One of the common claims is that no one is going to starve if the bailout doesn't happen. That's probably true, but picture the following situation
( Read more... )
That's just it. I don't know. No one knows. I can envision a lot of scenarios, but I really have little basis to believe in one over another.
I can tell you what my gut feeling says. It says 20% employment for a period of about a year. Wealth in most financial institutions disappears. Deposits over the FDIC insured limits (which we WOULD have to bail out) would vanish. The only things with value are those you can use, i.e. hard assets.
We get out of it eventually because the economy doesn't STOP. Some people are still employed, and they need food and widgets to live. And eventually you build enough wealth and recover.
I will agree with rmitz: the minimum wage, legally defined, is unlikely to change.
Now, if labor demand shrinks such that 20 percent of people are unemployed[1], I would expect wages, both real and nominal, to fall. This will probably take the form of under-the-table employment, unless it turns out enforcing the minimum wage is costly enough for the government that they don't enforce it. Undocumented workers may exacerbate this problem, but I don't think employers will necessarily use more of them.
[1] The real number, of course, is going to be a bigger proportion, since BLS statistics don't count "discouraged" workers.
I think that's an alarmist and extreme scenario. No way, IMO, based on everything I know.
Socializing the capital market into more of a command economy whenever it fails (because of pre-existing socializations) makes for a FAR bigger problem than making the financial industry figure out how to get its own self together.
In any case, the assets you can liquidate (and still can) were the only real wealth anyway. So WHATEVER the impact (and of course no one knows for sure), you can't avoid it, you can only shift it ahead by giving the false impression it's fixed, and make it that much WORSE because you delay liquidation of malinvestment and add much more malinvestment. You can't escape the balancing which must occur, given past mistakes.
As I corrected, I think it's 20% *un*employment, counting all spillover effects.
The one thing I will note here is that it seems to me you still keep implying that the markets are behaving rationally. They aren't. That's the whole point. The people who might have capital to take on the investments are simply afraid, or they don't understand the investment, etc., etc. Most of the others are tapped out.
I view the bailout as a way to have a controlled deleveraging of everyone's balance sheets, except for the government, who is the only entity that can reasonably safely take on some temporary (<=30 yr) additional leverage. Doing it all at once is just not possible.
In other words, let's say we don't do the bailout.
Okay, so people lose jobs, companies fold, produce is hard to come by.
... and then what? How long is that for? How would we get out of it (even if slowly) without borrowing money?
Reply
I can tell you what my gut feeling says. It says 20% employment for a period of about a year. Wealth in most financial institutions disappears. Deposits over the FDIC insured limits (which we WOULD have to bail out) would vanish. The only things with value are those you can use, i.e. hard assets.
We get out of it eventually because the economy doesn't STOP. Some people are still employed, and they need food and widgets to live. And eventually you build enough wealth and recover.
Reply
So ...20% employment ... going along with that, what do you imagine might happen with the minimum wage?
Reducing it?
Keeping it as is and having lots of under-the-table jobs?
Vast increase in illegal immigrant workers?
(just asking because I think it's interesting and you seem to have a clue)
Reply
I don't really see anything happening one way or another with the minimum wage in that scenario.
Reply
Now, if labor demand shrinks such that 20 percent of people are unemployed[1], I would expect wages, both real and nominal, to fall. This will probably take the form of under-the-table employment, unless it turns out enforcing the minimum wage is costly enough for the government that they don't enforce it. Undocumented workers may exacerbate this problem, but I don't think employers will necessarily use more of them.
[1] The real number, of course, is going to be a bigger proportion, since BLS statistics don't count "discouraged" workers.
Reply
Socializing the capital market into more of a command economy whenever it fails (because of pre-existing socializations) makes for a FAR bigger problem than making the financial industry figure out how to get its own self together.
In any case, the assets you can liquidate (and still can) were the only real wealth anyway. So WHATEVER the impact (and of course no one knows for sure), you can't avoid it, you can only shift it ahead by giving the false impression it's fixed, and make it that much WORSE because you delay liquidation of malinvestment and add much more malinvestment. You can't escape the balancing which must occur, given past mistakes.
Reply
The one thing I will note here is that it seems to me you still keep implying that the markets are behaving rationally. They aren't. That's the whole point. The people who might have capital to take on the investments are simply afraid, or they don't understand the investment, etc., etc. Most of the others are tapped out.
I view the bailout as a way to have a controlled deleveraging of everyone's balance sheets, except for the government, who is the only entity that can reasonably safely take on some temporary (<=30 yr) additional leverage. Doing it all at once is just not possible.
Reply
Leave a comment