Commentary Magazine


Contentions

Black Holes and Bailouts

Jennifer raises some serious doubts about the proposed bailout of the American auto-industry. Among other things, she notes that General Motors announced that bankruptcy is “not an option” for the company, when of course it always is. While GM can’t be blamed for looking to avoid bankruptcy, and while no one enjoys seeing workers get laid off, it is troubling to hear more and more politicians arguing that we must not allow important industries or companies to go bankrupt.

This reminds me of something I learned in college (and I hope I remember it right). David Sidorsky, my formidable professor of political philosophy, taught that one of the causes for the Soviet Union’s collapse was that Marxist economics does not possess a concept of bankruptcy. After all, a cornerstone of socialist economics is an exclusive concern for “production for use,” not production for profit. Since the Soviet government did not care about the profitability (or lack thereof) of various industries, grossly unprofitable factories, etc. were permitted to exist thanks to continued financial support from the state. These economic “black holes” sucked more and more resources away from other parts of the economy that would have otherwise been profitable, which led to a chain reaction that caused the entire economy to go down the tubes.

Obviously, there are many enormous differences between the Soviet Union and current conditions in the U.S., but it makes me nervous to see the option of bankruptcy increasingly being removed from the table—especially when those arguments are couched in terms of what is essentially “production for employment.”