Governments intervene in markets all the time — and they should, in order to make markets more competitive; to solve problems of externalities (which are ubiquitous); to resolve difficulties caused by individuals’ shortsightedness, including the spurring of innovation; and to reduce transactions costs.
Where does the auto bailout fit in?
It certainly doesn’t make markets more competitive; instead it subsidizes American oligopolists. It certainly doesn’t spur innovation; while the provisions may talk about this, bailouts have proven to be a poor way of getting firms to innovate.
It doesn’t reduce transactions costs; Chapter 11 bankruptcy procedures exist for that purpose, and they do well at it. The only possible economic argument might be fear that a bankruptcy by G.M. might spook many other markets. What about a bankruptcy by Wal-Mart? It’s much bigger than G.M., so wouldn’t the spooking effect be bigger?
Let’s face it — the bailout is purely political, pushed by troglodyte companies and their unions of high-paid workers, and helped by their agents — elected representatives from the many states in which auto production occurs. Once again, as was true with the Chrysler bailout of the late 1970′s, the taxpayer will take a beating. To quote the old protest song, “When will they ever learn?”
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Excellent point saving the auto industry will do nothing for the country just help those involve in it. The governments doesn’t learn from the past. What about in 30 years time will the auto industry need another bail? The bailout will just extend the life of those companies. They are like a patient in a coma who is kept alive by tubes. They will eventually die, what is the point of extending its life?
Isn’t the chilling effect of GM bankruptcy in other markets THE valid reason to bail out the big three domestic automakers? It seems that is the rationale that is most often cited in the media that I have seen at least.
I think we need some kind of legislation that comes up with a new type of corporation – the “too big too fail” type. If a corporation is of this type, various restrictions and oversight are put on it to prevent it from failing in the first place.
BTW – I thought Chrysler paid back the loan with interest so how the the taxpayer get hurt?
Amen. Although you left off one “benefit”–the bribes that Congressmen might be taking from the industry and/or unions.
Mike, if that is the valid reason then really no other fortune 500 company can go bankrupt either. That is the point, if the bailout is to prevent other markets from spooking then how can you let any other large company fail. Are you willing to turn our economy into State controlled, or directed, business because you are afraid of spooking markets?
The point of the bailout is that with every other country constantly bailing out their own industries and subsidizing them with health and retirement benefits domestic auto manufacturers are in a long term structural disadvantage no matter what products they produce. So unless you want this to be a country that buys everything from overseas we need to step up and get dirty just like every other nation has least we follow in the footsteps of the UK which no longer has a car industry.
BTW I thought that Chrysler repaid all its loans from the last bailout.
The nation’s fourth largest city, Houston, got slammed by a major Hurricane in September, money from the federal Government has been slow in coming to the point where the state has had to fill the gap.
But Michigan, here is your money pail, keep being a swing state and the pigs in Washington will fawn for you.
Totally agree with the author… enough cronyism and socialism