Why Economic Stimulus Handouts Are Bad – It Kills Innovation


Technology

The economic stimulus has been a hot topic in the news in recent months.  Banks and investment firms are getting bailed out.  Auto makers are getting bailed out.  Even the adult entertainment industry is asking for money.  But there’s a big problem with handing out money to try to help the economy – It Kills Innovation!

Here’s my take on why handing out stimulus money hurts innovation:

  • Companies ask for money rather than innovate – This is a bit of social Darwinism here.  Companies that can’t hack it should fail.  A company has to keep growing or it gets eaten up by competitors.  Look at Apple for instance – Imagine they only stuck to computers?  Without the iPod, iTunes, or the iPhone the company would be severely hurting.  But they moved beyond just making computers and now their computers are gaining a stronger market hold.  They innovated!  When a company gets a hand out it makes them lazy.
  • People follow the lead of companies – When companies get handouts individuals expect the same.  I’ve heard it many times already that the government should give people money because the economy is bad.  But that doesn’t really help.  Just like a company people have to grow and innovate.  They need to create new income streams, become better at their jobs, and increase their knowledge.  When they don’t others come up and pass them by.  Or new technology comes along to make their jobs obsolete.  Or they get their jobs outsourced.
  • It shifts blame – When a company sees that money is being handed out they have the temptation to blame the economy for their troubles in order to get a handout.  This shifts the blame to the “economy” rather than their own business model.  When blame is shifted a company is basically saying outside forces are causing their issues.  Instead a company needs to look at what they can do to improve their process and products to grow stronger and avoid economic problems.
  • Some companies would be bad anyway – If a company isn’t already looking to be ahead of the curve and succeeding in some way then what would throwing more money at them accomplish?  For example:  The auto makers have been in trouble for some time.  Rather than find a way to be ahead of the curve they have continued their old models with not much success.  When you think of a “green” car what do you think of?  Hummer?  No, you think of the Toyota Prius.  Toyota continues to innovate and re-define themselves and that’s why for the first time they are the largest auto maker in the world, taking over GM.  Throwing money at a bad company doesn’t help it; it just extends it’s expiration date and wastes money.

Yes, the economy is bad.  Yes, it hurts everyone.  But the economy is supposed to move in cycles of growth and contraction.  This is natural.  It’s like nature’s way of getting rid of the dead weight so hungrier companies have a shot.  But when we start handing money out it kills innovation and in turn ruins the whole idea of capitalism.

I hope Obama’s new plan will not keep the fat, fat.  Hopefully it’s used to encourage innovation.  Time will tell.

Creative Commons License photo credit: jared

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Published or updated July 14, 2013.

Comments

  1. I’m of two minds about the handout.

    On the one hand, I do understand stepping in to ensure an entire industry doesn’t fall — such as banks — when it may lead to a national crisis reminiscent of the Great Depression.

    On the other hand, we just forked over cash and didn’t ask for a full accounting (as it were) of where the money was going. That made me pretty angry.

    I also agree that companies get lazy during good times. Bad times are a way to cull the weak from the herd. It’s hard on the economy to have more companies die off, but ultimately it’s a good reminder that capitalism is based on being the best. Not just enjoying the good times and never preparing for the bad.

    And, of course, companies get greedy. They all want handouts. Perhaps they do *think* they need them. But where does it end?

    Like you mentioned, the adult entertainment industry wants a handout. C’mon! If smut can’t make it through a bad economy, nothing can. Americans have had forms of porn around since the Puritans. (They were a little more lusty than most history books recall.) It’s the unmentioned (unmentionable?) symbol of the country, right up there with apple pie and baseball. If we give money to this industry, we’re truly underestimating the American consumer!

    Abgail’s last blog post..A good dillyeo…

    • @ Abigail – I agree, where’s the accountability? We’re slowly nationalizing some of our nation’s biggest companies about a decade after we “defeated” communism. Go figure!

      @ Hannah – Scary indeed. Welfare for the rich.

      @ Miranda – Problem with giving individuals the money is it would create crazy inflation. And let’s face it, many individuals wouldn’t do much better with more money.

      @ RC – Recently read an article over at Brip Blap questioning that if a company is too big to fail then maybe it’s just too big? Maybe some of these companies shouldn’t be as large as they are?

      @ James – The world is flat! And that book was written a few years ago so there’s no excuse for companies not realizing that!

      @ SBC – I love seeing CitiField now for my Mets always thinking I should get an automatic seat there since my tax money pays for that sign!

  2. I completely agree with this post. Why try to better yourself/your company if you can count on money from the government? Scary mentality.

    Hannah’s last blog post..Eight O Clock Coffee

  3. I agree that bailouts, in general, are bad policy. Rewarding bad decisions? Actually the hypocrisy of the current situation is maddening. CEOs and regular folk alike have talked about their outrage over bailing out homeowners who made bad decisions, but, for some reason, the outrage seems muted when it comes to bailing out companies (CEOs especially seem to lose their desire to have “market forces” sort this out).

    So, while I’m not a fan of bailouts, if the government has decided we need to spend our way out of this recession, I would rather see substantial cash ($50,000 to $100,000) in the hands consumers. It would have cost less than all the money we’re spending on the big guys, and it would have helped people avoid foreclosure and increase consumer spending, helping keep banks and other industries from failing. What the government has been doing for the past year is completely at odds with its stated goals.

    Miranda’s last blog post..Can’t Pay Your Taxes? The IRS Offers Installment Plans

  4. Timothy drew says:

    I am personally not in favor of the government bailing out companies. But then again, at this point, the governemnt does need to kick in some cash so as to give a boost to the economy. Well, given that, I think that I am okay with the government handling the bailouts on a case by case basis but bailing out the adult industry, absolutely not!
    I would definitely not want my tax money to be misused in this manner.

  5. I’ve been wondering myself if we should let some of the poorly run companies fail- it could end up being less lengthy and painful for the overall population instead of prolonging the inevitable-and costing the taxpayers trillions of dollars in the process.

    RC@Thinkyourwaytowealth’s last blog post..Update: Latest Details on the Obama Stimulus Plan-Will it Work?

  6. I completely agree with this statement. Instead of the Darwinism theory of letting the less innovative companies fail, we focus on giving out money to boost our economy. This is also why I think it was wrong to give a bailout to the auto industry. The reason why they are here in the first place is because of their inability to innovate as they should have. They enjoyed large profits for too long. We are dealing in a very global economy now. Competition is ever growing, especially as global boundaries continue to shrink. The world is becoming flat.

    James’s last blog post..It was a Great Inauguration

  7. There is one old saying that is of particular interest to us during this discussion. That is “casting pearls before swines”. Case in fact is what citigroup did when they decided to buy another airplane with the money they received from the TARP.

    The top management of these institutions are absolute idiots. Not the bumbling idiots but the smooth talking shart suited type that can spin stories after stories but still do immense damage with their stupidity.

  8. I completely agree with all your points on this topic!!!

    I don’t think banking as a whole would fail – other (more responsible and innovative!) banks would step in to take on customers. I don’t think the car industry would fail – other companies would find new and better ways/products to market – part of me thinks the bailouts hurt our economy by stifling the innovation you talked about!

    Katie L.’s last blog post..Tropical Fruit Salsa

    • @ Katie – Out with the old and in with the new! I can see why the gov’t wants to help these industries, a lot of jobs would be lost in the transition if they failed. I’m just at odds on how it’s being done. We can’t just hand them money and hope for the best.

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