When you believe in things that you don’t understand,
Then you suffer,
Superstition ain’t the way
- Stevie Wonder
David Ignatius is entitled to this opinion:
We have just lived through one of the more notable successes of government intervention in modern times – the auto and bank rescues that almost surely saved the country from another Great Depression.
But if his intention is to convince skeptics—and not just to rally the deflated spirits of those who came to Washington with high hopes of teaching Americans how to love their government—he does a lousy job. A bold assertion like his requires supporting evidence more rigorous than hearsay, superstition, and the opinions of his friend, and former “Car Czar,” Steven Rattner.
Ignatius considers the bailouts successful because GM is still in business and the banking sector didn’t collapse. According to Ignatius (often channeling Rattner):
Private companies made bad decisions that put the U.S. economy at risk; government made good (if politically unpopular) decisions to keep these mismanaged companies afloat, fearing that a collapse would mean much worse trouble…Private actors made bad decisions, but public officials generally made good ones…Washington is such an easy target that we forget the real villains of this story are the bankers and auto executives who steered their companies toward disaster.
Where is the credible evidence that without the interventions we were headed for another Great Depression? Where is support for the argument that it’s smart to keep “mismanaged companies afloat”? Where are the convincing facts (not the figures produced by the Big Three’s PR machine in November 2008) that the auto industry would have shed 2 to 3 million jobs had the government not intervened to save GM and Chrysler on the administration’s terms? Where are the soothing facts that the incentives to avoid failure in the banking and auto sectors have not been weakened by the interventions? Where is the compelling defense against the charge that government policies that subsidized chosen firms in the mortgage industry created the incentives for risk-taking—that Ignatius pegs as the root cause of the problem—in the first place?
Apparently, Ignatius doesn’t swell with desire for limited constitutional government. He writes, “It’s one thing to denounce government when it fails to achieve its goals. But to ignore government’s achievements in times of crisis is willfully stupid.”
It’s clear that Ignatius column is more of an ideologically‐driven rant doubling as a pitch for Rattner’s new book about the heroic role of the Auto Task Force in saving the auto industry. As I wrote a few months ago in response to Rattner’s chest‐puffing:
Rattner’s verdict rests on the singular consideration that “a year after the government‐sponsored bankruptcies of GM and Chrysler, both patients are alive and progressing well toward recovery.” But that’s like hailing the stable medical condition of a drunk driver after an accident, while ignoring the injuries to the family in the vehicle he struck.
The impact of the auto intervention on its victims doesn’t factor into Rattner’s analysis.
Rattner’s claim of auto “rescue” success is the product of a straw‐man set‐up. The most compelling objections to the bailout were not rooted in the belief that the government couldn’t use its assumed power to help GM and Chrysler. On the contrary, the most compelling objections were over concerns that the government would do just that. It is the consequences of that intervention—the undermining of the rule of law, the confiscations, the politically‐driven decisions, and the distortion of market signals—that animated the most serious objections.
Thus, any verdict on the outcome of the auto industry intervention must take into account, among other things, the billions of dollars in property confiscated from the auto companies’ debt‐holders; the higher risk premium built into U.S. corporate debt, as a result; the costs of denying Ford and the other more successful auto producers the spoils of competition (including additional market share and access to the resources misallocated at GM and Chrysler); the costs of rewarding irresponsible actors, like the United Autoworkers union, by insulating them from the outcomes of what should have been an apolitical bankruptcy proceeding; the effects of GM’s nationalization on production, investment, and public policy decisions; the diminution of U.S. moral authority to counsel foreign governments against market interventions that can adversely affect U.S. businesses competing abroad, and; the corrosive impact on America’s institutions of the illegal diversion of TARP funds under two presidential administrations.
It is willfully deceptive to direct the public’s attention away from these less discernible, but very consquential costs of the bailout.