No Double-Dipping!

Fears of a double-dip recession have even reached the farthest reaches of Africa. As I watch the stock market react to all the "assistance" the federal government wants to provide in growing the economy, I wonder if I'm alone in thinking that much of the actions taken by our public servants aren't causing more harm than good. Am I a conspiracy theorist in feeling that the more the government meddles in the market, the more uncertainty is introduced? Does President Obama truly think that announcing a plan to spend $447 billion more in government funds in a "jobs" bill will instill confidence in the Wall Street investor, small business owner, or average consumer? Since when does America need it's government to create jobs through spending? It's time that instead, government steps aside, extricates itself ever-so-slightly from the taxing, monitoring, and regulating of America's entrepreneurial base, and allow businesses to create the jobs that are so desperately needed.


Kevin said...

I'll take a stab at this one. I like your title Jessica. I am very concerned with the amount of debt the government is taking on in order to try and boost the economy. From a financial and business standpoint, I see the logic in the principle of investment. However, government funds should not be handed out like candy in a parade, but should be carefully analyzed to determine if the proposed "investment" is financially sound. I love the old adage, "Give a man a fish and feed him for a day. Teach a man to fish and feed him for a life time". While the plan to spend money in a "jobs" bill may instill confidence in business owners, consumers, and investors, it also has equal chance to simply "give more fish to the people". We can't keep claiming to be a country of free enterprise and acting like socialists.

Dr. Tufte said...

I tend to agree with both Jessica's post and Kevin's comment. Managers are not saying they need more spending. Managers are saying they need less policy uncertainty.

We also have a great current example of Kevin's point about financially sound government "investment" with the investigation of the $500 million that went down the drain at Solyndra.

I don't really think they're going to find a conspiracy or cover-up here. Instead, they're going to find garden variety minor league actions taken by government officials with major league responsibilities.

We spend a lot of time in modern society criticizing the inability of investors with their own money on the line to pick winning investments. The position of contemporary progressives is that if government officials are given even less incentives that they will do a better job. That's pretty bizarre when you think about it.

Lando said...

You know Dr. Tufte, your comment regarding Solyndra makes complete sense to me. About a year ago I put a pretty good chunk of change in stock of Razer Technologies based in Provo, Utah. Razer Technologies is involved in electric Hummers and geothermal development. One of the reasons I purchased this stock was because of the big grant given to them by the government to aid in research and development because they are a "green" company. I thought, "if the government is trusting them with x-millions of dollars, why shouldn't I? Not a year or so later they went belly up taking those millions of dollars with them, probably given out as payroll expense to the executives who walked away with their bonuses following the bankruptcy. On this one I feel like I got burned twice: 1)My tax dollars were given to them. 2) I lost my investment. In conclustion, I agree with all of the above posts, and let off some steam...thanks.

Sam said...

As the government continues to spend money, increase the national debt, and search for new ways to increase federal revenue, people have become more unsure about what is going to happen in the future. With an uncertain future, businesses become risk averse and are less willing to invest money into new infrastructure and employees. This behavior by businesses leads to a slowdown of the economy.

I would like to propose that if the initial bailout which took place back in October of 2008 had not occurred, then the economy would be in a better place than it is today. I realize this is a big statement. From my understanding of economics and the free hand theory it seems like the market would have done a better job righting the wrongs of the financial crisis compared to the results we have seen from the government intervention. As Adam Smith said himself, “In a free market, no regulation of any type will be needed to ensure that the mutually beneficial exchange of goods and services will take place, since the invisible hand will guide market participants to trade in the most mutually beneficial manner”. Here in the United States we claim to have a free market system, however it seems we get further away from it each day.

Dr. Tufte said...

I'll let you slide on the mixed metaphors Sam (free market and invisible hand, not "free hand").

As (primarily a) macroeconomist, I think Sam's position is not that defensible. There's a lot of reason to believe that the Obama stimulus, or for that matter the Bush stimulus that everyone has forgotten, did not do what it was claimed they would.

But, Sam has specifically mentioned the bailouts that occurred in between. For these, the textbook 1) cause, 2) response, and 3) result have pretty much hit the mark; in the event of a 1) liquidity crisis, address the problem by 2) injecting liquidity into the financial system, and 3) sit back and watch as the financial system gets its legs back under it and reduces their liquidity position when they can.

Having said that, I think this crisis was a bit different in that we had both a liquidity and a solvency crisis occurring at the same time, with some overlap. A liquidity crisis can be addressed with more liquidity, that can be provided by the government. A solvency crisis can't be solved by the government because it can't provide solvency (unless it buys all the crappy assets at prices that are too high). But, of course, the government encouraged the creation of off-budget enterprises like Fannie Mae that pushed for the creation of more assets likely to become insolvent. We haven't addressed this problem at all, and Fannie Mae is still in the business of promoting garbage and losing money that is backed up by taxpayers.