Bailout Political Pressure

It seems we already have an example of a bank that felt pressured to make bad loans from fear of losing government support. From the American Spectator:

Bank of America was the victim of a concerted shake-down operation that could be replicated around the country. Banks apparently now are expected to give money away to failed borrowers. This could become federal policy when Barack Obama, who supported this new example of Chicago blackmail, becomes president.

The Optimal Savings Rate

Some people think that although people make efficient decisions about how much to save personally, the social discount rate we use is too low. The market gets it right, but government does not. I think the opposite is true.

Individuals are too eager to consume in the present instead of the future. Think of a person as a sequence of selves over time. Most people are selfish and favor the present self over the future self. They save too little.

On the other hand, when it comes to decisions across generations, we have to remember that future generations will be richer than we are. Thus, we should not incur too much cost now in exchange for benefits for them later.