News Story

The Auto Bailout Payback

President Barack Obama went on the TV show "The View" and told the cast that all the taxpayer money his administration spent to bail out General Motors and Chrysler will be repaid.

The Mackinac Center for Public Policy experts talk about their take on the impact of the auto bailouts.


James Hohman, fiscal policy analyst for the Mackinac Center 

The whole situation proves Ronald Reagan's observation that, 'Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it." The standard story here is that the auto industry was saved by government. What's missing was the horrible public policies that helped put the Detroit 3 on death's door.

But regardless of fault and whether Chrysler and GM would still be around without special federal support, the Michigan auto industry fell substantially. Most of the state's auto jobs had already been lost before it appealed to Washington and bail-outs won't bring those jobs back.


Jack McHugh, senior legislative analyst for the Mackinac Center

I'm reminded of similar assurances regarding Fannie Mae and Freddie Mac, the "government sponsored enterprises" who were the primary culprits in the sub-prime mortgage boondoggle and housing bubble-and-collapse. For years the politicians swore on stacks of Bibles that not only were the finances and business plans of these entities solid, but that no taxpayer-guarantee existed even if they did get in trouble somehow. Mr. Market knew better, of course, consistently pricing the debt issued by these lenders at discounted rates that reflected an implicit taxpayer guarantee.

The size of the automaker boondoggle is substantially smaller, but in some ways it's even more troubling. The political dishonesty surrounding Fannie and Freddie at least had the fig-leaf of a socially-beneficial purpose - encouraging home ownership. In the case of GM and Chrysler, the government "loans" were in fact a bailout of the UAW union, not the companies.

Worse still was the trampling of the rule of law in a politicized, so-called "bankruptcy" procedure that was actually a banana republic-like expropriation of money owed to private lenders, to be redistributed to unions.

So now, after all the dishonesty and outright theft used to clean up the balance sheets of two companies driven into the ground by union intransigence and perverse government regulations, they're generating some operating profits: Surprise, surprise. There are probably many more American companies whose quarterly results would look better if the government used a political process masquerading as a legal one to clear the "debt outstanding" line-item on their balance sheets.

Who knows - maybe some of the taxpayer dollars will eventually be returned, even. But another cost won't be so easily made up: To paraphrase an earlier victim of politicized government malpractice, "Where does Uncle Sam's legal system, tradition of honoring property rights and upholding the rule of law go to get their reputation back?"

It took more than two centuries to establish those reputations, but just a few weeks to compromise them for decades to come. The cost that will impose on our nation in foregone investment and future economic growth will be incomparably greater than any return of tax dollars from GM and Chrysler.


Russ Harding, director of Mackinac Center's Property Rights Network

President Obama visited Detroit in an effort to convince voters that the unpopular bailout of Chrysler and General Motors using $60 billion of taxpayer money, sinking the nation into further debt, was a good deal. Even if his optimistic predictions that most of the money will be paid back prove to be accurate (which I doubt) it was still the wrong thing to do. The damage done to the rule of law and free markets from the federal government bailout of the autos is both serious and long lasting.

The U.S. has always been a safe place to invest money. Not so much anymore. According to the 2010 Index of Economic Freedom published by the Heritage Foundation and the Wall Street Journal, for the first year ever the United States has fallen from the ranks of the economically free. There are now 12 countries in the world more economically free.

Much of the blame for the erosion in economic freedom in America comes from government intervention in the economy. When the federal government during the bankruptcy of General Motors and Chrysler trashed the rights of secured bondholders in favor of politically connected unions it sent a chilling message to those who would invest money in American companies.

Federal government ownership of an auto company is especially problematic as it is easy for the administration and members of Congress to use the company as a tool to implement environmental and energy policy - witness the Chevrolet Volt. In essence the federal government is using taxpayer money in the form of more than $7000 in tax incentives to encourage people to buy their product.

When economic freedom in a country erodes - the loss of personal freedom can not be far behind. No amount of political spin can hide the fact that the auto bailouts were bad for America. 



Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.