Reasonable economic concepts contradict the bail-out the free-trading pirate ship approach

Apparently what we have now in the United States, is a free-trading government's money being used to 'bail out' organizations that have lost money, on the grounds that such is necessary in order to save the economy.

What comes to mind--pirates on ships, employed to transfer products that could have been made a mile from the point of sale thousands of miles to the point of sale, attempting to save their ships which are leaking the fuel required for propulsion, by pouring more fuel into the engines that have developed leaking holes, as opposed to patching up the leaking holes in the engines.

Several real or potential problems with the current government approach come to mind.

Investors can lose money without any loss being incurred to the economy as a whole; investors can lose money as a result simply of realism being restored to a situation featuring overvalued assets.

Such types of losses do not involve money disappearing into a black hole in space and do not warrant hysterical over-reaction as if the money had indeed vanished into thin air.

Investors can lose their money with the result that the money they once had falls into the hands of other persons in the economy. In such cases, the argument that money should of course be obtained indirectly from the taxpayers through govt borrowing and govt printing of money, to use on 'Economic Recovery' govt spending programs, as if the money had somehow vanished into some kind of black-hole, does not hold water--because the money has not vanished from the economy, but, rather, has changed hands.

If the money has simply changed hands, one has to wonder: if the goal is to restore lending, borrowing, sales, and purchases to a high level would'nt the economically and governmentally efficient thing to do be to encourage and motivate those who now have the money to use it in ways that promote lending, borrowing, sales, and purchases?

I now (off-the-bat, see the useful CNN piece at http://money.cnn.com/news/specials/storysupplement/bailout_scorecard/ ) estimate that about a third of the 2.6 trillion dollars the US has spent so far since 2007 on unusual 'Economic Recovery Programs', about 900 billion dollars, has been spent 'bailing out' institutions that directly or indirectly lost money by providing mortages to persons who could not repay the mortgages.

In simple terms, they bought houses from house-builders, allowed persons to live in the houses and gradually pay them back the value of the house plus interest; then the persons living in the houses were unable to make the payments.

Thus we ended up with not the money disappearing into a black hole in space, but rather with the homebuilders having the money, and the investors having the houses, which via application of their famous imaginative-investor abilities, they can use to make money with after they kick out those who were unable to keep up with the mortgage payments.

One has to ask why this should result in a crisis atmosphere, as if the money disappeared into a black hole in space, requiring massive govt intervention to bail out the investors who lost money.

Given that govt expenditures are famed for being susceptible to corruption, it is incomprehensible that the govt should spend money restoring the fortunes of the investors who lost money betting on mortgage-backed-securities (polite language, 'hard-to-sell securities', much more common impolite term, 'toxic securities'), without being careful with regards to possible collusion between the investors and the homebuilders.

Various scenarios come to mind in which there is no actual loss to the economy, when overvalued assets become valued at a realistic level.

For example: investors mistakenly bet that some company will fail, but it does not; investors foolishly bet some company will succeed but it fails; investors bet that some commodity will rise in value but it falls in value; investors bet some commodity will fall in value but it rises in value; investors believe some loan will be repaid but it is not; investors believe insuring risks for others will pay off but lose the gamble; persons insured think they have insurance but lo and behold the insuring party cannot make good on its promises.

These situations can result in reduced consumer confidence and reduced investor confidence, resulting in macro-economic weakness. However, it is irrational to assume that consumer overconfidence and investor overconfidence is of course a good thing or that 'bailing out' those whose overvalued investments have become realistically valued is the optimum approach to restore health to the economy.

Tough-love conservative types used to opine that foolish men who build their houses in an improper place, lose their houses, and then find themselves without the insurance they thought they had experiencing loss and suffering, whereas those who wisely choose the location of the house they build experiencing joy, is just a natural part of life and promotes the general economic health.

Consumer overconfidence does not promote the investments and savings that are needed to produce economic growth. Consumers cutting back on spending may mean reduced sales and incomes for some people for some time; but it also means increased incomes for those involved in new added production via the use of the money that is saved.

The free-trade hyper-enthusiasts have been repeating the no-pain no-gain bodybuilding mantra (in part addressed to the gullible mentally inactive ignorant types who worship their own biceps): "free trade will cause painful adjustments, retraining of the work force, but in the end everything will be better".

Yet somehow they forget this mantra when it comes to domestic trade--a philosophical inconsistency similar to the inconsistency wherein by way of some kind of magic trade that crosses a national border is far superior to trade that does not.

When overconfident persons build up organizations featuring unrealistically high valuation of assets, and then their dreams come crashing down to earth and the overvalued assets become realistically valued--govt responding to this by intervening to restore the value of the overvalued assets to an unrealistically high level, could end up at best having no positive impact.

Such government intervention encourages overconfident or fraudulent persons to build up organizations whose assets are overvalued, because they are confident that when the assets become valued at a realistic level as opposed to overvalued, The government will step in to restore the value of the assets to a realistic level.

One has to wonder, what will happen when persons have become used to being overconfident because they think Uncle Sam will bail them out, and then lo and behold Uncle Sam cannot bail them out because nobody will loan money to Uncle Sam and Uncle Sam's money-printing-press has so to speak run out of ink? Conservatives historically have enjoyed pointing out how dependence on government leads to bad habits.

Thus you have (overconfident?) persons spending their time energy and money in complicated schemes designed to produce, or that unintentionally produce, overvalued assets which are then restored to their normal level when the assets come down to a realistic value; if the stakes are high enough the persons involved in such could be persons of superior competence.

Problem is, persons of superior competence putting their time and energy into such fraudulent or overconfident schemes is a waste compared to other ways in which the time and energy of especially competent persons can be used.

What you end up with is a transfer of resources from (humble, not overconfident?) persons who make real actual contributions to the economy by working in organizations whose assets IN REALITY rise from a low value to a high value, to (overconfident?) persons who do not in reality add to the economy through their production of assets that are unrealistically overvalued. This discourages and penalizes those who make actual contributions to the economy by way of participation in organizations whose assets increase in real actual value.

Efficient allocation of resources, involves money being put into activities that produce actual additions to the economy and thus reward the prduent investors. Efficient allocation of resources, does not involve, overconfident investors putting money into fruitless activities that produce no addition to the economy and thus also losses for investors.
Bailing out foolish investors combined with taxing wise investors, does not promote efficient allocation of resources.

Even if bailouts improve things to some extent, one has to ask, what would be the result if the trillions of dollars were used in other different ways? If you could get ten times better results using the trillions in other different ways, the fact that the bailouts accomplish a little, is meaningless.

Money spent on 'Economic Recovery' that is spent on activities which promote the replacement of imports with domestic production, can be expected to improve the US economic situation. Money that is spent on 'Economic Recovery' that does not promote import replacement can be expected to at best cause no harm.

This declared without malice for our friends in foreign lands; perhaps one day we will be friends in some world in which friendships are not disrupted by national economic policy controversies.

When every nation takes care of itself, and has a strong national economy going, you have the basis for lasting international trade pathways that improve the health of the world's economy.

Some nations can produce certain goods and services at relatively high costs of production. Other nations produce certain goods and services at relatively low costs of production. The world's economy is optimized when a given good or service is produced not just in the nations where such are produced most cheaply, but rather, in the nations where they are produced cheaply and ALSO in the nations where they are produced expensively.

When the goods and services in question are produced in both types of nations, the world's overall possession of goods and services exceeds the world's possession of goods and services when goods and services are produces only in the nations where they are most cheaply produced.

Whereas with the current momentum in the direction of producing goods and services only in the nations where such are most cheaply produced, there is a high level of unemployment and underemployment in the world, featuring persons not involved in productive activity, when the goods and services are produced in both nations where such are expensive to produce and ALSO in nations where such are inexpensive to produce, there is employment, persons involved in productive activity.

A prosperous, employed world is in a better position to achieve flourishing international trade compared to a poor unemployed world, because the prosperous and productive can buy and sell whereas the poor and undproductive cannot.

The hyper-enthusiasm re international trade involves the inefficiency of goods that could have been made a mile from the point of sale being produced thousands of miles away from the point of sale and then transported.

The fact that a strong imagination can invent situations where the restriction of trade becomes absurd and harmful to all parties involved, does not disprove these points.

When trade involving goods and services that do not need to be internationally traded is de-emphasized, the result is a beneficial emphasis on trade in goods and services which is necessary.

I do not mean to be excessively harsh with unfortunate persons who have lost money due to investments. There should be a safety net allowing for such persons to have the basics of life at a level similar to those who get SSI and SDI because of some disability.


@2009 David Virgil Hobbs

Bailouts and Aid for US Companies are Not 'Free Trade'

It would be almost funny, were it not so tragic, to watch all these insolent free-trade fanatics fall all over themselves implementing all sorts of economic band-aids like 'bailouts for companies' and 'aid for companies' that contradict free trade, in attempts to save the credit/banking and automobile industries.

The bailouters and aiders dare not even mention the possibility of resorting to tariffs, because if they did, they would be admitting that they have been wrong about free trade. Instead they enthuse over US govt "bailouts" and "aid" for US companies, because they think that such terms can mask the fact that they are contradicting the free trade doctrine (and probably their free-trade agreements), and their previous free-trade fanaticism, which involved such huge levels of insolence for those who dared to disagree with them--despite the fact that their so-called free trade was filled with defects such as:

Us tariffing them less then they tariff us; obliviousness re the distortion caused when one nation hates the other more than the other hates it; a lack of concern for hidden subsidies and hidden tariffs used by competing nations; naivete re foreign nations manipulating currency values to take advantage of other nations; amnesia re the obvious distortion produced by wage levels in one nation being higher than another; the folly of failing to appreciate multiplier effects as labor spends its wages buying from their fellow citizens who in turn also spend and invest etc.

As if a situation featuring every national government "bailing-out" and "aiding" companies of their own nation, was a classical expression of the "free-trade" these idolaters of so-called free trade have historically so ferociously propounded.

How can these people simultaneously insult those who oppose their so-called free trade doctrines, and at the same time proceed to spend trillions of dollars, "bailing-out" and "aiding" certain pet companies?

"we kint admit thet we were wrong about free trade an' increase tariffs. Now we'll jest use bailouts an' aid fo' pet companies, an' pretend thet by doin' this hyar we is still bein' th' wise free traders thet we haf allwus been, as enny fool kin plainly see." (take that, Free-Trading Larry Summers Worshipping Harvard Crimson, of the Harvard that employed hundreds of teen-aged girls who never went to college instead of me, the Harvard grad Harvard man)

Sufficient tariffs (foreigners should be allowed to choose between exporting to us and setting up plant in our nation), inviting foreign producers to produce in our nation, compared to bailouts and aid are less likely to act as incentives promoting incompetence and corruption.

Another almost laughable facet of the matter is that some companies are considered 'too big' to be allowed to fail, whereas other companies are considered 'small enough to be allowed to fail'. It defies belief that persons who are above the level of moron in intelligence should think this way. Obviously, twenty companies with a billion dollars in sales each, are the equivalent of one company with twenty billion dollars in sales. So then how can one billion dollar companies be considered 'small enough' to be allowed to fail, whereas the one large company is considered to be 'too big to be allowed to fail'. This kind of favoritism, this kind of thinking is an extreme contradiction of the free-trade doctrine and the elements of the free-trade doctrine that are wise and reasonable or point in the direction of wisdom and reason.

"Uhh, duh, Dehe are twebuhnty c'panies dat each habe a billion dollars in sales. Dese twebuhnty c'panies put togedeh habe twebuhnty billion dollars in sales but dat is not ekal t' one c'pany wid twebuhnty billion dollars in sales, duuhhhh, cuz twebuhnty times one 'n one times twebuhnty are not the, ERRRR, same ding".

Then you have the problem that we are all being asked to bail out automobile companies in the Detroit Michigan area, as we were previously told we should bail out banks in the New York City area. In contradiction to this, for a long time I have been interested in the idea that the way to get the economy of Massachusetts (the state in which I reside) going, is to produce a situation where the people of Massachusetts make the cars that they use. What is there in this bailout for Detroit Michigan, thatgives us in Massachusetts even a fighting chance to produce some of the cars that we use?


I do not have hundreds of people working for me like these "free-traders" who are into government bailouts and aid for their nation's big companies do, you would be wise to take such into account when comparing my words with theirs; I am at a disadvantage. Anyway from my perspective, it appears that these free-trade & bailouts & aid worshipping creatures would be taking a step forwards if they were able to admit that what they are now advocating, bailouts and aid, is not free-trade, and so therefore now they are no longer justified in opposing the lowly and maligned art of utilizing tariffs on imports. Tariffs have a proven history of producing economic growth. Many of the most intelligent and respectable statesmen and thinkers of the past have lined up behind tariffs. Not so with national government "bail-outs" and "aid" for 'special', 'too big to be allowed to fail' pet companies.

Tariffs can be reasonable when they accurately compensate for the lower costs of production faced by foreign producers, so that the tariff covers the difference between the lower costs of production enjoyed by foreigners and the costs of production in the home nation. Tariffs can serve to entice foreign automakers to produce their automobiles in the our nation while employing our citizens.

True it is possible that unions can take advantage of the rest of the population by forcing employers to pay them exorbitant wages and benefits, the cost of which is passed on to the consumer; but the present situation in the nation is closer to the ideal situation which basically features for the entire work-force one high minimum wage, than it is to the distorted situation featuring unions taking advantage of consumers. In the present situation, there exist in the world highly competent foreign auto producers whose existence and competition provides a natural barrier against price-fixing on the part of US auto manufacturers.

True, for years third world nations suffered economically due to their inability to export; but now our nation has bled itself almost to death via trade deficits (the nation's economy is now based on impermanent foundations such as money borrowed from foreigners and money on hand due to sales of assets to foreigners) that have given the third world a fighting chance.

Now in the present due to technological developments, the third world is capable of attaining prosperity without depending on exports to generate such prosperity. Third world nations that screw themselves up by failing to attain to a prosperity that is easily attainable, have themselves to blame for failing to attain to prosperity; it is difficult to defend the idea that meddling in foreign nations's affairs to rectify their inability to attain to attainable prosperity should be a high priority for our nation.

Scriptures written for the guidance of all nations, declare that persons should do their best to provide for their families and to not betray their nation. Those who betray their nation generally speaking, are also betraying their families.

The details of our constitution may with the passage of time and changes in human society become somewhat out of date, but the general intent of the constitution as expressed in the preamble stands the test of time: the constitution states that two basic purposes of the constitution are to promote the general welfare and to "secure blessings" for the posterity, meaning the descendants of the people.

Our nation has the potential to bring all kinds of fun and joy and good spirits and material and spiritual prosperity to the rest of mankind, but we cannot do this if we are living in poverty (we cannot do this if we are led by those who desire to materially and spiritually damage mankind but that is another subject).


@2008 David Virgil Hobbs