Bailout?
Posted in Bailout, Political Discussion on February 9th, 2009 by paulo – 2 CommentsThe Senate is currently debating the stimulus package, which is an attempt to “rescue” our economy. Here is food for thought thought. The reason the economy is in such dire straits, is primarily due to the excessive debt held by so many consumers. So to suggest that we can “rescue” them with another $800 billion in Federal debt seems almost ludicrous. It’s like we are all drowning and the government says, “Well we all need water, so let’s throw them a bunch of water.”
As a counter argument here is the thought. Americans took on a lot of debt (primarily to buy a home etc.), under the assumption that they would be able to eventually make more money and therefore cover the cost of that new bigger mortgage. They had a belief about the future. Well now the future is bleak as capital has all but disappeared for businesses. So people are laid off as companies cannot make it through this hard time with their borrowings. To make matters worse for companies, commodity price have all shriveled up (oil, gas, copper etc), causing more lay-offs, causing a self-defeating death spiral. The government has the credit to kick start the economy, throwing money to all parties in order to “prime the pump” and get the economic engine running again. The 800 billion is less than 10% of the total GDP, but should be enough to really help out.
With these two arguments it’s hard to make up one’s mind about who is right and who is wrong. It is the belief of the author that the economy does need help, however, a massive government spending program is not the answer. The answer is to cut taxes, and DECREASE government spending on pork-barrel projects. Lower taxes will change the behavior of citizens as it will dramatically change the future projected earnings for each person. As an case example, please consider the country of Ireland, which not too long ago was drowning in 50%+ taxes which companies and citizens could not pay. More and more people were losing their jobs and the country (being socialist) was desperately trying to serve all the people. When a novel idea was heard and executed. Let’s cut taxes to 0-10%. Now Ireland enjoys a GDP per capita nearly twice that of the rest of Europe.
