The Left and Right Lose It Over the Auto Bailouts

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In an odd turn of events, commentators on the left and right are now applauding the much-maligned bailouts of U.S. carmakers GM and Chrysler. That voters were strongly against saving these gasping monuments of our industrial past doesn't seem to concern a media and political class increasingly insulated from the powerless taxpayers they allegedly write for.

Paul Ingrassia wrote in the Wall Street Journal that "the rescue of the auto industry is proving to be an unexpected success, and the president's biggest economic policy achievement to date." E.J. Dionne asked in the Washington Post, "Who could have imagined that the bailout of the auto industry, one of the single most unpopular moves by the Obama administration, would become one of its best talking points?"

Both Ingrassia and Dionne, along with the rest of the bailout-enablers in the media miss the point.

While it should be obvious to the sentient among us, the bankruptcy of GM and Chrysler would not have meant the end for either firm. Instead, the legendary carmakers' many good assets would have been purchased on the cheap by other car companies, most likely ones with a foreign address. Not only would GM and Chrysler still exist, they would presently have management that understand profit and loss, and that don't owe our federal government their continued existence.

GM and Chrysler would still be making cars, but free of the union contracts full of gold-plated healthcare plans and jobs' banks that made profits such a distant object. Thanks to the ability of their competitors to buy their assets out of bankruptcy, the new owners wouldn't be burdened by their legacy costs, nor would they be cost-constrained by the unprofitable investments (remember, these companies needed over $80 billion to stay alive) made by the previous management.

Considering the many employees of both, some doubtless would be out of work, but then the surest path to the recessed penury that Detroit (Ingrassia's mention of "Detroit's revival" brings to mind George W. Bush's "Mission Accomplished") is the picture definition of is the creation of jobs for the sake of creating them. Furthermore, foreign-owned versions of GM and Chrysler would surely have kept in their employ many workers, and those workers, rather than harmed by bankruptcy, would have benefited from better management; management not forced to kowtow to politicians that view businesses as social concepts meant to serve governments and employees rather than profit-driven entities created by and for shareholders.

Remarkably Ingrassia suggests that the "managements at GM and Chrysler are calling their own shots", and Dionne joins him here in arguing that politicized choices in the aftermath of the bailouts "didn't happen." This would surely be news to taxpayers about to subsidize the purchases of Chevy Volts, which fairly scream payback to politicians who believe carbon emissions foretell a warming period for the earth followed by an ice age.

This would also be news to officials in Tennessee that presumed the same last year, only to lose a GM plant relocation to Orion (MI) based, according to an article in the Wall Street Journal, on "'community impact' and 'carbon footprint' - or how the choice would affect unemployment rates and carbon-dioxide emissions." That same article went on to report that GM's announcement of a plant closing in Massachusetts was quickly reversed once a call came in from Rep. Barney Frank, in which the Massachusetts pol evidently told GM officials that a closing there would be a bad idea. That President Obama himself forced out former GM CEO Rick Wagoner presumably escapes both writers' strict definition of politics, along with the president's decision to wipe out Chrysler's secured creditors.

That the Constitution doesn't empower our federal minders to "create" economic growth or save profligate firms also doesn't seem to concern Ingrassia and Dionne. Thank goodness writers and politicians had more spine and respect for the rule of law a century ago, or else we'd still have government supported horse and buggy manufacturers selling what consumers don't want.

About GM, it's been said that the taxpayer-revived carmaker has its best automobile lineup in years, and that being the case, its bailout is surely justified. Of course the good or bad of GM's latest models is wholly irrelevant to the discussion.

Indeed, had GM (and Chrysler too) been allowed to file for bankruptcy its auto lineup would still be the best in years, and arguably better thanks to skilled managers enhancing its brands free of the cost burdens that bankrupted the previous management team. It's precisely because GM and Chrysler were suffocating from their own costly mistakes that they should have been allowed to go bankrupt so that new managers could buy out of bankruptcy their good concepts, and make them better thanks to strong capital positions made strong by investments made on the relative cheap.

Dionne argues that a failure to save the U.S. car industry (it seems foreign carmakers thriving in the U.S. don't count)"would have devastated an already ailing Midwest", and in suggesting this he helpfully explains why the bailouts should never have happened. Indeed, Detroit is ailing precisely because its remaining citizens continue to cling to the successes of the past, rather than doing what all healthy economies do whereby they let new economic ideas replace old ones.

The alleged compassion of the federal government with the money of others, and which Ingrassia and Dionne embrace, is nothing of the sort. Adam Smith taught us that stationary economies are invariably failed economies, and regardless of Dionne and Ingrassia's protests otherwise, the carmaker band-aid ensures that a city and region will remain stuck in the past, while bleeding their best and brightest until natural, economy-enhancing market forces are allowed to prevail.

 

John Tamny is editor of RealClearMarkets, Political Economy editor at Forbes, a Senior Fellow in Economics at Reason Foundation, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). He's the author of Who Needs the Fed?: What Taylor Swift, Uber and Robots Tell Us About Money, Credit, and Why We Should Abolish America's Central Bank (Encounter Books, 2016), along with Popular Economics: What the Rolling Stones, Downton Abbey, and LeBron James Can Teach You About Economics (Regnery, 2015). 

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