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A Good Economist: “Big 3”-Bailout?

December 4, 2008

As you may or may not know, the “Big 3” United States auto companies (Ford, GM, and Chrysler) are all asking for a bailout for their respective companies, that could cost anywhere from 25-36 billion dollars. I know most of you probably know where I stand on this issue, but let me for a second walk you down my path of thought on this.

Ok, so step one. We live in America. Where the free market is (or was) a proud cornerstone of our society. Where anybody can start a company and make their great, great, great, grandchildren millionaires. There is a fine line between government and the business world. The only place they intertwine is with taxes (sadly) and enforcing contracts. So you have the three biggest car companies in America asking for billions in loans. Lets take the logical approach to this. They want billions of dollars that we do not have, in order to prop up companies that have failed, due to a plethora of reasons. The emotional argument is that we need to save these hundreds of thousands (if not, more) jobs. Those who think this way do not understand the marketplace, and therefore are bad economists, only looking at affect ‘A’, saving jobs and not at affect ‘B’, the diversion of funds from the taxpayers, and the hundreds of thousand of new job seekers ready to bolster other companies or simply punish the marketplace and deflating a bubble. A good economist looks at both ends of the rope, and with long and short-term thinking in mind.

So this bailout should not take place, just as the 700 billion dollar bailout should not have taken place, just as the AIG bailout should not have taken place and so on. No government can ever save an economy. The only positive affect they can have on the economy is by lowering taxes. Taxes on a company in general are bad. Subsidizing their profits while letting them suffer 100% of their losses.

The economy is a self-correcting machine, like the planet. Like silly-putty you can stretch it in this direction or that direction but most people only look at the direction they can see, not the unforeseen consequences. If there is a bubble in the economy, probably caused by the “Federal” Reserve with artificial interest rates, that bubble should be allowed to burst. Right now we are seeing this. The harder we fight this deflation the longer it will take for us to hit the bottom and start over. We need to let the market correct itself, we need to hold our head high and take our losses. We need to change the system that creates these problems. So tell the “Big 3” to go home. We the people must not fall in this trap once again.

In Liberty,

Jon Lauro

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