Word comes that some of the $700B in bailout money may be used to rescue auto companies. The auto companies aren’t “banks” so the Fed won’t take an equity stake but they can use the money to buy up bad auto loans. So now the financial sector bailout has morphed into an auto-loan rescue operation?
Dan Mitchell of CATO takes exception:
When you have taxpayers come in and bail out Detroit, you in effect are sending a message: You don’t need to make yourself more efficient to meet the challenge of foreign competition. You just need to hire the right lobbyists and influence-peddlers in Washington to get money for you.
And he’s not alone. Just yesterday the Washington Post editors pointed out, with regard to another $25B loan to the auto industry, why this might not be a smart tactic:
Well, we can think of several objections. First, there is the question of whether the U.S. government should be picking winners and losers in a business such as this. It’s one thing to bail out the financial sector, whose product — credit — is essentially fungible and on which all other businesses depend. Automobiles, however, are not interchangeable, and Congress can’t substitute its specific technological and aesthetic preferences for those of the market. What if we lend Detroit $25 billion and still nobody buys its cars?
Second, this bailout taxes the less well-off to protect the relatively privileged. The average individual General Motors production worker, whose job would be saved by the bailout, makes $56,650 per year, according to the Center for Automotive Research, and that doesn’t count better-paid, white-collar types. Meanwhile, half of all households– which typically include more than one earner — make less than $50,000 per year. Where’s the justice in that?
Precisely. Moreover, this has a bait-and-switch quality to it. What was supposed to be emergency help for one sector of the economy now is seeping into some type of industrial policy. What’s next? There doesn’t seem to be much of that vaunted Congressional oversight, let alone public discussion, of this development. Maybe the presidential candidates would like to opine on whether they think an auto bailout is what they had in mind and whether they think it would be a good idea. Even better, they might tell us what industries aren’t going to be getting government hand outs on their watch. Are there any?