Please allow me to stress that Bob K. is perfectly right in his statements and the blog author’s reaction to his first comment rather immature. One doesn’t have to be able to do all the calculations, but knowing that any debt will incur interest is something any pupil should be able to do. Furthermore, the debt will tie the government’s hands and reduce the ability to react to other occurrences in the future, in other words: the money spent to feed a dead horse that perished because of fundamental structural problems will be missing when another one with an injury needs a temporary support to pay the hospital. Golfing Girl and Kevin with the “too big to fall” note pointed to interesting facettes as well.

Nevertheless, all the discussion has been focused merely on the cost and pretty much left the benefit out of the consideration. It’s a typical American thing when it comes to taxes, the reason why education sucks and why the times of being “numer 1″ are long gone and an illusion of the past. The military is, sure, but contrary to populat auto-glorification, nobody else wants America to be the global police, so Andrew’s idea is rather irrealistic. In terms of hours worked per day/week, vacations per year, per capita income, educational levels, crime, retirement and health care, public infrastructure, personal/individual and national debt, quality of construction and appliances (or quality in general), ecology, intact families, widening scissors between the rich and the poor or rural and urban areas, and so on, and so on, the EU and some other countries have long outpaced the US in all international comparisons. All that comprises “quality of life” shows that America dropped the ball a long time ago, just that the two entertainment industries (Hollywood and Washington) keep projecting the image of “number 1″ because admitting how rotten the apple is on the inside and facing the consequences would be a shock for the public.

That’s because taxes and governmental interventions and spending are regarded as bad per se — if it is not for a war, although wars are the most costly waste of money that one can think of when comparing the historical figures since the Roman Empire to the present. Sure, there are oil contracts in return, but the profits end up in very few pockets, whereas the costs are socialized across the entire nation. The military industrial complex benefits, the rest pays.

This brings us back to the benefits of public spending. Instead of only looking at the price, it is necessary to look at what you buy for it as well. Would the money be spent on repairing and upgrading the public infrastructure, education, ecology, new sciences and technologies, it could be considered as an investment and blessing for future generations. In this case, however, the money is wasted on supporting a system that has shown to be error prone, as life support for companies who couldn’t compete in the market place, merely to keep a few fat asses on big sofas fat and happy.

The idea to distribute the bailout among the population is erroneous in the first place, because it’s the population who pays for it — not only the tax payers, but everybody in form of higher interest, less government aid because the money and interest are tied up otherwise, tougher credit conditions, economic downturn, and so on. Distributing the money among the people or tax payers would simply mean to take it out of the left pocket to stick it into the right one, with the inevitable loss that the apparatus of redistribution in between eats up.

The justifications for bail-outs are usually “jobs” and the “little shareholder’s retirement”. The real reason are the big shareholders, lobbies and juicy commissions that flow for all the credits. If it was for the jobs and grandparents, the money would have to be divided among them, not among the population. Add to that schools/universities/students/teachers/scientists, welfare moms, unemployed, elderly and handicapped people — dividing the fortune among those would result in an outcry, but it would stimulate the economy much better than dumping it into the same system again, where it ends up as electronic impulses in computers just like before.

Whether or not it is just and fair to distribute the bail-out among the poor and needy is a philosophical question, but from an economical standpoint, it would propel the markets immediately when increased consumption is the objective. These people do not own houses or cars, don’t eat well, can’t afford medicine or even see a doctor, cannot send their children to expensive schools. They have a lot of consumption to do that they never could afford, they would spend it, buy stuff, travel, whatever. Some of them will be smart and save a part in a bank account, which allows banks to hand out credits to the companies that need to purcahse more machines to produce all the stuff that is suddenly being bought, and so on.

We always bark and cry when a poor guy or somebody else who’s just like us gets a break, because we believe that we deserved it more, so “why not me”? We tend to forget that the interest groups behind the scenes stuff their pockets in far more outrageous ways and we hardly ever complain as long as there are panem et circenses. For those interested in the subject, which has nothing to do with conspiracy theory but is sound and fundamental well-researched economic theory, read about ‘Rawl’s veil of ignorance’, ‘small groups versus large groups’ and ‘New Political Economy’.

Again, whether or not bailing out people instead of companies, capital and institutions is better, fair, just or desirable is a philosophical question. From an economic standpoint, though, if heating up the economy is the goal, distributing money among the lower social levels of society (the demand side) is far more effective than dumping it on the supply side all the time, because the demand will go to the suppliers anyway, but not the other way round.

Second, life support for industries that are not competitive cannot make sense in the long run, because it’s a cost without return — for a return, an investment is needed. Instead of supporting the American car industry, which hasn’t really been on par with Asian and European manufacturers since decades, it would be wise to invest in sectors that stand a chance of survival and growth. This will create jobs in new sectors and thereby induce a shift of resources into productive areas instead of wasting it on battles that are already lost. Furthermore, supporting thousands of small businesses is a better strategy in terms of risk diversification, probability of success and wealth distribution than putting all of one’s eggs in a single basket just because the giants are “too big to let them fall”.

Finally, a program of economic stimulation that is debt-financed is always costly due to the bound capital missing in other places and due to interest. A good, sound financing consists in higher taxes for those who do not have to hunger when hit by them. Spending more than one can afford is always twice as expensive and paves the way for another crisis in the future. Governments — and their people — need to learn to save for unforeseen circumstances and not spend more than their income. Now everybody will cry “Higher taxes to stimulate the economy!?!??”. Yes, in the right places, on the right subjects/objects/products/services, that can make sense. The bailout in its current form, without any clear vision, let alone implementation, of a reoprganization of the financial sector, does unfortunately not.

$2.5 Trillion = $377,040 per “rich” taxpayer
$12.1 Trillion = $1,824,877 per “rich” taxpayer

OUCH!!!