Auto Bailout Drives Us Towards Socialism

It is an understatement in most instances to say that Washington politicians are economically illiterate. The bailout frenzy, for instance, is a massive transfer of wealth that rewards people who -- by definition -- have demonstrated that they do not make good decisions about money. This policy does not make sense, but it is just the tip of the iceberg. Since any first-year economics student can explain that subsidizing something is a very effective way of getting more of it, one can only imagine the perverse incentives that are being created in the bailout environment. The prospect of mortgage "relief" presumably has led some households to stop making monthly payments. Companies, managers, and shareholders, meanwhile, have probably figured out that hiring slick lobbyists -- rather than producing goods and services valued by consumers -- is now the best way to "earn" money.

The auto bailout is the latest example of upside-down economics. The Big Three auto companies and the United Auto Workers are in deep trouble because they have failed to innovate and economize. But rather than allow bankruptcy, which would lead to long-overdue structural reforms, the White House and its Democratic allies on Capitol Hill want a $15 billion bailout -- even though that would subsidize the reckless and short-sighted decisions of both labor and management in Detroit (and also set a precedent for further handouts once the Big Three and UAW get hooked on the heroin of government dependency).

Some supporters say the auto bailout is okay because the government will be given oversight authority over the car companies. But this is not a reason to be mollified. It is an additional reason to oppose any transfer of wealth from taxpayers to Detroit. The corporate bureaucrats at General Motors, Ford, and Chrysler have demonstrated that they are not very competent. The bosses at the UAW have shown that they are stunningly myopic about the long-term best interests of workers. But there is one group of people that clearly would do a far worse job, and that group is comprised of the politicians and bureaucrats in Washington.

This is a serious threat to America's economic vitality. Some politicians are talking about a "car czar," for instance, though "commissar" might be a more appropriate term. Others are talking about requirements for "green" cars, whatever that means. Senator Chris Dodd, the scandal-plagued Connecticut Democrat, wants the CEO of GM to resign -- though he never explains why that should be his decision and not the responsibility of GM's shareholders or board of directors. Perhaps most stunning of all, some politicians want the government to have veto power over any expenditure greater than $25 million -- which is a recipe for turning industry decisions into a perverse from of pork-barrel spending since lawmakers will want new factories built in their districts.