Tuesday, November 11, 2008
Bailouts and Perverse Incentives
When we bail companies out, all we are doing is rewarding bad decisions. Why make good decisions? If you are big enough and make a bad enough decision, the government will give you money! And where do they get the money? From those responsible enough to have made a profit by making good decisions. So all a bailout is designed to do is punish good decisions and successful choices, while rewarding bad decisions and failures. Only a government could come up with a massive plan of perverse incentives and say it will help the economy. In both the short and the long term, it will do neither. If they wanted to throw money around, they should have let the companies in question all go under and gave each person $2500, so that a family of four would get $10,000. That's a couple mortgage payments right there. Or at least some high-priced items being bought that gets that money in circulation. And I say that with the opinion that that's not a good idea, either, as it results in the U.S. being in even more debt, which is really bad for us long-term. And you end up paying people not working, which acts as an incentive to continue not working.