Department of . . . Huh?

By Megan McArdle

Andrew seems very pleased by the progress we're making with the auto bailout.  I'm not seeing it.  Am I really supposed to get excited by the astonishing revelation that when you pour tens of billions of dollars into a couple of failed companies, some of that money will end up in someone's pocket, somewhere?  Maybe it's the slightly-above 50% capacity utilization at our dying giants that should put a smile on my face and a song in my heart?  After all, it's up from a trough of 36% last June, and only 20-30% below the normal level, when they weren't so profitable either.  Perhaps I should just be happy to know that GM has taken some of the government money we gave it and "repaid" its multi-billion dollar loan by giving our own money back to us, while still losing billions more.

In answer to Andrew's question--"That auto restructuring last year was a disaster, wasn't it?"--well, yes, it was.  The Congressional Budget Office believes that it will ultimately cost the taxpayers $50 billion--as much or more than the rest of TARP put together.  For that, we saved less than 400,000 jobs at GM and Chrysler.  We could have given each of the autoworkers $100,000 to go start over somewhere else, and still saved money on the deal.

(The parts suppliers, you say?  This rather assumes that no more cars would be manufactured in the US. If you want to make the case for structural adjustment loans while the suppliers retool, go ahead, but you don't keep two massive manufacturing operations running at a loss because well, it would be awfully hard on the folks that sell them ball bearings.)

It was bad enough that we had to bail out the banks, but at least you could make a reasonable argument that we had to--we know what happens when you allow widespread bank runs, and its generally pretty disastrous for the citizenry.  But you know what happens when a large auto manufacturer fails?  Its employees and customers have to do business somewhere else. 

It was sheer political theater, and incredibly corrosive to public trust in our government institutions, as well as a gross misallocation of economic resources.  The role of the state is to prevent human suffering, not prop up failing enterprises that happen to have politically well-connected employees.  I am genuinely struggling to come up with what principled argument Andrew might be making in his head for what has always struck me as a pretty blatant handout to a powerful Democratic interest group.

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This article available online at:

http://www.theatlantic.com/business/archive/2010/04/department-of-huh/39750/