Aside from the obvious cost in taxpayer dollars, and in perpetually increasing bureaucracies in perpetually multiplying areas of our lives, the cost of government intervention encompasses several unseen and rarely considered consequences as well.
To wit, the cost of "regime uncertainty" - the risk of a costly change of government policy - in the housing, lending, and stock markets.
The economic concept of government intervention is generally poorly understood.
While the risks of business are known to businesses, the risk of government intervention are much more difficult to quantify, which difficulty leads to an inability to make informed investment decisions.
When a decision cannot be made in an informed way, no investment will be made.
In the case of the banks, no loan will be made.
In the case of the mortgage holders, foreclosed homes will not be placed on the market for sale until no further bailouts are expected.
In the case of the stock investor, no investment will be made until it's clear the government is out of the takeover and liquidation business.
Government taking has many forms.
Regulation forces unnecessary costs on businesses, taking directly from profits (whether those expected profits are realized or not).
Changes to regulation can thus reduce profits, and the risk of change in this administration is high.
Bailouts given to competitors act as a crutch to the competition (the same competition who didn't satisfy the consumers well enough not to get voted off the island).
Hence the non-bailout-recipient companies are put at an unfair disadvantage to the bailout recipients, who can reduce prices by spending taxpayer dollars on production.
In this administration you never know who's going to get the next bailout, so you pray it isn't your competitor.
The bailout recipient, your competitor, may come back from the dead, spending other people's money to drive you out of business.
An aside about profit...
Profit is the legitimate incentive of any business.
The people who risk their own capital do so in order to reap profits.
Profits are legitimate because businesses don't force customers to buy their products and/or services.
Profits are signals to businessmen that there are needs of customers that can be met at a cost lower than customers are willing to pay.
Customers vote for the best provider of their desired products or services, letting businesses know what they want, willingly paying money (which they value less) for products and services (which they value more).
Businesses compete to provide customer desired products and services at the lowest price and gain more customer votes (money).
The guy who gets voted off this island has legitimately failed to provide consumers what they want at the best price, no fooling around.
At the same time the guy who has the most votes in his favor (money) has done nothing but work for the satisfaction of his customers in the most efficient way (this time around...
Past performance never guarantees future profits in a free market)..
..
end of aside..
A second unseen problem/cost of interventionism is that of reduced incentives.
When government interventionism taxes away profit from business (In this construct an employee is a business who sells labor to an employer at an agreed price or "wage") they remove the motivation to engage in business.
Time off of work has some value to people, including businesses.
At some point the reward for hard work will be confiscated by the government to such an extent that the workers will simply stay home, or head somewhere else where they get to keep what they have earned.
The expiration of the 2003 tax reductions is likely to have severe negative consequences to incentives in our economy.
The economic concept of government intervention must become better understood so that the public can make informed voting decisions.