Friday, March 27, 2009

Stimulus Spending Is Ineffective

My wife and I have many projects we would like to pursue. We want to build a tool shed, install lattice below our porch, join the local gun club, buy a new car, remove two dead trees from our front yard, buy a new home computer system, increase our retirement account contributions, and much more. There are many competing uses for a limited amount of money.

We must carefully weigh the costs and benefits of the projects and allocate our scarce resources to maximize our happiness as best we can.

If we borrow as much money as possible and spend it in the order of the most “shovel ready” projects on our list until all of the money is gone we would soon find that some of the projects at the bottom of the “shovel ready” list were the ones we wanted or needed most. We would also find ourselves in debt with substantial monthly payments; unable to fund any more projects – perhaps for many years.

Most assuredly, we would discover that we failed to maximize our happiness.

Likewise, our nation is on spending spree funding projects that will fail to maximize our happiness and will leave us in such debt that we will be unable to fund the projects we really need.

So what should a “stimulus package” look like? We could accelerate projects already identified as high priority and we could refund taxes back to the tax payers so they could fund more of their individual priority projects.

Many object that saving or paying off debt would not stimulate the economy. But if families first put their financial houses in order they will soon have the confidence to fund other priority projects.

Links to Other Topics in the Special Report: Economic Stimulus

Tuesday, March 24, 2009

Too Big to Fail

AIG is too big to fail! Fanny Mae is too big to fail! Freddy Mac is too big to fail! General Motors is to big to fail!

Perhaps so - but if a company is too big to fail then it is to big to exist. In the late 1800's we created tools to break up companies into smaller entities.

Using the anti-trust laws Standard Oil was broken up long ago. In my lifetime AT&T (Bell Telephone) was broken up into the "baby Bells". More recently there was a failed attempt to break up Microsoft. It would be much better for our prosperity and our posterity if we use the anti-trust laws to break up companies that are too big to fail and to prevent their creation.