I've talked economics a bit here on this blog lately, and I want to take a stab at one more thought. I hope I don't make your eyes glaze over; just bear with me for a minute. It will be worth it.
People can be divided economically into two types: those who contribute to the GDP, and those who don't. (GDP is the total domestic product that is created in a given year, as measured in dollars. That's why we say the economy is $13 trillion). You contribute when you have a job or a business that creates something that people want, causing them to buy it from you.
But let's say that you work in a place that is losing money. Then you're not actually contributing to the GDP in the long run. Today your wages show up on the GDP, but basically you're using your labour to prop up a business or an industry that's dying. It's sucking resources, like labour, and money, and bank loans, that could be going to something else. If your labour were used to prop up something that was growing, the economy would grow MORE. It's great if everyone has a job; but if everyone has a job making stuff that nobody wants, then eventually there's going to be a problem.
How do we tell if people are making stuff that people want to buy? Quite simple. They buy it. But what if you're making stuff and nobody is buying it? And then the government steps in and gives you money, so that you can keep making it anyway? You actually hurt the economy. That money that the government gave you would have been better spent in areas where the economy had growth potential. By putting it in something that was dying, you've just prolonged the death. You haven't prevented it. But you have prevented the birth of other, more profitable, industries. If people were forced to leave the dying industry and start something else, Western ingenuity means that they would.
That's why government intervention into the economy can hurt more than help. What happens when the government pays out a ton in welfare or Social Security? If you know you can get money without working or saving for it, people will not work or save as much. I'm not arguing against either welfare or Social Security; I'm just saying that these can both be a drag on the economy, even if it's a drag that we decide is worth it.
Even foreign aid can do the same thing. Some argue that foreign aid is why Africa is hurting so badly. Listen to Dambisa Moyo, a native Zambian who argues against Bono:
What do you think has held back Africans? I believe it’s largely aid. You get the corruption — historically, leaders have stolen the money without penalty — and you get the dependency, which kills entrepreneurship. You also disenfranchise African citizens, because the government is beholden to foreign donors and not accountable to its people.
Does this mean we shouldn't give money away? Not at all. Moyo recommends microloans (or giving small loans to help entrepreneurs in Africa, something that I've been involed in a lot. We're currently helping girls set up a business making sanitary pads). But why give it to government, when that just encourages corruption? Give it to the people who need it in a way that it is tied to work.
I'm not sure I'm right about what I'm about to say, because I'm not an economist. But a number of people commented on my post about the bailout saying that their bankruptcies actually helped them get a new start. Sure, it was tough, but that was the break they needed. And I wonder if our economy needs something massive like a clean break. Instead of bailout out failing industries, or pouring money into pet projects, we should let the economy fall, because once it does, all those resources that have been piled into losing propositions will get redirected into things that will grow the economy. It's going to be a tough transition, but let's not kid ourselves. That transition is coming anyway. The only question is when.
Do we go through a really hard time now, and then get it over with, or do we try to keep plugging holes, and in the end dig a bigger one for ourselves? Many economists are saying we should just hold our noses and do the stimulus thing. But it doesn't seem to make economic sense to me. All we're doing is telling people to keep on being unproductive, and we're subsidizing people who aren't contributing.
Now I do have sympathy for those caught in the middle. I have friends in the auto industry who are wonderful, hard workers, and I pray for them as often as they come to my mind (there, I just said a prayer for Gary & Mark & Kevin again). But what we're doing right now isn't working. The stock market has plunged 20% since the inauguration, and 40% since Obama took the lead for good in the election. The stock market isn't buying this. And the stock market needs to come up because people my mother's age have responsibly been saving for retirement. And I have sympathy for them, too. (I've been saving, too, but retirement's a lot further away for me, so it's not as much of a catastrophe).
And the stock market will not come back up until regular people believe that it's worth investing in America. They won't believe that until they believe that the economy will grow, and they can't believe that if we're subsidizing a losing scenario.
So I think we need a clean break. I think we need no bailouts, but just maybe a broad stimulus of a corporate tax cut to encourage employment. Am I nuts? Or am I on to something? I really want to know.
About Me: I'm a Christian author of a bunch of books, and a frequent speaker to women's groups and marriage conferences. Best of all, I love homeschooling my daughters, Rebecca and Katie. And I love to knit. Preferably simultaneously.