggregation at the New York Times has some recommendations from economists about the form such a stimulus should take. Like Tyler Cowen, I find Andrew Samwick’s comments particularly important to bear in mind:

If I had my druthers, the word ’stimulus’ would be expunged from public discussion, along with ‘bailout’ and ‘rescue.’ These words convey the idea that, because we have so mismanaged our economic and financial affairs, we are somehow able or entitled to conjure up additional funds out of thin air to fix our problems.There are two problems with this idea. ….

First, the purpose of government spending is to purchase goods and services that the government needs to meet its responsibilities, not to hand out resources to those who panhandle most loudly for them. … Second, there is no free lunch: the money we spend today is a loss to the Treasury, whether as ‘timely, temporary, and targeted’ tax cuts that have no discernible impact; payments to delay bankruptcy for large, mismanaged entities, whether A.I.G. or the Big Three; or the largest public works program since the Interstate highway system. That loss to the Treasury must be made up at some future date, by later cohorts of taxpayers.

With respect to the ultimate fate of the auto manufacturers, which may be delayed due to Friday’s White House announcement of a bailout plan, Matt Welch and Mark Schmitt have a good Bloggingheads video discussion of the pros and cons of auto company bankruptcy declarations.