Unwittingly Enabling Crony Capitalism

by Don Boudreaux on May 9, 2011

in Crony Capitalism, Myths and Fallacies, Other People's Money, Seen and Unseen

Here’s a letter to the editor of the Washington Post:

You’re right that high-school graduates should know more economics (“Va. high school grads should be economically literate,” May 9).  But so, too, should newspaper columnists such as E.J. Dionne who today writes “Far too little attention has been paid to the success of the government’s rescue of the Detroit-based auto companies, and almost no attention has been paid to how completely and utterly wrong bailout opponents were when they insisted it was doomed to failure” (“Rescuing Detroit: No news about government’s good news“).

Mr. Dionne misses two fundamental economic insights: first, nothing is free, and, second, that which is unseen is as real as that which even the most myopic pundits manage to spy.

Economically literate opponents of the Detroit bailout never denied that pumping hundreds of millions of taxpayer dollars into Detroit automakers would restore those companies to health.  Instead, they argued, first, that bailing out Detroit takes resources from other valuable uses.  Because he doesn’t even recognize that other valuable uses were sacrificed by this bailout, Mr. Dionne offers no reason to think that the value of saving Detroit automakers exceeds the value of what was sacrificed to do so.  No legitimate declaration that the bailout is successful is possible, however, without evidence that the value of what was saved exceeds the value of what was sacrificed.

Economically literate bailout opponents argued also that it sets a bad precedent.  By signaling to big corporations that government stands ready to pay the tab for the consequences of their poor decisions, big corporations will more likely make poor decisions in the future.  It’s far too early for Mr. Dionne to conclude that this prediction is mistaken.

Donald J. Boudreaux

(I thank Harrison Colter for inspiring the title of this post.)


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