The Government Bailout: Are We Replacing Market Failure With Government Failure? President Bush has signed the bailout expenses. So the nationwide government begins buying property from the banks. These assets are hard to value. They include home loans that may or might not be good (they could not be repaid).
How likely they are to be repaid is not clear, so we have no idea how risky they may be and for that reason what price to pay for them. Will the governmnet pay too much on their behalf, priced at the taxpayers too much money or will the federal government pay too little in which particular case the banks it’s still in trouble? The program is to get the banking institutions into better financial form so they can resume financing again, which is very important to the economy.
Some say not performing will be worse than what is being done. But how will the nationwide government find out the right price to pay for the possessions? That will be the big question. We could say that people have or are having market failure. Then the marketplace allocates too many or too little resources for some good, service or activity.
Then we get too much or too little of a certain good or service. Pollution (a negative externality in economic jargon) means that an excessive amount of the right is produced, like metal. We have too little lending right now. Banks don’t want to lend to businesses or other banks because they can not make sure how risky the lenders are or the value of assets they could set up for collateral. It could be instructive to remember that having less this kind of information led Nobel Prize earning economist Milton Friedman to warn us that a authorities program might simply replace market failing with government failure.
- How Sri Lanka can improve “Foreign Direct Investment”
- Retire on a smaller income
- Personal tax questions
- Pays an identical return to T-bills
- Dial-in/Dial-out connectivity
- Capital loss carrybacks and carryforwards
So we may be no better off or a whole lot worse off as a result of the government program. If lack of information is what caused the nagging problem in the first place, the federal government can’t necessarily find the appropriate solution. I believe articles by Harvard economist Kenneth Rogoff called Significant reasons to question wisdom of bail-out expresses the forex market failure/government failure issue.
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Was diversion driven by EITC? A lot of the result the statistical studies find may be because of the EITC keeping people working rather than causing them to visit work. The studies may actually err, in part, because they take an statistical strategy specifically. As is common in economics, these studies are based entirely on large databases. There is no hands-on inquiry to clarify the behaviors underlying the numbers. The assumption is that individuals are acting to optimize their incomes simply, and using all available resources to do so.