With Bailouts, Stimulus Politicians Look Only at the Short-term

Quick-fixes to the economy only prop up status quo, make problems worse

In any debate it is essential to define terms. One will never get very far establishing a convincing argument without mutual understanding of concepts. When it comes to the raging economic debate there is gross negligence in defining terms-particularly in defining end goals.

Progressive economists argue that a financial stimulus would help “restart” the economy. Free marketers say that a stimulus won’t “work.” But what do the terms “restart” and “work” mean? Economists, politicians, and citizens are all talking past each other when debating policy solutions that are seeking different ends.

While classical liberals and market paternalists desire both short-term economic growth and long-term fiscal health in general, they favor different policy solutions based on the perspective they believe to be most important. The policy solutions we pursue reveal our true favored end, our sunnum bonum. That desired end is what guides choices between competing goods in economic policy-such as save jobs today, or encourage economic growth to create jobs tomorrow.

Letting the Big Three automakers go bankrupt would cause some job loss today, but the creative destruction would create even more, better jobs tomorrow. The question becomes: is preserving jobs today more important? One end favors long-term growth, the other end prefers short-term stability. With different goals in mind, it is understandable that different policy solutions would present themselves.

The dichotomy of ends is between short-term, static and long-term, dynamic thinking. Letting Lehman Brothers file for bankruptcy meets the long-term end of the libertarian: creative destruction leading to greater prosperity in the future through functioning competition. But the failure of Lehman does not meet the short-term policy end of paternalists who seek to maintain jobs in the present day market and keep the stock market from going down.

Often times, the defenders of one end are not ignorant of what their position gives up. Many who defended the $700 billion bailout understood that the short-term solution might cause unseen losses long-term. To save jobs and financial markets, Congress and the Bush administration were willing to run the risks of moral hazard, market dependency, and lost value from what would have been created by more bankruptcies.

The trade-off was a conscious choice. Especially by the supposed free marketers who defended the bailout, made all the more acceptable because the long-term negatives are inherently difficult to identify. Remember, libertarians warn of unseen losses in the future that aren’t necessarily quantifiable, but do exist.

Where bailout economists place more importance on short-term solutions, libertarians are thinking about the long-term consequences and opportunities. This long-term perspective is aided by a constrained view of the human condition. Society will never be perfect and there will always be some unemployment. Recessions are merely market clearing mechanisms that lead to a new day tomorrow, and certainly should not be construed as ‘end of the world’ depressions.

However, libertarians must readily admit that there are transitional losses with large unemployment. The bankruptcy of the Big Three would cause roughly 80,000 jobs to be lost in the Detroit area alone-not counting job losses from business that provided services to those now unemployed.

Sure those people can move and get jobs elsewhere. Entrepreneurs will find ways to innovate, especially with a large human resource pool. The job losses would not be forever. Those are some of the reasons bankruptcy is ok.

But there are only so many Wal-Mart jobs immediately available. There would be some financial losses, some loan defaults, some food bank visits. This is the trade-off for long-term prosperity.

The reason why many free market proposals to the economic crisis are ignored is that the resulting ends of the policy are not the ends that the populous wants, because of what America has become.

Capitalism never meant a perfect economy with perpetual prosperity for all. The market is an evolutionary process with risk, reward, and loss. Sacrifice and economic pain tolerance are necessary-and were accepted by previous American generations-as the market rolls in cycles.

If America wants a free market, she has to be willing to accept the results of competition and risk. There will be winners and losers, success and failures.

Though that sounds bleak or cold to some, the alternative is worse. Planned economies do not last. They do not “work” in the sense that they cannot be maintained long-term, though people may have jobs for the next 24 months. While there may not be income equality America, the standard of living for all is amazingly high compared to the rest of the world.

Ultimately, pursuing short-term economic policy requires increased government growth and spending, which eventually requires higher taxes, reducing market capital and causing the system to collapse in on itself. Preferring short-term stability only props up the problems with the status quo.

Short-term ends, being unsustainable, cause more problems and economic pain at the end of the day. While long-term policies involve short-term pain, the broader view reveals more sustained economic growth, comfort, and prosperity for all.