Saturday, 20 December 2008

Bailouts for writers but not for cars

More on bailouts:

Paul Greenberg in the New York Times says we should bail out writers. Of course, he doesn't analyse the economics properly - but what should we expect - he's a writer. No doubt it would be useful to reduce the oversupply in the writing market; but should we also then be paying bloggers not to post? Is this how farm subsidies got started?

And Richard Posner follows up an earlier article about the US automotive bailout arguing that the three big US car companies are fundamentally insolvent but it is better to support them another couple of years and then let them go bust. I sympathised initially with this view but the comments on that posting - mostly taking the opposing view - are actually quite persuasive. If the companies are going to go bust anyway, maybe now is the time to get the bad news out of the way; rather than wait till a fragile confidence is taking hold and then shatter it again.

Posner's argument is (I think rightly) psychological; but so is the counterargument. The dilemma is: will too much bad news at once really destroy people's faith in the economy; or will spreading the bad news out over a longer period prolong the recession and waste the opportunity to create an upward-sloping confidence curve sooner.

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