Tag Archives: bad economics

Profits and Losses

Here’s a letter I recently sent to the New York Times:

TO THE EDITOR:

Amar Bhidé argues that “governments should fully guarantee all bank deposits — and impose much tighter restrictions on risk-taking by banks.” (“Bring Back Boring Banks,” Jan. 4).

The lure of profit is why banks take on risk in the first place. But the specter of loss encourages them to be prudent about it. When governments remove losses from the equation, banks lose any incentive to keep their risk-taking in check. Someone else will pick up the tab if a plan doesn’t work, so why not take a chance? Hence the financial crisis.

Capitalism is a system of both profit and loss. Wishing losses away would have consequences quite different from Bhidé’s good intentions.

RYAN YOUNG
Washingon, Jan. 4, 2012
The writer is a fellow at the Competitive Enterprise Institute.

You Can’t Make This Up

$150,045 of stimulus money is being spent to restore a bridge that doesn’t connect to any roads and ends in an 8-foot drop.

Stimulus backers claim that the project created 1.9 jobs. That’s $78,971.05 per job created. That’s not a very good deal. Especially considering that no jobs were created on net, because that $150,000 was taken away from somewhere else in the economy.

Without the stimulus, that money would have been spent in other ways. Given that most jobs cost less than $78,971 to create, it may well be that the bridge restoration project meant fewer jobs were created than if the government had just left the money where it was originally — your pocket.