Measuring the True Cost of Government Bailout

Abstract

By all accounts, the variety and scale of government intervention to assist individual businesses and industries, and to provide general economic stimulus during the 2008-2009 economic crisis, was extraordinary. Understandably, taxpayers have been concerned about the cost. A simple tally of dollars authorized or disbursed, of course, is wholly inadequate to accurately assess the costs of various interventions. This Article addresses the challenges of providing reasonable budgetary information with respect to different types of expenditures. In addition to looking at costs for the more obvious programs, the analysis explores the special challenges of cost estimation for other more covert actions, such as special tax breaks or relief from burdensome regulation, that serve a bailout function. Another notable feature of recent bailout-related government activity is the fragmentation of intervention efforts, which involved the off-budget Federal Reserve, off-budget government-sponsored enterprises, the Federal Deposit Insurance Corporation, the Treasury Department, and numerous other on-budget agencies. The Article takes issue with some of the methodologies used by the government to value assets obtained in its efforts, and argues that decision making about the appropriate allocation of aggregate resources is hampered when some expenditures are off budget altogether and when even on-budget agencies used different methods of accounting. Adequate and transparent budget accounting for costs requires greater consistency in valuation and accounting methods, and a more unified presentation of aggregate information in the budget with respect to all government bailout-type activities.