Role of government

I see that two Bank of America executives are getting millions in severance packages at the same time the bank is laying off thousands of employees.

Doesn’t it just seem wrong that executives get such huge payoffs when the company is clearly struggling? If the executives did such a poor job that they’re getting forced out, why the bonuses?

Overall, our economy is suffering from a lack of employment, and the resulting depressed consumer spending and demand for products. Until demand increases, unemployment will remain high. So, it’s bad for the economy for BofA to lay off 30,000 workers. But it’s good, in the short term, for BofA to reduce its costs by laying off workers.

This is a version of the Tragedy of the Commons.  What is in one actor’s interest may be counter to the interest of society as a whole. The usual example is a public pasture on which farmers can let their cattle graze for free. For a single farmer, adding one more cow to the pasture is a benefit; more milk, more beef, for that single person. Unfortunately, the more cattle grazing means less and less grass for the entire group, and eventually the pasture is overgrazed and destroyed. Same thing with potato farmers. When prices are high, the next year everyone plants from fence to fence, thereby overproducing and driving prices down.

Anyway, this is a situation where only government can solve the problem. Perhaps by limiting the number of cattle each farmer can graze (“regulation”), or perhaps some other solution that protects the common resource. That might hurt the individual farmer, but the group of them will benefit because the common resource won’t be destroyed.

Now, the farmers could get together and act collectively, but that’s really just another form of government. A social compact achieves some type of “regulation.”

Returning to the BofA example, if the government taxes everyone a bit, and pays unemployment benefits to BofA’s laid off workers, the economy as a whole will benefit because the workers will have spending money and demand won’t slump so much.

Just sayin’. Just pointing out that government does have a proper and important role to play, even if it infringes on some individual’s personal desires. Government is there to support the social compact and help the nation as a whole. Republicans who detest government and think it can’t accomplish anything useful ought to think a bit more deeply on the subject.