March 29, 2009

AIG Reaction

In this article Douglas McIntyre discusses the ramifications of the AIG bailout. The bailout was meant to help AIG help the middle class citizens, which could have potentially stimulated our suffering economy. Essentially, the government was trying to help out our banks so they could help our middle class. However, the bailout money was not used for what it was intended. It was used for bonuses given to the head honchos of the company when it should have been used to cover the increasing costs AIG was experiencing. Now, the government wants to take some of that money back by taxing the payouts at a rate of 90% because they felt the money was misappropriated. McIntyre explains that even though the ‘goal’ of ‘big government’ is to bring a sense of calm during a time of crisis it did not take peoples survival instincts into consideration. During stressful times, like a recession, playing into a persons worry can cause them to take advantage of the help for their own benefit. They are going to put themselves ahead of all others.
So, AIG took advantage of the bailout. There is no point in dwelling on the past or in placing blame. The focus should be on either fixing the problem or on enacting plan B. The government thinks they have the problem solved by taxing the payouts at a high rate. I’m not entirely convinced this is a good idea. The whole point of the bailout was to stimulate the economy. Taking the money back does not stimulate a thing. Even though the money was used differently then expected, it is still in circulation and it will still be spent, thus aiding the economy. Look at it this way. The people who received bonuses increased their budgets, which makes them more likely to spend money on things they would not have before. This increases their utility while putting money back into the economy. If you tax that excess money their budget and utility both decrease and they spend less money. Yes, the money was supposed to directly help the middle class citizen, but stimulating the economy helps them too. It is just a more indirect approach.

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