President Obama has made the auto bailouts a big part of his reelection argument. In a recent piece in The American, Steve Conover takes the other side of the trade:
1. The choice in 2008-2009 was not bankruptcy versus no bankruptcy; instead, the choice was between precedent-driven bankruptcy and White House-driven bankruptcy—rule-of-law versus rule-of-czar.
2. The taxpayer bailout was not applied to the “American auto industry”—instead, it was applied only to the two failed companies, GM and Chrysler, bypassing companies that had been sufficiently prepared for the downturn, including Ford, Honda of America, Toyota, Nissan, BMW, and others.
3. Orderly, rule-of-law bankruptcy might have led to continuing operations under restructuring for GM or Chrysler, in which case many auto-making jobs would have remained in Michigan.
4. Alternatively, orderly bankruptcy might have led to a shutdown of GM or Chrysler and an open auction of assets—probably to surviving companies—in which case car buyers would have shifted to surviving companies’ products and auto-making jobs would have migrated to those same survivors. (When a grocery store closes, its customers don’t stop shopping, they take their business elsewhere; car buyers behave in the same way.)
5. The notion that the White House should intervene with a specially designed bankruptcy process, thereby sidestepping rule-of-law bankruptcy, originated in the Bush White House in 2008, not in the Obama White House in 2009. A more honest name for the program would therefore be the “Bush-Obama Bankruptcy/Bailout” for Detroit’s two failed auto companies.
6. Ironically, top-down economics was the de facto remedy applied to “save” GM and Chrysler—but in this case “top-down” was the government-knows-best notion that political wisdom, trickling down to displace a century of evolved bankruptcy case law, was supposedly a superior alternative for the two failed companies. Top-down economics, the politicians’ version of “intelligent design,” directly rewarded GM and Chrysler with special-interest life support—instead of indirectly rewarding their surviving competitors with new customers and the necessary additional workers.
7. For the record, the only thing that “saves” any company, not just auto companies, is a sufficient number of buying customers—not the government, not union bosses, and not incompetent management. It’s a truth that all but two of the American-based auto companies understood sufficiently to withstand the 2008 downturn without help from the taxpayers.
And as Mickey Kaus frequently notes, whether the GM bailout will ultimately prove a business success remains in doubt. But as a political economy question, it was a failure from the start.