Someone on NPR last week noted that through the recent steps toward bailing out companies we are privatizing profit and socializing debt. While perhaps necessary to keep private industry's mistakes from bringing down our economy, it does put us, as a country, in a difficult place indeed. By doing this, we have two options. One is for the tax payers to shell out for it, which would inevitably mean paying more than we currently do. The other way is to get another country to buy up more of our debt, namely China. I suppose a third option would be that the money is actually paid back by the institutions helped, but this is uncertain, so we probably shouldn't be counting on it.
Let's look at these options. Raising taxes is always a tricky topic. McCain recently changed his mind from the economy being fundamentally sound to the US facing the biggest crisis since WWII. Yet, he would still not raise taxes. And, I would like to note, neither would Obama for 95% of Americans. So it doesn't sound like the bail out money will come from taxes, no matter what happens in November.
The other option is to continue expanding our debt to record levels. There will come a point when no one will buy our debt because it's ridiculous to think we would ever pay it back. Or, there will come a time when we can't afford the interest on our debt. What happens when a country declares bankruptcy? Another option is that our lenders will start using the leverage they have over us. None of those scenarios are pretty.
I am not an economist, but it seems to me that given what we have just done paying a little more in taxes to forestall economic collapse, where I will most likely lose all my money instead of just some of it, is the better option. While higher taxes may severely hurt the economy through decreased spending power, it seems like that would be the slower and more manageable economic issue. Funneling more money into a broken system certainly isn't appealing, but what are our options? Ideally, we could cut government spending to pay for all this, but I'm trying to be realistic. I just can't see us cutting back on building tanks to pay for bailouts, even though I want to.
Looking for short term gain with little thought to future repercussions has been US policy for many years, whether regarding the economy or the environment, but it has to end. As this credit crisis has shown, the problems may come to a head sooner than we ever expected and be more severe than imagined.
What do you think?
