There’s no such thing as a free lunch. The government’s continued bailouts for the private sector risk losing the “free” part of the free market system, according to CNN Chief Business Correspondent Ali Velshi.
The cost of a second bailout for Citigroup (NYSE: [1]C), in which the government would absorb [2]up to $277 billion in bad assets, could eliminate the company’s ability to operate in a “free” market economy, Velshi said on CNN’s “No Bias. No Bull” segment Nov. 24.
“Remember, this is still the free market, so companies have to have some freedom to be able to change how they deploy the money,” Velshi said. “Citigroup didn’t deploy it well in the first place, so this is the struggle that we got – do we go into an entirely controlled economy because we want to dictate how that money goes?”
What happens under that scenario? According Velshi, giving the government a say in the private sector’s business decisions is a policy that would fundamentally alter the entire premise of the free market.
“That might be the solution, but it’s going to be a bitter pill for people to swallow,” Velshi said. “That’s the decision these guys have to make – do they stimulate the free-market economy or do they start directing it?”
Another economic policy proposal Velshi addressed was the notion the government can magically create a “green” economy, [3]as President-elect Barack Obama has proposed. He told viewers a government stimulus meant to build a green economy would have to be implemented in combination with tangible things that are in demand.
“You can’t build a fake economy,” Velshi said, echoing something Cato Institute’s Daniel Mitchell, a Business & Media Institute advisor said to him just the day before on CNN’s “Your $$$$$.” On Nov. 23, Velshi [4]took Mitchell to task for stating that there was too much regulation of the financial markets. But on the “green” economy, Valshi had apparently listened to Mitchell.
“If there’s work to be done and you can provide that work – Barack Obama has talked about a green economy and alternative energy,” Velshi said on “No Bias. No Bull.” “So, if you combine work that does need to be done – like our electrical grid, which does need to be fixed, and we have roads and bridges, with incentives for business to create jobs for this new economy – you can actually do something with this.”
However, the collapse of some particular industries in the manufacturing sector are evidence that the economy is at a turning point and Obama’s [5]newly named economic team would have to address that.
“But fundamentally, everybody who has lost a manufacturing job in this country in the last four years has this much chance [zero] of getting it back,” Velshi added. “It is not coming back, so you can perhaps dull some of this pain for a few years with some federal investment, but in the end we are going into a different economy and this team is going to have to come up with a solution for that as well.”