A Case Against Government Bailouts

I'm personally against government bailouts, be it an industry, a set of companies (such as banks) or an individual company. The arguments that government (amplified by the media) use is that these institutions are too big or too strategic to fail. However, we must note the following:

• If the company is in a non viable position, it got there due to bad management, inefficient usage of resource or failure to anticipate market condition changes - in sum, the market forces are saying that they don't want or need the company
• Resources (capital, workers, equipment, land, ...) are being tied up to an investment that is not sustainable, and therefore it drains resources from other profitable investments
• Competing companies, which are better managed, make a better usage of resources and correctly anticipate market condition changes can not prosper, because bad companies are kept alive artificially
  
• By rescuing a company in trouble, the government creates a moral hazard, which will a) encourage the rescued company to take bigger risks and b) create the obligation to save any other company or industry in the same situation
• If the situation and prospects of the company are sound, a private investor would certainly be found. There would be no need for government intervention in the first place!
• A non viable company, artificially sustained by government, does not create, but consumes wealth
  
• Finally... money can not be created out of nothing. Governments can only finance themselves by either a) borrowing and therefore creating debt, a liability imposed on future governments and generations; b) printing more money, which effectively reduces the wealth of everybody holding money and creating inflation; or c) increase taxes. In short, the government will make everybody poorer in order to bailout a few favorite constituents which do not deserve and are not worth to be saved (read the previous points)

What is the alternative them? Should the government just let the big institutions and companies fail? The answer is a big 'Yes'. Just look at the case of Lehman Brothers. It failed, the interesting assets got sold, the interesting workers were hired at a different companies, and the world moved on.

What about the 'domino effect', unemployment rise, lost taxes, consumption decrease? There needs indeed to exist a short term negative effect, so that that the market and economy can adjust, where the resources can be reallocated to more efficient usages, those that actually generate true wealth.

It's important to mention though, that the negative impacts are not the result of the recession, but of the bad decisions, actions and malinvestments carried out during the expansions.

Just look at the case study of Japan in the 90s. The Japanese economy peaked in 1989 and it has been in recession or stagflation since then, even though interest rates are zero, banks have been bailed out or even nationalized, and public spending surged to trillions of dollars.

If the government insists on bailing out bad companies and funding unnecessary public investments it will postpone temporarily the effects of the recession, but in the end it will only make the recession deeper and longer.