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Federal Financial Assistance and Wage Control - Essay Example

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In 2008, the US Government implemented a $700 billion bailout package for the beleaguered financial industry, ostensibly with a view to stabilize the market and rejuvenate the economy. The money for this salvage project came from tax funds collected from citizens and instead of being used to fund public welfare and infrastructure projects, the money was diverted to bail-out corporate giants in the doldrums due to gross mismanagement and unsound business practices…
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Federal Financial Assistance and Wage Control
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Download file to see previous pages Public outrage at the bailouts and the government's haste in pushing through the economic package was huge and unprecedented, with other entities and industries also clamoring to be bailed out in a similar manner.
This objective of this essay is to discuss the morality of using tax funds to bail out ailing corporate entities to avoid them becoming insolvent and whether the government should initiate wage controls and strict accountability policies when providing such funds. With respect to wage controls, the questions to be answered are why and how much, rather to what degree government must step in to control and prevent the misuse and abuse of bailout funds. Each of these questions is addressed in the different sections which follow.
By its very definition, a capitalist or free market economy is built on competition and "survival of the fittest", with little or no government intervention. The success or failure of a business is determined by the way business is conducted and how such businesses deal with fluctuating market forces. In the current economic meltdown, it is quite obvious that many business entities played "fast and loose" with sound economic principles in order to maximize profits by following unsound credit practices and with inadequate risk management or controls in place. By doing so, they've traded long-term growth and profitability for short-term gains in the years preceding the sub-prime mortgage crisis. The latter acted as the trigger which brought down the American economy to its knees and led to the collapse of numerous financial institutions. This has forced the government to step in to bail-out distressed companies at the cost of its citizen taxpayers. Is such an intervention justified The answer is clearly a 'no', given the unique nature of a capitalist economy. Businesses are required to compete with each other in the marketplace, having a free hand in the usage of capital, labor and other resources, because the end goal is profitability.
A company or business entity which does not adhere to the principles of a free market economy, or tries to derive unfair advantages by misusing its powers, is doomed to fail in the long run. This is the natural consequence of unfair competition and the corporation must face the same in the natural order of the market. However, such large-scale failures of several companies at the same time can have a disastrous effect on the economy and society as a whole, hence it raises the question of government interference to avoid a catastrophe, a rationale advocated by the Bush administration and Congress in providing the $700 billion bailout in 2008.
According to Ingham (2008), in a capitalist economy, the market is a self-regulating entity and the state (or government) role should be limited to providing infrastructure and resources which help in sustaining a free market economy and intervening under only exceptional circumstances where the market fails to correct itself. Is the current economic crisis such a circumstance Common sense would indicate this to be so, but the next concern would be to what extent should the state intervene to resolve this issue
The answer to this concern can be summarized as ...Download file to see next pagesRead More
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