Our friends at The Economist magazine usually talk good sense about free trade and free markets, which makes their retrospective endorsement of the government bailout of General Motors all the more disappointing.
In a leader in the current issue, the editors write that critics of the bailout (count Cato scholars among them) owe President Obama an apology. “His takeover of GM could have gone horribly wrong, but it has not,” they opine.
The Economist argues that, in contrast to state coddling of industries in, say, France, President Obama has driven a hard bargain by requiring GM to fire top management, cut jobs, close plants, and reduce its brand names. The magazine grants that the president’s labor-union allies won special concessions that came at the expense of bondholders, but “by and large Mr. Obama has not used his stakes in GM and Chrysler for political ends.”
First, it’s a pretty low bar to say an intervention was right because it did not go horribly wrong. The editors then too quickly brush over the horrible injustice of stiffing the taxpayers of Indiana and others who bought GM bonds and should have been in line ahead of the more politically connected United Auto Workers union.
To curry favor with organized labor, President Obama put $50 billion of taxpayer resources at risk. A post-bankruptcy GM turned a profit last quarter, along with most other automakers, but it is doubtful its anticipated IPO in the next few months will raise anything like the $80 billion or more needed to return the “investment” to taxpayers.
On top of that, the bailout of GM went far beyond any valid power granted to the federal government by the U.S. Constitution, and it blatantly favored two companies over a multitude of others in the very competitive automobile market.
Remind me again who owes whom an apology?