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Friday, July 02, 2010

Obama Seeks Another Bailout

In early 2009 the Obama administration informed us that, without more subsidies, the US would see unemployment of eight percent. In a little over a year the government has spent trillions of dollars in bailouts and unemployment is now at ten percent. Furthermore, there is no sign of relief in sight. With that, Obama is trying to do what he does best...ask for more bailout dollars.

FoxNews.com reports that "Congressional leaders received a letter from the president asking for almost $50 billion for distribution to state and local governments, saying that increased spending is 'urgent and unavoidable,' the (Washington) Post reported. The money would protect the jobs of teachers, police and fire fighters. 'Because the urgency is high-many school districts, cities and states are already being forced to make these layoffs,' Obama wrote, 'these provisions must be passed as quickly as possible.'"

Many clich├ęs come to mind when you see this scenario. With a Bush bailout, Obama plan, and now this current effort, one thinks of "three strikes and your out," or "third time's a charm," but I think the most accurate might be that the "definition of insanity is to do the same things over and over again, expecting different results."

Instead of pursuing more government dollars, the administration should learn the lessons of these type of expenditures to date:

  • Bailouts of industries actually have an adverse effect on business behavior. For example, there is a growing view that government bailouts of banks have made them less likely to give loans, since such money came with numerous strings (which include prohibitions for some loans, regulations, etc.) and other factors that make lending less attractive. Generally speaking, the amount of loans generated has seen very few changes since the bailout of 2008 or any of the other actions since then.
  • The reason public employment is particularly vulnerable is because these jobs cannot support themselves without more tax dollars. They are not self sustaining. When Obama did his little dog and pony show in 2009, in which he had photo opportunities in front of law enforcement officials in cities around the country, many economists, pundits, and writers warned that such was unsustainable without more tax dollars. Proof is in Obama's new request for another $50 billion dollars.
  • Real job creation is sustained through tax, regulatory, and market environments that encourage such. Lower corporate tax rates or lower rates on anything that can stimulate economic activity, leads to employment that is self sustaining. In fact, these jobs lead to the creation of more employment through the engine of free enterprise. Every one of these type of jobs that are created are through voluntary exchanges and not the government confiscation of wealth.
  • One of the reasons unemployment is so high is because every time the government pursues bailouts, there is a destabilizing impact on the business environment. These bailouts do not happen in a vacuum as businesses ponder future tax increases, inflation for printed money to pay for such programs, new regulations and conditions that come from the bailouts, and other issues that hinder -- rather than spur -- economic growth and job creation. These bailout foster more caution rather than spontaneous economic activity.

Real economic growth comes from having the lowest corporate taxes in the industrial world (instead of the second highest, like it is today). The government should also create a regulatory environment that is competitive (in terms of ease of doing business) with any other industrialized country. Business should be allowed to face the negative consequences of failure (and enjoy the restoration of moral hazard) in order to encourage companies to behave more efficiently. Finally, the government should provide incentives to work rather than be dependent on the government. Such steps would actually make it possible for Obama to increase the revenue coffers, rather than ask for more money that is simply not there.

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