Successful Bailout?

by Don Boudreaux on August 2, 2010

in Inventive intervention, Myths and Fallacies, Other People's Money, Seen and Unseen, Subsidies

Here’s a letter to the Wall Street Journal:

Paul Ingrassia is too quick to declare Uncle Sam’s recent bailout of G.M. and Chrysler “an unexpected success” (“Two Cheers for the Detroit Bailout,” August 2).  First, the passage of a year-and-a-half isn’t long enough to justify drawing any such inference from the reversal in these firms’ income statements.

Second – and more importantly – the chief economic case against the bailout was not that huge infusions of taxpayer funds and special exemptions from bankruptcy rules could not make G.M. and Chrysler profitable.  Of course they could.  Instead, the heart of the case against the bailout is that it saps the life-blood of entrepreneurial capitalism.  The bailout reinforces the debilitating precedent of protecting firms deemed ‘too big to fail.’  Capital and other resources are thus kept glued by politics to familiar lines of production, thus impeding entrepreneurial initiative that would have otherwise redeployed these resources into newer, more-dynamic, and more productive industries.

The ‘success’ of the bailout is all too easy to engineer and to see.  The cost of the bailout – the industries, the jobs, and the outputs that are never created – is impossible to see, but nevertheless real.

Sincerely,
Donald J. Boudreaux

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