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Macro Economics
Stop Bailing, Start Stimulating

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By sailrmac
December 5, 2008

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First we bail out the financial institutions to insure a continued market (actually arguably an investment since it is likely to make a profit but I digress). Next we bail out a chunk of homeowners via Freddie and Fannie. Now we are considering bailing out the automakers. CA wants to be bailed out. Teachers want to be bailed out. and on and on it goes....

While I agree that now is the time for government to stimulate, did anyone ever think that maybe stimulating what isn't working is a bad idea? Maybe instead we should be stimulating what does work?

Don't give money to homeowners who make a bad choices, lie on the applications, get in over their heads, don't pay there bills, are poor credit risks, etc. Don't foster bad habits. If you want to put a bottom in housing prices (which I don't necessarily agree with) incentivize the more responsible to buy (e.g. lower rates on new purchases with good credit and 20% down). In that way at least young families who have saved up down payments and those who make better choices are encouraged.

Likewise don't bailout the automakers. If you want to prop up an automotive industry in the US, provide incentives for those who do what you want: more efficient transportation vehicles. Provide a short term subsidy for the purchase of the type of vehicles you want (in this case probably purchase of more efficient US made vehicles).

You want more people to have work. Fine but don't give them money. Instead spend money on refurbishing and increasing much needed infrastructure.

If the government is going to spend money it doesn't have, at least they can try to spend it on things we want to encourage instead of propping up what has failed.