Most economists, with the exception of the ancient-school Paul Krugman, think that broad-scale government bail-outs in these times of troubles are big mistakes.
The problem is, most Americans are not economists. Furthermore, they don’t know any economists, and don’t read or understand any economics.
Hence politics, rather than economics, will rule the day. Now that we have a democratic president, democratic congress, and a popular mood that is screaming for the government to bail out everything that’s seen a drop of rain, I think that there will be quite an increase in government programs over the next few years.
The first of this is happening less than a week after the election. Nancy Pelosi, formerly a slobbering-but-caged rabid dog, now will get a pretty long leash. What does she do first? Pelosi wants the government to subsidize Detroit. I understand the pain that Detroit is going through, but the cold facts are that the word’s auto industry has too much capacity, and the high-cost producers are the ones that will (and should) go out of business first in order to reduce the excess capacity. Government subsidies, of course, don’t change this; they just prolong the agony at great (and wasted) expense to the taxpayer.
It gets worse. Not only will the taxpayers likely subsidize Detroit, but also, in the near future, don’t be surprised to hear claims of “unfair competition” from Detroit and Washington about lower-cost overseas producers, and the subsequent (re-)creation of import duties on cars. Import duties of course don’t change the fact that there’s too much supply, they simply hurt American consumers.
In the near future, even whilst economists wince, the politicians will smile (POTUS included).
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