Tuesday, August 11, 2009

They will destroy the village (dollar and markets) in order to save it

Tuesday, August 11, 2009

Government Bailouts and the Stock Market - The Seen and the Unseen

...James Hamilton, professor of economics at University of California, San Diego, says cash for clunkers adopts the worst of the New Deal policies and adapts it to today’s circumstances.

The Agricultural Adjustment Act of 1933 “paid farmers to slaughter livestock and plow up good crops, as if destroying useful goods could somehow make the nation healthier,” Hamilton writes on his blog. “And yet, here we are again, with the cash for clunkers program insisting that working vehicles must be junked to qualify for the subsidy.”

Caroline Baum at Bloomberg also touches on several key issues. The first is that money taken from taxpayers can’t be used for something else. The second regards the destruction of productive assets. I will add a couple more.

Government seldom if ever allocates resources efficiently. That is another problem with all these stimulus efforts. Without market feedback, it is difficult if not impossible to spend money wisely. At best, government pushes demand forward. At worst, government pays money to destroy productive assets while going deeper in debt to do so.

(They are taking piss and moving it from one cup to another whilst dropping some of it on the ground along the way... -AM)

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