Diminishing Returns

The economic theory of diminshing returns is timely at this moment in our political envoirnment and our economic reactions to the market turmoil caused by the subprime lending crisis.   To refresh your memory it is a theory that postulates that there is a point at which investing additional effort or captital in any enterprise will not yield corresponding increased results.  The extra investment in other words is not worth the candle.   That is a paraphase but reasonably accurate.   In any business endeavor there is a point at which extra money or time and talent simply will not produce an increase in profit or value that equals that extra money or effort.   A strong argument can be made that we have certainly invested enough (maybe way too much) already into the banking and insurance markets (and under the radar, the Auto Industry to the tune of $25 billion) and that any further investment by the Government will not improve economic performance in the USA.

We have already committed about 1.8 trillion of various bailout and rescue money in the last 4 months or so.  Add it up yourself starting with the stimulous package that the Government paid out this summer then the AIG, $700 billion, the $250 billion for the banks, etc.  Hey I may be off a few billion here or there but what the heck it is only play money printed by the Government, right?  I think it is time now for sure to rely upon the common sense and ingenuity  of the American people to get us moving again economically.   I see some in Congress are already talking about doing even another stimulous package and the costs of the programs advanced by the candidates for President are huge.  Some are huger than others.  Will those extra dollars really make a significant improvement in our economy or are some of the politicians and even high dome economists overlooking the law of diminishing returns?   How exactly is the guy on the street going to benefit from that extra money being thrown around.   The cash payment that one of the candidates is promising (called a tax cut) is especially troubling.   Is that $500 really going to save someone’s home or help create new jobs.   I would think the right business climate and a level playing field would be of the most use now.  Opportunity for workers and businesses are the vital investment needed at the moment.   People should already feel confident that their money is safe with all the money thrown to the banks already.   I personally think we are well past the point of diminishing returns on Government printing money with handouts to business or individuals.  Let us go to work and keep our money and spend as we see fit.  Ultimately our markert malaise is about lack of confidence in the future not so much about how things are today.  It is tomorrow that either frightens or inspires us.

Likewise when it comes to Government programs, have we reached the point of those diminishing returns.  Think about and list for yourself all the government programs we already have in place.  Don’t forget the hidden ones like Government subsidies for corn or farmers, the pork barrel handouts to special interests groups and the gazillion programs for various types of welfare.  You can already receive free medical treatment at birth even if you are not a citizen, and the rest of your life from Medicaid;there are unemployment benefits, OSHA, retraining grants and programs for displaced workers; Social Security, Medicare are huge programs; there are school grants and loans for college; and in housing we have Fannie/Freddie, FHA, HUD housing programs, the Federal Home Loan Bank; and those are merely the ones that fly off the top of my head.  How many more do we need.    Remember that all those benefits come with a political and civil rights price.  They are as free as the proverbial lunch.   If the Government pays the piper it gets to call the tune.  Don’t ever forget that every time it calls the tune that means you and I don’t get to call the tune for ourselves.  

Expropriation is the taking of private property by Government, more often than not without just compensation.  It all cases the Government involved asserts in has some right to do so for the “public good” or for the “general welfare” of the people but is is expropriation nonetheless.   Remember what just happened to AIG and those Banks that were forced to allow the Government to take an ownership position.  I have no sympaythy for AIG or the banks involved but I do have a very profound interest in the Government strong -arming anyone.   It wasn’t me or you today, but what about tomorrow?   Will you or your industry or business be the next one in the sights of the Government.  Think about it.   Government should be kept on a leash like a beloved dog appreciated and even loved but the servant, not the master.

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Filed under Economics, government, Politics

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