It is fair to say that no one involved in the decision to rescue and restructure GM and Chrysler ever wanted to be in the position of bailing out failed companies or having the government own a majority stake in a major private company. We are both thrilled and relieved with the result: the automakers got back on their feet, which helped the recovery of the U.S. economy. Indeed, the auto industry’s outsized contribution to the economic recovery has been one of the unexpected consequences of the government intervention.
Pointer from Tyler Cowen.
I guess there is no such thing as the seen and the unseen. For those of you who do not know, Goolsbee and Krueger were officials in the Obama Administration as the bailout was being executed. Here, if their arms do not break from patting themselves on the back, it won’t be for lack of trying.
Timothy Taylor, I question the editorial decision to publish this piece, even if you also include an article that challenges the auto bailouts. Could you not find a neutral party to tell the pro-bailout side? If not, then what does that tell us?
Did the oligopoly banks also provude an outsized “contribution” to the “recovery?” Maybe if you save some guys, those are the guys with a competitive advantage when you let the other guys go bankrupt In whatever you call the aftermath.
“Bailing out failed companies” is odd language too. Failed companies shouldn’t get bailed out. Victims of a recession do- a recession caused by the fed taking away the punch bowl of the boom caused by the fed causing interest-sensitive business models to “fail.”
They admitted that the government lost money on the deal, but did not include the waiver of taxes that was granted to GM. That waiver had no legal basis and was estimated to be worth roughly $40-50 billion. Did they also take into account the damage to the legal system?
Warren Meyer runs a small business operating campgrounds. He blogs on the economics of small business (among other things) at coyoteblog.com. He also has some thoughts on the Goolsbee & Kreuger paper, esp. on the “unseen” effects of simply letting the companies go through standard reorganization bankruptcies.
http://www.coyoteblog.com/coyote_blog/2015/02/wow-two-obama-administration-economists-write-paper-saying-obama-administration-policy-was-great.html
One of the commenters notes that the most likely purpose for the government’s intervention in the auto bankruptcies was to aid its solid UAW constituency. Which lends some irony to Obama’s refusal to approve Keystone XL, which would immensely aid other solid union constituencies, but anger the enviros.
It’s a tough world out there when two of the factional results of your political self-interest group slicing and dicing go head-to-head.
Thank you, Professor Kling, for writing this.
Love how we’ve created a world where leading academics can both make policy and “independently” comment on the glorious success of their own policies!
All hail the academic-bureaucratic complex…
As opposed to the tremendous success of the Lehman bankruptcy?
That was also a government program. There are alternatives other than disorderly government bankruptcy and ad his government bailout. Bankruptcy is one of government’s core responsibilities. It just refuses to do it.
Bad precedent is not a good excuse for creating outcomes.
The government is in the propping business. Fannie Mae, Freddie, Ginnie.
Such involvement causes distortions.
Does any perceived good outweigh the negative effect of picking winners and losers?
I guess the answer might be: Yes, but only if you are a winner.