Wednesday, April 22, 2009

anybody understand the bailouts?

I'm no economist, and my thinking on such matters is largely uninformed and simplistic. That said, I'm not blogging here as an expert but a citizen who's trying to figure out what is going on. But you know what I think that this government bailout is? Trickle down economics, or as the link I've provided later calls it, the "horse-and-sparrow theory" - feed enough oats to the horse, and eventually enough will pass through so the birdies will have something to eat too. Let the companies that are "too big to fail" not fail by propping them up with government money, so that they don't go out of business, so that "regular people" won't lose jobs and their life savings due to a soured stock market. Except instead of tax breaks being given out like candy to the businesses, as people usually think of when they think of the trickle down economics theory, this time it's accountability breaks. The businesses are supposed to use the money to do better work and stay working. That's supposed to keep the economy from kicking the bucket and kicking our butts.

When I first heard about it, it sounded like a necessary evil to me, you know? My understanding is that the government, especially a Republican administration - and when this bailout stuff started, it started under President Bush (though I believe Senator and Presidential Candidate Obama agreed with the plan) - wouldn't want to participate so directly in the marketplace by giving companies money by buying stock in them. My understanding was that capitalism is all about the best competitors excelling in the marketplace, while the inadequate competitors fall by the wayside, encouraging excellence in competition. So, I figured, if the government, first under Bush and then under Obama, was going to participate in the marketplace by basically "betting" on certain struggling businesses that would hurt the public good if they crashed... well then, this must have been really necessary and our only option. It was all gloom and doom in the news. The stock market had people wigging out. At the time, I wasn't thinking, "This sounds like trickle down economics."

But as time passes, and the money has been given out in amounts much larger than I can even fathom, I am hearing that unemployment is still on the rise, that people are still losing big chunks of their life savings, and that the Congressional Oversight Panel isn't quite sure what's really happening to all this money - only some of it is accounted for and we're still not sure whether the equity the country purchased in these floundering companies will turn a profit, according to Elizabeth Warren of the Congressional Oversight Panel, which is in charge of watching what happens to the money.

I believe we were told that this was the best thing the government could come up with at the time to avoid worse consequences, but that no one knew for sure whether or not it would work. I wonder, would the unemployment gains and personal net worth erosions be even worse if we hadn't done this? Or are the problems we're seeing indicating that this plan isn't working? Is it too soon to tell? Either way, we already know that the businesses have benefited - they got the money. But what about the economy for the rest of us who are trying to hold on to jobs and retirement savings? See, that's been one of the criticisms of trickle down economics. We never know quite exactly when the horse isht produces food for the birds.