A news service for the people of Michigan from the Mackinac Center for Public Policy

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A123 Files for Bankruptcy

Yet another failure of central planning

Electric car battery-maker A123 Systems has filed for bankruptcy, according to Bloomberg News.

The company was promoted heavily by President Barack Obama and Michigan politicians and received hundreds of millions of dollars through federal “stimulus” and Michigan Economic Development Corp. programs. Earlier this year, Michigan Capitol Confidential uncovered a video of these politicians promising “hundreds” and “thousands” of jobs – the video was eventually taken down by the MEDC but saved by CapCon.

Despite known financial trouble, just a few months ago A123 awarded sweetened severance packages to its top executives. From CapCon:

Vice President and General Manager of Energy Solutions Group Robert Johnson, for example, would see his severance increase an extra $200,000 from the agreement, boosting it from $400,000 to $600,000. Johnson’s base salary is $400,000 this year, up 21 percent from his 2011 base salary of $331,250. That raise is consistent with a pattern of large pay increases top executives at A123 Systems have received.

In sum: The president of the United States, Michigan’s former governor, the state’s two U.S. senators and the U.S. Secretary of Energy promised thousands of jobs from a company that in a mere two years went bankrupt. Despite a bankruptcy or buyout predicted by outside observers, the company continued to reward its top executives while laying off most of its workforce.

Taxpayers should not be surprised: This is only the latest example where political calculations trumped market ones. Only government bureaucrats spending other people’s money would think this was a good investment.

In this premiere episode of EconPop, Andrew discusses the economics of Academy Award winner Dallas Buyers Club. Subjects include public health and safety regulations, crony capitalism and the role of regulatory capture, the emergence of black and grey markets, and commercial exchange as a means for increased social tolerance.

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