In an op-ed column in the New York Times yesterday, William Poole, a senior fellow at the Cato Institute and the president and chief executive of the Federal Reserve Bank of St. Louis from 1998 to 2008, wieghs in on the subject of bailouts. He points out that this recession is unique in that it was caused almost entirely by mortgage defaults and the consequent insolvency of major financial firms. These insolvencies, and especially fear of them, damaged normal credit mechanisms.
He points out that the amount of money being circulated has increased greatly starting in September, and that will help the country pull out of the recession by the end of this year. He points out in the article:
"Federal policy is damaging the economy's prospects. It fails to provide the needed tax incentives for investment in factories and equipment, incentives that were central to efforts to revive the economy during the Kennedy-Johnson era and under Ronald Reagan. But government spending can't lead the way to sustained recovery, because its stimulating effect will be offset by anticipated higher taxes and the need to finance the deficit."
Bailouts are not constructive, and they add uncertainty to our financial situation because there seem to be no consistent rules on who is bailed out and who is not. Bailouts also open the door for government intervention into corporate matters that they have no business intervening in. The degree of uncertainty that this creates is not good for economic growth.
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