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I think people underestimate the effect of bailouts and use less precise reasons for objecting the bailout of firms, most people emphasize the fact that bailouts are essentially financing this incoherent conception of a "bourgeoisie" class, while I do think that that is a very m-
uch a valid criticism of bailouts, I think it is not very satisfactory--it is too ideological. Most people never emphasize the full negative economic effects of bailouts on firms. When a firm, or an extension of a firm is failing, usually, it liquidates their assets--sells their
capital goods, and other factors of production at a discount price, and in a way, allocates factors that used to be in unproductive production processes to more productive production processes, imagine it as a market-correcting process, if you will. Bailouts necessarily halt this
process from happening, if you ramp up spending in these firms/sectors that are failing, you create what is commonly known as "zombie firms", these firms hold factors that *could have been used* in more productive production processes. What this does is it drags along the economy
and slow productivity in the long-run.
A common objection to this point is highlighting that firms will necessarily have to lay off workers and therefore keep people unemployed. This is a solid objection, but one based off of a misconception; we could employ workers to do labo-
A common objection to this point is highlighting that firms will necessarily have to lay off workers and therefore keep people unemployed. This is a solid objection, but one based off of a misconception; we could employ workers to do labo-
rious and repetitive jobs, like for example employing 500 people to dig a hole for no reason. Yes, this would create employment, but for what? What is the point of production if it is not to satisfy demand? You are essentially starving another sector of its inputs and
over-expanding other sectors.
I think this common misconception is a product of just looking at lines, numbers going up and down on a graph. The line going up equating to prosperity and the line going down equating to market failure or society crumbling.
I think this common misconception is a product of just looking at lines, numbers going up and down on a graph. The line going up equating to prosperity and the line going down equating to market failure or society crumbling.
Keeping people employed for the sake of it and keeping factors from being allocated from unproductive sectors to productive sectors does not help society prosper in any meaningful way.
