Taxpayers Pay Dearly For Poorly Conceived GM Bailout

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Federal Meddling: Remember the promise that taxpayers would get back every dollar taken from them and dumped into the General Motors bailout? The promise is coming up about $10 billion short.

All told, GM ended up with some $50 billion in direct cash, loans and bankruptcy aid. The bailout began with $13.4 billion from President Bush's Troubled Asset Relief Program and was topped off with another $30.1 billion in May 2009. The Obama administration provided a full $36 billion of the total.

The beleaguered American taxpayer was supposed to be paid back in full, but that won't be happening.

Last week the Treasury Department, which has no idea how to run a car company, said it planned to sell by Dec. 31 the remaining 31.1 million shares of GM stock it holds. When everything is settled, taxpayers will have lost nearly $10 billion.

Some will say that's a small price to pay to keep the company in business and 1 million jobs from being lost. Don't believe it.

First, what GM needed was a bankruptcy reorganization, which it was going through, without federal intervention. That's the way failing and ruinously indebted businesses should be handled.

Second, jobs might have been lost had the government not stepped in and poured billions into the company. But not 1 million. And those who lost jobs would not be assigned to permanent unemployment.

Business failure is part of a dynamic market economy. When companies shrink or even fold, resources that would have otherwise been captured by the failing businesses are released to fund startups and expand stronger businesses. If that doesn't happen, we don't grow.

Austrian economist Joseph Schumpeter explained this when he wrote about the "gales of creative destruction" in 1942. This "essential fact about capitalism," he said, "incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one."

GM didn't need Washington's meddling to emerge healthy from its troubles. Big companies have risen from their own ashes many times in our history without taxpayer bailouts. Sometimes it requires a merger; other times a massive reorganization is needed.

Bailouts are poor policy. They not only cheat the taxpayer, who's always on the hook for bad decisions made by government. They also increase the likelihood that there will be more bailouts in the future. Once the cycle begins, it's hard to stop.

 

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