Three Reasons Why Government Intervention And Handouts Are Unnecessary And Counterproductive
When former president Bill Clinton says, “I think the stimulus did as well as it could have done — there just wasn’t enough of it,” how should we respond? Here are three reasons (along with three short videos below) that explain why government intervention is unnecessary and ineffective:
1. Government intervention redistributes, not increases, national income
Politicians spending money will not increase national income. It generally goes to cronies or special interests, promotes waste, and just transfers, not increases, resources.
THE CASE AGAINST GOVERNMENT BAILOUTS
GOVERNMENT INTERVENTION REDISTRIBUTES, NOT INCREASES, NATIONAL INCOME
Description: Dr. Daniel Mitchell reveals that based on a theory known as Keynesianism, politicians are resuscitating the notion that more government spending can stimulate an economy. This mini-documentary produced by the Center for Freedom and Prosperity Foundation examines both theory and evidence and finds that allowing politicians to spend more money is not a recipe for better economic performance.
2. Government intervention creates perverse incentives
Government bailouts encourage irresponsible behavior. The recent example of the housing bubble shows that when Fannie Mae and Freddie Mac promoted easy credit to homeowners, they bought homes they couldn’t afford.
THE CASE AGAINST GOVERNMENT BAILOUTS
GOVERNMENT INTERVENTION CREATES PERVERSE INCENTIVES
Description: The housing bubble is probably the biggest reason why America now faces a financial crisis. But what caused the bubble, and why are there now so many foreclosures causing so much damage in the rest of the financial sector? In this Center for Freedom and Prosperity Foundation video, Peter J. Wallison of the American Enterprise Institute explains how government policy mistakes were responsible and how the two government-created entities known as Fannie Mae and Freddie Mac were particularly destructive. The video concludes with four key lessons to avoid similar mistakes in the future.
Government bailouts encourage people to take risks but not to suffer the consequences. This encourages reckless behavior.
THE CASE AGAINST GOVERNMENT BAILOUTS
GOVERNMENT BAILOUTS CREATE A MORAL HAZARD
Description: This CF&P Foundation’s Economics 101 video discusses Moral Hazard, which occurs when bad choices are subsidized. This often happens when government intervention allows people to take risks while having little or no skin in the game. For example, housing policies subsidized mortgages, thus enabling irresponsible borrowing, that caused a bubble and bailouts. Politicians may be setting the stage for the next crisis with a too-big-to-fail policy that subsidizes the biggest financial institutions.
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