Missing the Point on Car Industry Bailouts

Opponents of government intervention in the car industry didn’t particularly worry that the action could never be a success.

Apologists of the multibillion dollar bailouts of the American car industry like to point out that those manufacturers saved by the government from likely collapse are profitable anew and prospering, supposedly, because of state interventionism. But they’re missing the point when contemplating the morality of a government “picking winners and losers” which is what the Bush and Obama Administrations’ actions amounted to.

The Washington Post‘s E.J. Dionne is but the latest in a series of commentators who claim that the bailouts were justified because they worked.

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.

But that’s not what opponents generally claimed. As the libertarian Cato Institute’s Daniel Ikenson points out at the think tank’s blog, “most thoughtful criticism wasn’t predicated on the notion that [automakers] couldn’t be saved by the government extinguishing debt, rewriting ownership, providing cash infusions and underwriting sales rebates. That opposition was borne of concern that the government would do just that.”

In the process of “saving” automaker General Motors, the government inflicted huge and irreversible costs on the entire car industry if not the American economy at large.

GM is making sales and accounting for market share but only at the expense of the other automakers. Had GM been forced to severely atrophy or liquidate, the other automakers would have had greater revenues, more market share and probably higher profits. They would have been able to attract GM’s best engineers and line workers. They would have more money to invest in [research and development] and to lead the industry into the future.

“Instead,” writes Ikenson, “by keeping GM in the mix, some of those industry resources remain misallocated in a company that the evolutionary market process would have made smaller or extinct.”

The auto industry wasn’t rescued by the government. GM was. At the expense of the rest of the auto industry. That is why proponents of a free-market economy opposed the bailouts.