Government Bailouts: Good or Bad for America?

While there is an increased trend in the number of bailouts by the government recently, it is not all that of a new topic. Throughout US history, there have been many government bailouts, beginning in the 1970’s. The only difference is that today, the dollar amount of the bailouts has increased to great proportions. Until the recent hype of the stock market issues and the takeover of Freddie Mac and Fannie Mae, the term bailout was not something Americans used in everyday language. I believe it is due to the high influence of the media these days that bailouts are more widely covered these days along with the decrease in our economic efficiency. These billions and billions of dollars spent on these bailout programs may help the businesses that need it but it must also affect our economy in ways that are not effective.

To explain, a bailout usually comes about to prevent a business from going under because it is believed that the effects of the collapse will be much worse on the economy than to help liquidate the assets until the business can get back onto its feet. The government is most likely the one to fund the bailout, by ways of loans to be repaid once the business is back on its feet. Beginning with the first bailout in our governments’ history, the Penn Central Railroad, at a mere $3.2 billion, it is nothing compared to the recent $700 billion cop out plan to aid in the mortgage crisis. It does not look as if the bailout route will go away anytime soon.

Bailouts come with both advantages and disadvantages but it depends on what kind of market that is being dealt with. Sometimes it is the business owners that make the wrong choices and lead their business into turmoil. Should the mistakes of owners be given these loans in order to get back on track? After leading a business into trouble once, it may very well happen again in the long run. It is important to wonder if the inevitable is being delayed or the business actually has some chance of getting back on track. Even so, the executives of the collapsing businesses are usually the ones at the advantage when it comes around to a bailout. Making wrong choices should have to be dealt with, and not rewarded. Rewarding these bad business decisions does not provide an incentive to make the correct decisions.

Another problem raised is the amount of government involvement in the business world. The United States rests on a laissez-faire system, in order to keep government and business separate entities. Bailouts may raise some disagreement as to whether the government funding these programs is becoming too involved. Also in the same spectrum, the National Reserve has created a very high amount of liquidity and a very easy going policy. Interest rates are at a very low rate, which has not helped with the housing crisis. The most recent collapse of Fannie Mae and Freddie Mac has negatively affected the economy due to people being enticed into purchasing mortgages and homes they were unable to afford, which they eventually lost. People have been engaging in much riskier behavior due to this debacle and the bailouts encourage this to go on.

On the other hand, bailouts in the auto industry can have a good effect on our economy. By helping out an American company, it keeps production inside the country to keep up the skills of the people in the country and keep it secure as a nation.

Overall, government bailouts may seem like a good or a bad idea depending on the issue at hand. The government must make sure that it is not getting too involved and also that it is creating good policies to stimulate our economy. Bailouts should not be used as a form of a way out of bad decisions, as this motivates bad decisions to keep happening and having a belief that they can always fall back on taxpayer’s money in order to be rescued. If bailouts continue to increase as they have been, I don’t believe the economy will get back on track like we need it to.