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I read an article on the CBS Sportsline website about the indirect use of bailout funds (a.k.a. economic rescue package) for the sponsorship of sporting events. The article raised some interesting points:
http://www.sportsline.com/golf/story/11100959
As I understand it, the author’s chief complaint is that a federal rescue plan designed to shield the “working class” from the horrors of economic disaster is, at least in some cases, taking taxpayer money and giving it away as prize money to über -wealthy athletes. In other words, if handing government aid to big corporations is intended to trickle down to the “working class,” then such companies should use the money to retain more employees instead of spending it on presumably less important sports sponsorship.
I have two things to say about this.
First, for the sake of argument, I will assume that the “rescue package” used was indeed a good plan, at least theoretically. Let’s all agree on that for now. What is the strategy exactly? I will summarize the plan and its purpose for you as objectively as I can. Certain banks were in real danger of shutting down, which would result in a major shockwave in our economy. Such a shockwave would inevitably impact a lot of people, including the “working class.” In order to protect such people who would be unfairly set back by the banks’ bankruptcy, the federal government sought to assist endangered banks to make sure that they remain solvent and prevent negative repercussions through our economy as a whole.
Thus, the mission is to protect the “working class”, but the tactic is to protect endangered banks. So, when we give money to banks, we should be vigilant for “parachute packages” where upper-ups make off with cash while the company goes down in flames. But aside from such self-destructive actions, we should encourage (not discourage) the banks to take whatever action necessary to secure themselves financially and to grow, according to the previously stated tactic. If the banks remain financially insecure and stagnant as a result of our aid, then we have accomplished nothing for the working class.
That being said, is it really useful to make sure that the banks meet employment standards, or wage standards, or whatever else we perceive as superficially helping the working class? Banks do not exist primarily to provide employment. They are businesses, and employment is a cost. Only businesses which optimize with respect to gains and costs will be financially secure. If you want to stick with a strategy of helping banks to reach that optimal equilibrium, then you have to allow them to optimize. This means they will sometimes lay people off and they will sometimes spend money on billboards, TV advertisements, or even sporting event sponsorship. But America’s taxpayers are better off with such a bank than with a bankrupt bank. After all, keeping such banks afloat is our shield from economic hardship.
Now for my second point: perhaps this tactic is not very good at accomplishing our mission. Perhaps keeping struggling banks afloat is not the best method for shielding the working class. I’m afraid we’re realizing too late that the tactic is indeed crap. Actually, 80% of Americans knew this before the bailout was approved in the House and Senate, but the politicians ignored their constituents in their Washingtonian wisdom. The tax dollars transferred from the “working class” to the failing banks are yielding little in return. Foreclosures are skyrocketing all across the nation. Inflation shocks are destroying our currency. The government is calling for more money and continuing bailouts in the future. In short, the problem is far from solved.
As I said before the bailout was passed, such a money transfer represents “free” insurance for banks to take on additional risk in their lending practices. More risk means potentially greater return, but also the possibility of total failure. These banks are in danger for a reason. By taking money from taxpayers to bail them out, we only reinforce the bad behavior that got them into the crisis situation, and thus ensuring that we will continue to see crises in the future.
Given that the federal government must spend $700 billion to shield the working class from economic hardship, it’s hard to think of a worse way to spend the money than to give it to the banks that created the problem. Banks that make bad decisions need to go under. That is the natural and optimal result of free markets. If the government must be involved, then it would do better just giving the money back to the people directly. Or for that matter, the government could subsidize banks that make good business decisions (are we really going to let the government buy all risky mortgages??).
In conclusion, I think we can’t complain about how the rescue funds recipients spend their money, so long as it’s for the good of the company. While I obviously think the rescue package is less than useful, I assert that we are only shooting ourselves in the foot if we force inefficient business regulations on already struggling banks.
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You may notice I have placed "working class" in quotations. I disdain this term, and primarily use it while attempting to represent someone's views. If I use it representing my own view, then it takes on an unconventional definition. According to modern conventions of class warfare, the middle and lower classes are considered to be "working class" because they labor for a living, whereas higher income earners are not included in the "working class" because they merely exploit the labor of others and therefore do not deserve higher compensation (or perhaps any compensation). This reasoning is flawed and poisonous to the American Dream. The vast majority "upper class" people earn a high income because they worked hard and sacrificed more to get there. As in every class, there are exceptions--people who have things handed to them--but I believe that every person is entitled to the product of his labor, whether that product is great or small. My view is not commonly shared by a society that believes every person is entitled to a certain lifestyle standard, regardless of labor production. This entitlement view is counter-productive and in fact enslaves people to poverty instead of liberating them with opportunity.
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