Disparaging the invisible hand? Au contraire, Jeffy--do you mind if I call you Jeffy?-- I think in some ways you are endorsing the invisible hand of the market as the only way to handle those pesky corporations. Forget about bailouts, let the invisible hand do some creative destruction. Out with the bad, bloated, inefficient firms who made bad decisions, took too big of risks, and were ultimately irresponsible and replace them with lean, mean, smart, new entities ready to make better decisions, take advantage of the market, and profit among the carnage (just look how these two guys from New Jersey are doing it).
However many firms (especially in the automotive and financial industry) have avoided (for now) the cold slap of that infamous hand by convincing the government to give them a handout. And how did these firms manage to squeeze hundreds of billions of dollars from both Obama and Bush. Four simple words: Too big to fail. Let me paraphrase what CEOs of major banks are thinking while they are testifying before Congress, "Hey Congressman Joe Shmoe, if we fail, we will take everyone down with us. This won't be creative destruction, it will be total destruction. Go ahead and slap on some silly stipulation about salary caps or whatever else you have to do to appear that you have some control over the situation. But give us the money or we will blow this society to smithereens because our failure will send such shock waves of instability this economy will never recover."
The government is not giving out handouts by its own free will. It is being held for ransom. But paying the ransom is only delaying the inevitability of creative destruction which is the only real incentive firms will respond to. If these firms are indeed too big to fail, then they cannot exist in a market where failure is inevitable. It is not time for a handout, it is time to take these entities out of the control of the market and into the hands of the government because as you say the corporation "falls beyond the immediate jurisdiction of the voter" and why would we want something so big that its failure could destabilize the entire society to be out of the jurisdiction of the voter? If the market is not allowed to reign these firms in, then someone has to do it (sounds like a job for Super Obama!).
Saturday, February 28, 2009
Thursday, February 26, 2009
Who is getting the money?
This is an excellent start, anonymous economist! Way to take the plunge into a plethora of economic, political and moral issues all at once.
First, I have to make the point that the official poverty line is a rather meaningless concept when it comes to evaluating need for assistance. The idea is out of context and provides a quantitative definition to a qualitative problem. My trusty friend Wikipedia tells me that the poverty line for a family of four in 2007 was $21,027 in the United States. For our purposes, we'll compare this family of four with another family of the same size making $42,054.
Great, now we're out of context and thinking purely quantitatively like any good government bureaucrat. On paper, our $40k family is twice as wealthy as our poverty family. Thus, we'd expect them to feed themselves and leave the food pantries for those less fortunate. Now, let's add some context. Our $42k family has lil' Johnny who was born with a rare form of cancer. Medical bills to keep Johnny alive eat up substantial portions of the combined income, and both parents work and have to pay for a babysitter to watch Johnny and his sister during their long hours. Worse yet, the family has almost maxed out the lifetime benefits for Johnny's medical insurance, meaning none of his treatments will be covered after next year. By contrast, our hypothetical poverty family could have one working adult and no health issues. Who should visit the pantries? What if our poverty family earns an extra dollar this year? Can we really define things this way?
As for the posed question, anonymous economist, I have to say I'd make a distinction between states and the individuals on one hand and corporations on the other. First, we can hold states accountable for the money we provide to them. Ultimately, they are elected officials under the authority of the ballot. Second, assistance and security for the individual is the core value in the creation and perpetuation of democratic rule. Finally, the corporation is an abstract concept that carries no meaningful legal status (regardless of what delusions the US Supreme Court hands down) and falls beyond the immediate jurisdiction of the voter. In that sense, it seems to me that assistance to commercial entities is a dangerous process of removing capital from political influence.
Surely, an economist can't allow me to disparage the invisible hand so openly?
First, I have to make the point that the official poverty line is a rather meaningless concept when it comes to evaluating need for assistance. The idea is out of context and provides a quantitative definition to a qualitative problem. My trusty friend Wikipedia tells me that the poverty line for a family of four in 2007 was $21,027 in the United States. For our purposes, we'll compare this family of four with another family of the same size making $42,054.
Great, now we're out of context and thinking purely quantitatively like any good government bureaucrat. On paper, our $40k family is twice as wealthy as our poverty family. Thus, we'd expect them to feed themselves and leave the food pantries for those less fortunate. Now, let's add some context. Our $42k family has lil' Johnny who was born with a rare form of cancer. Medical bills to keep Johnny alive eat up substantial portions of the combined income, and both parents work and have to pay for a babysitter to watch Johnny and his sister during their long hours. Worse yet, the family has almost maxed out the lifetime benefits for Johnny's medical insurance, meaning none of his treatments will be covered after next year. By contrast, our hypothetical poverty family could have one working adult and no health issues. Who should visit the pantries? What if our poverty family earns an extra dollar this year? Can we really define things this way?
As for the posed question, anonymous economist, I have to say I'd make a distinction between states and the individuals on one hand and corporations on the other. First, we can hold states accountable for the money we provide to them. Ultimately, they are elected officials under the authority of the ballot. Second, assistance and security for the individual is the core value in the creation and perpetuation of democratic rule. Finally, the corporation is an abstract concept that carries no meaningful legal status (regardless of what delusions the US Supreme Court hands down) and falls beyond the immediate jurisdiction of the voter. In that sense, it seems to me that assistance to commercial entities is a dangerous process of removing capital from political influence.
Surely, an economist can't allow me to disparage the invisible hand so openly?
Saturday, February 21, 2009
It's Alive!
Come on in Jeffersonian the water is just fine!
And to start us off I thought I would pose the first question:
When it comes to doling out government aid or any aid for that matter should we be more generous to individuals and less generous to large organizations/corporations? Or should we be more generous to the likes of GM, the state of California, and the Bank of America for the sake of stability but stingy with individuals to mitigate the free rider problem?
I pose this question after reading this recent NY Times article on the increase use of foodbanks across the country. It received well over 200 comments and some where very critical of individuals using the foodbank who were not below the official poverty line in terms of income. Are these same people also opposed to the big bailout happening right now in our financial sector? But then again, in the age of the bailout, where should the buck stop exactly?
Ponder away. . .
And to start us off I thought I would pose the first question:
When it comes to doling out government aid or any aid for that matter should we be more generous to individuals and less generous to large organizations/corporations? Or should we be more generous to the likes of GM, the state of California, and the Bank of America for the sake of stability but stingy with individuals to mitigate the free rider problem?
I pose this question after reading this recent NY Times article on the increase use of foodbanks across the country. It received well over 200 comments and some where very critical of individuals using the foodbank who were not below the official poverty line in terms of income. Are these same people also opposed to the big bailout happening right now in our financial sector? But then again, in the age of the bailout, where should the buck stop exactly?
Ponder away. . .
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