Saturday, September 20, 2008

A Government Bailout Analogy

Suppose that a foreign automobile company announced that in 6 months they would begin selling competitively-priced cars that tap into the energy surrounding the earth that moves the needle on a compass, and would use that energy to move the wheels on a car at a relatively fast pace, with nice acceleration. No fuel needed at all. No need to build a new refueling infrastructure. Did I mention "competitively priced?"

Would you choose to buy one of these new cars, ceteris paribus, or would you choose to buy one of the old cars that required you to stop and buy gas every few hundred miles?

Q: What will this news do to other auto makers?
A: send their stocks plummeting. Raise the interest rates lenders will charge them. Cause them to lay off workers (who, presumably, will get new jobs at the new MagnetoCar plant).

Would you have any confidence in any auto maker who was determined to sell only gas-guzzlers and not the new cars?

As a consumer, you don't want to buy a car that requires you to gas up every few hundred miles. You don't want to buy the old cars, or the stock of the old car makers. Gasoline stocks also go down, in anticipation of their future uselessness in a day when drivers don't have to stop for fuel. Future job layoffs are announced.

Those whose retirement portfolios consist of stock in conventional automobile makers and conventional filling stations are seeing the value of their retirement accounts fall.

The company that created the process of converting earth's natural magnetic belts into usable energy has also announced the creation of a chain of universities to develop and teach techniques to tap into this global source of continuously replenished free energy. Many states announce they are closing their own university systems. Private giving for endowments for traditional universities plummet. Lenders are only accepting applications for student loans to the new universities -- but nobody needs such loans, because the magneto-industry is providing free and near-free tuition to expand their own development and production of free energy systems.

Early investors in these free energy processes are reaping tremendous profits.

So the President of the U.S. announces on his Saturday Morning Radio Address,

Further stress on our [conventional energy] markets would cause massive job losses, devastate retirement accounts, further erode housing values, and dry up new loans for homes, [conventional] cars, and [conventional] college tuitions.

The President announces that the federal government is going to bail out the old energy industries with your tax dollars. Even though you yourself would not invest in these old industries, the government is going to force you to invest in them anyway, by taking money out of your paycheck before you have a chance to invest it in the new energy.

This is intended to prevent investors from [profiting from wise economic forecasting] for their own personal gain.

How despicable, people being interested in "their own personal gain." How unlike our patriotic bankers who lobby for bailouts and government guarantees.

How is this future bailout of archaic industries different from this week's bailouts? Both reward special interests at the expense of the general welfare. Both reward failure and penalize sagacity. Both bailouts replace privite enterprise with socialist planning.

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