Wednesday, January 21, 2009

Why the Bailout Cannot Work

I have been busy, too busy to blog, what with my new job, getting my house ready to sell, etc. But I have been waiting on Mr. Budge to come out and rail against the misappropriation of the public fisc through the so-called "Bailout.". Unfortunately, Dave seems to remain dormant. Nonetheless, in a spirit of a concerned taxpaying (and yes, tax consuming) citizen, I have decided that I need to address it at at least a basic level.
But first, you have probably heard of the aphorism that "Time is Money." And when you think about any equation, the reverse is also true, i.e. money is time as well.Take a $20 bill out of your wallet and look at it. If you are making minimum wage, that $20 represents approximately three hours of your life. If you are making $40,000 per year, it represents approximately one hour of your life. If you are President Obama at $500,000 per year, it's about 15 minutes, and I have heard that some lawyers are now charging $1,000 per hour in some of the bigger markets, so it is only about three minutes of their life.
The point of the above exercise is to show how much of your life is being taken up by the $850 billion or so "stimulus package." At present, every person in this country owes around $180,000 as their share of the national debt. If you make $9 per hour, that means every working hour of your life, without any exceptions for food, housing or anything else will take 10 years of your life to pay for. With the stimulus in effect, we will easily double our individual share that is owed.
So, where does the money for the stimulus come from? Borrowing of course, but with the 800 lb. gorilla of the Fed borrowing, it reduces the amount of money that can be borrowed by us as individuals, small businesses and even giant corporations. Because the capital will be rarer, it will come with a higher cost (interest rates) which will further sap the amount of money available for improvements or investments.
So, what do we get for our money from the stimulus? Unfortunately, it seems to be a grab bag of every form of perceived need by every government official from the dog catcher all the way up. This is their using your future earnings to finance their pet projects to ensure their election in the future.
At one time, the deficit used to be the constraining feature on this sort of problem. By declaring an emergency, the restraints are removed. All you kids out there under 35, congratulations on your inheriting our excess. We have just leveraged ourselves into involuntary servitude with this stimulus.
And good luck getting that second job to pay for it all.


Anonymous said...


"...some lawyers are now charging $1,000 per year in some of the bigger markets,"

Can you share names - finally a lawyer I can afford.

Steve said...

Oops, I'll fix that Thanks.

Matt Singer said...

$180,000 per individual? Your math is off by a fairly significant amount. The number is closer to $40,000.

That's still a lot, but not nearly what you claim. And debt as a percentage of GDP is way lower than it was in 1945. I wish it hadn't kept climbing up during the relative boom of the middle of the decade, but I didn't exactly have a whole lot of say in that.

Anonymous said...

Your $40K is just the deficit. I am talking about the debt. That is approximately 5.3 Trillion.