A Critical Turning Point

Via TJIC:

The steel industry, a bellwether for the state of the nation's economy, is looking to the government for a huge investment program: up to $1 trillion over two years.

Government can't create capital -- it can only force it to be reallocated and, to a small extent, move it forward from the future.   Given that there is some sort of fixed amount of investment capital in the economy, then, it strikes me that we are rapidly approaching the point where we are giving to Congress the job of allocating the vast majority of the country's available investment capital.  And if that prospect does not scare you, and it should, consider this:  Congress has made it fairly clear the three criteria it will use to select the recipients of capital:

  • They must have a business model that has been proven a failure (by poor performance, eroding market share, and/or near bankrupcy)
  • They must have strong, powerful unions with the historically proven ability to dictate terms to management
  • The company and its key stakeholders must be strong supporters of the party in power

They say the government does things that private parties can't or won't, and that is certainly true here since I cannot imagine any private investor allocating capital on these criteria.

  • Global Warming

    I think your analysis is good, but I would like to see one of the criteria you claim determines who receives the capital. During the first phase of the bailout, financial companies were the recipients of government "capital." To my knowledge, the employees of these companies were not formally part of an organized union. Thus, I wonder if your second point regarding the types of companies that will be bailed out holds. It may be that it does, but I tend to think your first and third points are more significant than union membership.

  • Global Warming

    I think your analysis is good, but I would like to see one of the criteria you claim determines who receives the capital. During the first phase of the bailout, financial companies were the recipients of government "capital." To my knowledge, the employees of these companies were not formally part of an organized union. Thus, I wonder if your second point regarding the types of companies that will be bailed out holds. It may be that it does, but I tend to think your first and third points are more significant than union membership.

  • markm

    I think that #2 should be "too big to fail". Often that also means unionized, and I suspect that a large union can lower the threshold for "too big to fail" somewhat, but face it: Grandma's Restaurant isn't getting a bail-out even if the workers are unionized, while non-unionized megabanks did get bailed out.

  • Allen

    Other than the recent financial bailouts, has Congress ever bailed out non-unionized companies?

  • The government can't move capital forward from the future.

  • Val

    At least with the financial companies there were sound reasons. Afterall, a very important duty of gov't is maintaining the currency,and this was in danger. Although I havesome misgivings about that and the magnitude and style of this support. However, I fail to see anything at all that even begins to justify (in a reasoned economic sense) the bailout of the auto, steel companies, state govt's or any other entity. With the current idology most present in the executive and legislative branches, I do not expect that reasoned economic decisions will play a large roll in the massive vote purchasing and payoffs that are coming.

  • Bob Smith

    The government can’t move capital forward from the future.

    Sure it can. I believe that's called "borrowing" and "inflation".

  • No, Bob, that's still just moving stuff around. Forget about "dollars". Government can't pull resources from the future, it can't pull productive capacity from the future. All it can do is dictate how they are used.