Excerpt Of The Day: The Almost Unfathomable Cost Of The Bailout

by John Hawkins | November 26, 2008 4:17 am

“Jim Bianco of Bianco Research crunched the inflation adjusted numbers. The bailout has cost more than all of these big budget government expenditures – combined:

* Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion

* Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion

* Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion

* S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion

* Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion

* The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)

* Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion

* Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion

* NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

TOTAL: $3.92 trillion” — The Corner[1]

Bonus: According to Arthur Laffer[2] of Laffer Curve fame, the bailout is hurting the economy, not helping it.

Here’s the bottom line: Instead of making things better, increased spending will only drive our economy further into the ground.

…The government can only transfer resources; it can’t create resources. There is no tooth fairy. Every dollar given to someone comes from someone else. The government can’t bail some people out of trouble without putting other people into trouble, plus a hefty “toll for the troll.”

…To see this point more intuitively, imagine what the “stimulus effect” would be if they borrowed the $700 billion from the same people to whom they gave the $700 billion and then promised to raise their taxes by enough in the future to pay off their bonds. Where’s the stimulus in that?

This point is hugely important. For the proponents of increased government spending to argue that their policies will increase output, it is absolutely essential that the increased spending by transfer recipients more than offset any decline in spending by others. If the income effects of fiscal policy net to zero, there is no rationale for these spending policies. And, the income effects of fiscal policy do indeed net to zero.

The diffuse and imprecise nature of just who bares the increased tax liabilities makes the point difficult to understand. We all know who benefits from government programs: mortgage holders, undercapitalized banks, auto companies, low-income earners and the like. But who bears the increased tax burden? That’s a far trickier question, the answer to which I don’t have. But in the aggregate I do know that for every beneficiary of government spending there is someone who has to pay for it. As Milton Friedman so wisely noted, “There ain’t no such thing as a free lunch.”