When is economic assistance appropriate?

[synchro]

Governments have to respond in times of crisis, the question is in what areas of the economy and to what degree? The Obama administration "bailed out" GM and Chrysler, and recently these companies have posted strong sales results and have started employing more people. However, are the benefits of this intervention outweighed by the costs? Was it worth debt burdening future generations so Homer could keep driving his U.S. made car?

Homer's Firebird

[2046]

The question is actually “Does the government need to intervene in the economy in times of crisis?” and the answer is decidedly “No!” All the government can do is make the situation worse by the initiation of physical force to transfer capital from satisfying urgent wants to the inefficient firm. But you point out that they are employing people still. However, the thing to look at is not what is the immediately seen fact of "jobs saved," but at the actual effect of subsidizing the inefficient at the expense of the efficient. You see the jobs "saved" by the bailout, but you are not considering the not-directly-seen jobs lost and jobs not created by redirecting scarce resources to the inefficient firm. The government has not in fact saved any jobs, it has only abolished on the one hand at least as many jobs than it has kept on the other hand. GM and Crystler were kept in business, at the expense of other jobs not created and other businesses not saved and other products not brought to the market, products that can support themselves without parasitically leeching off of others, that is, products which are profitable, which means, satisfying consumers' wants.

In the case of a firm in crisis, the best remedy is "hands off!" The government should do nothing to prevent the bankruptcy or liquidation of failing industries, it should not give them "loans," subsidies, or bail them out, or nationalize them. It should let them proceed quickly to restructuring capital and labor to its most efficient use. The sooner the adjustment process is allowed to work out, the sooner a return to normalcy, and a rebalancing of the economy occurs. If the government does intervene in all its most favored ways during a crisis, the result is exactly what we have been experiencing: the economy is stuck in a chronic depressive state and a recovery is pushed further out into the future.

This is not only just the practical solution for the economy, but the morally sound solution, as it does not require the sacrifice of anyone to anyone else, or the theft of any man's hard earned savings to subsidize the irresponsibility of the well-connected pressure groups and interests.

See the excellent book: Economics in One Lesson by Henry Hazlitt, especially Chapter 14 on this topic, "Saving the X Industry." You can read it online for free here: http://www.hacer.org/pdf/Hazlitt00.pdf

[mmmcannibalism]

You should actually gain an understanding of Objectivism before posting questions about it on a message board.

[James Madison Fanboy]

You should actually gain an understanding of Objectivism before posting questions about it on a message board.

This strikes me as a cheap reply, mmmcannibalism. You certainly live up to your username, what with your attacking outsiders for posing questions. What's more, your snide remark does nothing to address the questions being presented, but only shows your arrogance. As an outsider and fiscally Conservative/Libertarian newcomer to this site (that is, someone who is your outside ally though not direct team member in the fight against Collectivism and the involuntarily redistribution of wealth,) I'm a little disappointed and not impressed in the least. As a point of interest, your crass remark amounts, in my opinion, to a deliberate or inadvertent attempt to discourage inquiry. It may be deliberate in that you may not have the slightest interest in discussing these subjects with those who do not hold your views, and thus wish to stamp out external inquiry. Or it may perhaps be accidental, and a mere consequence of your momentary inability to articulate your opinion, but simultaneous need to say something witty. Whatever the reason, perhaps a few proponents of Capitalism ought to work on their marketing technique, by which I mean you personally would do well not to sound so dismissive of questions.

In any case, do you suppose that everyone on this site is an Objectivist or is someone who is familiar enough with Objectivist thought to be able to carry on an informed discussion on such a specific philosophy? I certainly hope not. It may very well be--I do not know--that the majority of people here are Objectivists. But it will manifestly obvious that not all are, if only by my presence and that of Syncro's. And I should think that you would view any questions as a great opportunity to explain your philosophical differences and reason accordingly. I would hope that members of such a forum would be able to defend their principles in a level-headed manner, like that of 2046.

Asking Syncro or me or anyone else to gain "an understanding of Objectivism before posting" is cheap. That does not mean we should avoid gaining an understanding over time, of course. But how much must we know to ask questions and share opinions about economics and philosophy? What is the criterion for posting here? I could understand your annoyance if this is what you had read:

"hey u guyz all really need 2 chill, ok?. ignerant ppl r against the govrnment, but government helps ppl who dont have jobs so thy can help there famles. i think that th world would b a scary plce if their was no govrnment. u got to look @ this like if u were w/ ur famlie and didnt have no cash. what would u do, u know? this world is a good world cuz we have pple in powr who care 4 us. the korporations would just make stuff worse cuz they polute the earth an people dont live long and stuff. prophet jus letz ppl b greedy and we nd 2 share cuz were not the only ones here."

Now, sadly such great 7th grade treatises as the above are scattered throughout the internet, due in part to our August Leftwing American Public 'Education' System, which deams indocrination against Capitalism as more important than teaching the basics of English grammar these days. And had you run across such an egregious post here I can readily understand why you would have responded as you did. Furthermore, I could understand why you would be agitated by someone posting something like the above as the first post.

Yet I have an additional complaint about your suggestion to "gain an understanding of Objectivism." You see, in a world where time constraints were not a factor and we had ample time to study everything under the sun, such a comment as you made might actually be a just admonishment. However, people do not have such luxuries, what with work, friends, family and other things. I'm a Tea Party/fiscal rightwing political activist. I go to work, college, practice shooting, go hiking, hang out with my friends and girlfriend, read, etc. We outsiders come to forums such as this precisely to discuss these things with a degree of interest, but most are probably not bent on developing such a specific knowledge of Objectivism as you pressumably have gained, due to other specialized interests in economics or politics. Unless you are deliberately attempting to isolate yourself from external feedback, it is preposterous for you to propose we gain an understanding of Objectivism before posting. After all, how do you define when a person has the appropriate level of knowledge on the subject to post? We're on you guy's site, and you have the nuggets knowledge we're interested in for purposes of efficiency and a cross-ideological discussion. The burden of proof is on you to explain your opinions and why you hold them, since I do not necessarily hold them. If you do not want to explain, at least have the decency not to shut down questions. Instead, adjust yourself to outsiders like 2046 does. Just a suggestion.

Now then, please notice how the bulk of Synchro's post seeks answers to inquiries rather consisting of insults or otherwise accusatory content at Objectivists. Note how his post is coherent and asks pertinent questions you ought to jump at the chance to answer. Snycro starts with a premise which I would argue is not correct. He says that governments have to respond in times of financial crisis. Really? So governments have, then, an obligation to respond in times of financial crisis? Well, this would appear to not have taken into account the possibility that the root of the financial crisis is found in government rather than the private sector. And that maybe excessive government regulations and restrictions, as well as high taxes may have been the cause of the financial crisis in the first place, in addition to the artificial bubbles via price controls.

In this case we should not desire government to respond, since the only thing government can come up with to solve problems is yet higher taxes, Marxist pitting group-against-group for the redistribution of resources, and the discouraging of individual initiative and efficiency on the grounds of a 'moral' call to action. New bureaucracies, rather than improving people, make the people beholden to gov bureaucrats. 2046 has stated the thing far more briefly and coherently than I can at present, but needless to say I'm inclined to agree with his analysis. Now, the views we hold on that subject are constantly being debated, and even now economists question whether the recession was caused by too much government intervention or not enough. Based on my understanding of economics from a novice student of the Supply-Side perspective, I'm convinced that the problem was too much government, or, if you will, Big Government intruding into the market process.

All that not withstanding, note how many questions Synchro asks. It should be obvious that his intent is to start a discussion as opposed to merely railing against the opposition. Whether I stick around this site or not is probably going to depend on whether there are more people like you or more people like 2046 around here. Right now, just reading 46's posts has had the effect of me deciding to stay for the time being. But if your intent is to discourage external inquiry on this site, Cannibalism, know that you're well on your way to accomplishing this.

　

　

　

[Steve D'Ippolito]

Many here appear to labor under the misconception that there is some sort of minimum knowledge of Objectivism necessary to join this forum. I just went and checked the rules ( http://forum.ObjectivismOnline.com/index.php?app=forums&module=extras&section=boardrules ) and there is no such minimum. So I don't think that mmmcannibalism was justified, unless he had cause to think Syncro was trying to advocate a non-Objectivist position (but mmmmcannibalism would have said so if he did). I do know some people look on this as a place to "hang out" with other Objectivists (its a break from being out there in the "real world" surrounded by people who have no clue where we are coming from and might be hostile if they did) and aren't particularly interested in answering "new guy" questions but the appropriate thing for those not interested in doing so is to simply ignore the question and let someone else field it. That was my response the first time I saw this thread.

That having been said I'm going to suggest a strategy that might help the two of you (James Madison Fanboy and Syncro) get answers to lots of questions quickly, and that is to go to http://objectivistanswers.com/ . The benefit there is it's basically organized as an FAQ site, and you will find--instantly, with no delay waiting for a response--answers to many questions there. And of course if you cannot find your question there, you can ask a new one, and the explicit purpose of the site is to answer questions. Even there though you might wind up getting answers to a few specific questions and wondering how the answers all tie together. Most of the answers there will try to provide that grounding but it may well be bewildering in any case. At that point I'd recommend some of the books, but I don't know where you are at and what you have read already at this point so if I were to recommend something it might be something one or the other of you has already read.

I *will*, however point James Madison Fanboy to chapter 17 of Ayn Rand's "Capitalism: The Unknown Ideal" (abbreviated CUI for convenience) as that is the essay Ayn Rand wrote regarding the 1964 Republican Convention, at which Barry Goldwater made the statement quoted in his (James Madison Fanboy's) signature. (My apologies to you if you've already read that.) I've noticed when looking for the book at a brick-and-mortar bookstore that oftentimes it's in the business section, not the philosophy section. If you haven't read the book yet it is probably the second bit of non-fiction to read after Virtue of Selfishness (VOS).

[Zip]

Governments have to respond in times of crisis

Do they?

Why?

If your statement is true do you agree then that a successful company should have its advantage removed in order to prop up a failing one? In other words, do you believe in rewarding failure and punishing success?

If your statement is true do you believe that your money should be used to achieve the above goal?

With regard to Chrysler what do you think would have been the effect on the auto industry if Chrysler had gone under?

Would there have been a car shortage? - No, the other, more successful players within the market would have made up for Chrysler's demise. That is a reward for success, not a punishment.

Perhaps you are worried about the number of jobs lost...

But consider this, if the other manufacturers are dividing up Chrysler's share of the market then they would most likely have to increase the number of people working for them, and would at the very least have to increase production. If they need to hire more people then who better than a skilled or semi-skilled worker who is already familiar with the industry. Perhaps there would even be a need for another plant to satisfy demand... What better than to buy a purpose built structure in a pace where the aforementioned workers live.

[softwareNerd]

The Obama administration "bailed out" GM and Chrysler, ...

The Hazlitt book that 2046 linked to is the absolute bare minimum primer that any non-economist must read.

In a GM bailout, the government takes money by force from unwilling givers and hands it to GM. This type of forced "redistribution" is immoral.

Also, remember that the laws (i.e. government) are a big reason GM was in the state that it was. In the absence of laws making companies accept and deal with employee unions, it is quite likely that auto companies would never have been unionized. In a recent example, WalMart closed a Canadian store when unionization seemed imminent. If Canadian laws had been different, WalMart would probably be there, selling cheap goods.

When unions started to campaign at the auto-companies, owners saw them as the thugs they mostly were and viewed them with deserved hostility. The companies employed security guards to keep the thugs at bay. There was a famous incident at Ford (the battle of the overpass) where Ford security guys thrashed some unions folk, along with some who were campaigning non-violently, and also thrashed some reporters in the bargain. The cops stood by refusing to interfere with Ford's security. That incident was a major turning point. Even if the proximate cause for that incident was that Ford's men overstepped, the underlying cause was the idea that Ford owed those people a dime. Over the years, the unions grew in power, to the extent that if one goes on a Ford tour today, the brand that is pushed on you is not "Ford", but "FORD-UAW". As long as all the auto-companies were unionized, they could pass the additional cost on to buyers of cars. Essentially, labor laws were allowing the redistribution of wealth from car-buyers to car-sellers and their employees.

This model breaks down when a significant non-unionized producer enters the fray. Look at what happened to the large U.S. steel mills when faced with competition from Nucor and foreign-produced steel. One problem is that while times were "good", these companies had agreed to giving their unions retirement benefits that were largely predicated on protectionism and on a continuation of industry-wide unionization. When Japanese cars started to sell in the U.S., the car companies took the threat seriously, and improved a lot. However, they had no way to undo the promises they had made to their workers in the past. This was a cost that they had to keep paying, and that the competition did not. How can one compete and win when each car sold is costing one $1,000 - $1,500 more than it costs your competitor to make a car?

The cleanest thing to do would have been to let these companies declare bankruptcy in a way that ended all "legacy" obligations. However, there is a twist to this: once again the laws are to blame. Over the years, the government has created a system whereby it guarantees pension plans in a way that no commercial underwriter would do. Also, the government runs Medicare and Medicaid. So, removing the obligation of GM to pay its retirees would have moved many of the costs to the government. The government has painted itself into a corner over decades. So, allowing a regular bankruptcy would still have cost the government money; however, it would have been the cleaner solution, setting a much better precedent for the long run.

[icosahedron]

I would like to pin down the definitions of "economic", "assistance", and "appropriate".

Economic refers to the individual process of gaining and keeping values in the pursuit of goals, and is an ETHICAL adjective (not a political one, the political effect is derivative). Given a society of separate individuals each seeking to gain and keep values consistent with themselves, the process of gaining values is often most efficiently executed via trade with others based on division of labor and sharing of knowledge.

Assistance means one individual helping another. Under the trader principle, such assistance will only occur if the assisting individual deems the cost of assisting to be no greater than the benefit gained by assisting, when the consequences of assisting are considered long term.

Appropriate means morally correct, i.e., not in violation of the moral basis of the individual committing the referenced act (of assistance in the present case), nor in violation of the moral basis of the individual on the other side of the trade (receiving the assistance in the present case).

So, I translate the topic question into its logical equivalent under the context of my definitions: "When is it appropriate to to assist another by giving them values for which they cannot afford the recompense on the spot?"

The answer is: when the cumulative long term benefits to the assisting individual are no less than the cumulative cost of providing the assistance.

Any answer which deems as appropriate the knowing sacrificing of long term value, i.e., that demands more (perceived) cost to assist than the long term (perceived) benefit expected to be received, is IMMORAL.

That's why loans are moral, but assistance not contingent on being paid back is immoral -- for both the giver, and the receiver.

Be careful: the judgment of value in trade is in the eye of the trader, so you can't just apply your standards to the trades, including assistance, offered by others.

- ico

[softwareNerd]

So, I translate the topic question into its logical equivalent under the context of my definitions: "When is it appropriate to to assist another by giving them values for which they cannot afford the recompense on the spot?"

The title left out the important fact that the OP was asking about government action, not about individual action.

[icosahedron]

The title left out the important fact that the OP was asking about government action, not about individual action.

Action is by individuals, not groups. The government is a group of individuals, and "assistance" is not a bottomless bucket, so if the government assists one individual, then that is at the expense of another individual. As long as the assisting individual(s) are each satisfied that the cost of assistance is worth the benefit, I'm good.

- ico

[Zip]

As long as the assisting individual(s) are each satisfied that the cost of assistance is worth the benefit, I'm good.

This satisfaction would have to be consistent, which is to say the rule rather than the exception. So if you could point to any form of government assistance which has the agreement of every participant, all of the time, and allows those who do not agree to leave, or to not participate, with no penalty and no repercussions and no force applied then you may actually have the ability to claim that government behaves as "a group of individuals" and that you are "good" with government "assistance".

Edited to add...

Even if you are "good" with it you must acknowledge that it applies only to you and is meaningless when other individuals are concerned.

For example, your state of satisfaction means nothing to me and even if government assistance could make such a program (which would include only those who wanted it and not appropriate any money from anyone else), the fact remains I don't care how happy you are with it I fundamentally disagree that government should provide any good or service for which, in the regular course of individual action, a market would or could morally and rationally exist or be created to fufill the need for that good or service.

Edited November 14, 2010 by Zip

[icosahedron]

For example, your state of satisfaction means nothing to me and even if government assistance could make such a program (which would include only those who wanted it and not appropriate any money from anyone else), the fact remains I don't care how happy you are with it I fundamentally disagree that government should provide any good or service for which, in the regular course of individual action, a market would or could morally and rationally exist or be created to fufill the need for that good or service.

Well, yes. The logical conclusion you make follows directly from the fact that "government" stands for that set of individuals operating cohesively to enforce the rule of agreed laws. The purvey of government ought to be restricted to this enforcement, as government's proper purpose. But that is a political argument; the argument around assistance is essentially ethical, and then, when the government is considered, it becomes clear that, as a group, the government cannot make moral/economic judgments without conflict of interest (enforcement is not compatible with making value judgments -- the only judgment that the government "robot" needs to make is whether the laws are violated, and how to prevent/punish violations -- no economic judgments should be made by those with the political right to pull the trigger).

And so, I anchor my argument where it belongs: in the ethical/moral sphere of individual right to make decisions. This clearly rejects any power of government to make such decisions for me or you, and so, operationally, would clearly draw the line between individual and government rights (the two must be hierarchically related, with the former primary, eh?).

- ico

[Zip]

Well, yes. The logical conclusion you make follows directly from the fact that "government" stands for that set of individuals operating cohesively to enforce the rule of agreed laws. The purvey of government ought to be restricted to this enforcement, as government's proper purpose. But that is a political argument; the argument around assistance is essentially ethical, and then, when the government is considered, it becomes clear that, as a group, the government cannot make moral/economic judgments without conflict of interest (enforcement is not compatible with making value judgments -- the only judgment that the government "robot" needs to make is whether the laws are violated, and how to prevent/punish violations -- no economic judgments should be made by those with the political right to pull the trigger).

And so, I anchor my argument where it belongs: in the ethical/moral sphere of individual right to make decisions. This clearly rejects any power of government to make such decisions for me or you, and so, operationally, would clearly draw the line between individual and government rights (the two must be hierarchically related, with the former primary, eh?).

- ico

I guess I'm missing your point then as softwareNerd already pointed out the OP was about "Government assistance"

We all acknowledge the right of individuals to act in their own self-interest and that includes rendering "assistance" (or not) to other individuals. Are you trying to say that we as individuals have a moral and ethical responsibility to provide assistance?

[icosahedron]

I guess I'm missing your point then as softwareNerd already pointed out the OP was about "Government assistance"

We all acknowledge the right of individuals to act in their own self-interest and that includes rendering "assistance" (or not) to other individuals. Are you trying to say that we as individuals have a moral and ethical responsibility to provide assistance?

No, I'm saying that any equivocation of the trader principle is morally wrong, whether or not brokered by an agency (government) or not.

Money doesn't grow on trees; it must be made or stolen. When the government makes value judgments and bases actions to redistribute wealth on such basis, it is acting outside its purvey, and that is a slippery, mixed-economy slope.

- ico