Quote:
Originally Posted by mcsluggo
that crowding out argument holds A LITTLE water in normal economic times -- but in ALL times the concept is abused all to hell, and over stated. (UNLESS you mean that $1 of government bailaout money spent here is $1 that the governement doesn't have to bail out somebody else... in which case you might have a point, but somehow I doubt that is the source of your angst)
$1 invested by the government does NOT mean that there is $1 less for the private sector to invest somewhere else. Investment dollars are not a fixed stock, zero sum game. $1 of government investment will crowd out private sector investment to the extent that the $1 affects the price of investment capital (interest rate) and makes some investmetn that otherwise would have been attractive at teh OLD price no longer attractive at the new price.
In todays capital markets, when things are semi-frozen up, the relationship breaks down almost entirely. Private sector is not very interested in lending right now (to anyone BUT the USG) and is not very price sensitive.... it is very hard to "crowd out" the private sector, when they have already bolted for the exits.
it is easy to make arguments that in the medium to long run, there could/would be problems - the government doesn't make the most objective nor intelligent investments... and worst of all, there is a sort of inertia to this sort of investment (once the door has been cracked, the slope is greased for FUTURE investments that might occur, and even if they DON'T accur, use up valuable auto industry resources grubbing for them (rent seaking behavior))
..but in the short run? when credit markets are seized up? Sorry, I don't see any crowding out arguments.
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you are absolutely right that the stock of investment dollars is not a zero sum game. the stock is, in fact, as large as federal reserve computers can compute. this alchemy, however, doesn't do anything to resolve problems of inefficient use of scarce resources.
and if land, buildings, machinery and equipment, labor, etc....aren't scarce, then there is really no need to debate economics and we should all quit our jobs and wait on the government to send us goodies.
so, what the federal government is doing is saying that certain land, buildings, machinery, labor, etc, should be employed in one endeavor rather than another. that is an inescapable truth. that may be good for the big three auto makers, but it is most certainly not good for the other unseen endeavor.
it's easy enough to say that the private lenders aren't lending...and I think the most plausible reason they're not lending is because there is a vast federal reserve induced disconnect between viable business ventures and prevailing rates of return. the federal government does nothing but exacerbate the problem by propping failing businesses up while keeping interest rates down.