Government Bailouts : from the perspective of the Austrian School

Abstract

The subject of this essay is the effects of government bailouts on economic prosperity from the perspective of the heterodox Austrian School of economics. Proponents of the school see economics as the science of the logical implications which can be inferred from the ultimate given of human action. They also object to use of broad economic aggregates such as GDP to reach conclusions about the health of an economy. The essay’s conclusions are that government bailouts act to preserve valueless production as well as to prevent valuable production from ensuing. Furthermore, they act to decrease the overall production of an economy since they extract resources from the private sector which is more capable than the public sector to allocate resources in a productive manner. Government bailouts also create a problem of moral hazard in the form of an incentive to take on excessive risk. Therefore, they act to increase the danger of bankruptcies, impoverishing society as a whole.