Thursday, December 11, 2008

Too Big to Bail

Here's a great op-ed on the auto bailout from Donald Boudreaux, chairman of GMU's economics department.

Bankruptcy doesn't make assets -- such as factories, machines, contractual options to buy raw materials, workers' skills -- disappear. If markets still exist for products produced by these firms, Chapter 11 is the best way to discover this. Some workers might lose their jobs and some suppliers might lose their markets, but there would be no industry-wide collapse of the sort portrayed by the bailout's cheerleaders.

But what if refusal to bail out these firms results in their complete failure? Even then -- especially then -- the case for a bailout crashes. Really big firms such as GM, Ford and Chrysler are really big users of productive inputs, like rubber and steel. Almost all of these inputs have alternative uses and could be used by other firms or in other industries.

And here's great entry from Russell Roberts, also of GMU economics.
As we prepare to partially nationalize the American automobile industry, it is a good time to remember that George Bush is not a free market ideologue and that he did not pursue free market policies. Please remember that in his last year in office he initiated and condoned measures that helped destroy the natural feedback loops that allow markets to recover from the inevitable mistakes that human beings make. And tell your children. I know. It seems obvious. But twenty and thirty years from now, there will be people writing about how George Bush's free market ideology caused the mess we're in.