Hamermesh on the Point of the Bailout
Posted by Josh Wright on December 15, 2008
Some simple economics and common sense:
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?”
These points are not new. But they are worth repeating.
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