Auto Bailout Would Lead To Economic Contraction
Militant letter-writer (and George Mason University Economics Department chair) Don Boudreaux notes that bailing out the automakers might be called an economic success because it would save automakers from insolvency, but the impact it will have on other economic players will make the reality a failure.
…resources given by government to these corporations must be taken from somewhere else. Government cannot conjure billions of dollars of resources out of thin air.
The number of different places from which these resources will be taken is large and spans a continent. So it’s easy to overlook the fact that each of many productive firms from across the country will, as a result of this bailout, pay more for steel, machine tools, fuel, and other inputs they use in production. These other firms will contract their operations; they’ll employ fewer workers; they’ll produce less output.
The bailout might well save GM, Ford, and Chrysler. If so, politicians will celebrate it as “successful.” But that success – which will be easy to see and capture on video tape – will likely really be an economic failure because of the resulting (if hard to see) contracted economic activity throughout the economy.
This is a bit like the broken window fallacy. Democrats are telling us that we can stimulate the economy by bailing out the automakers. But there’s no stimulus in that.
If Congress wasn’t taking our tax dollars and using them to bailout the bad business practices of the auto industry that money would be used for other things. In a perfect world, that money would stay in our pockets so that we citizens could use it for our purposes, but even if it stayed in Congress the impact would be the same.
There is no economic benefit to bailing out the auto industry. Unless your a CEO hoping to hang on to your job. Or a union goon hoping to keep your stranglehold on the auto industry.
