Bailouts put the US on a slippery slope

Articles — By forcechange on December 10, 2008 12:00 am

Beyond the public’s moral outrage and protests of unfairness relating to the Wall Street and Detroit bailouts, there is a systemic hazard that is very real and often overlooked in these objections.  That hazard is that once the government steps away from its traditionally passive role, and steps into the role of picking and choosing which companies will be subsidized and saved, and which will not, a huge can of worms is irreversibly opened. 

Historically, this was one of the biggest problems with communism– that is– governments are notoriously bad at making centralized decisions.  The market is amoral– it picks winners and losers based upon events and merit.  But government is biased– it picks winners and losers based upon personal biases and prejudices. 

Now that our government is in the business of picking and choosing which companies succeed and which fail, there will be increasing attempts by the government to tell those companies how to run their businesses.  And why shouldn’t they?  Once these companies failed to survive on their own, it only seems fair that they should forfeit the right to make their own business decisions. 

Yet it is this righteous position that is so dangerous and could amplify the problems we already face.  Although we personally don’t think a bailout is a good idea unless the actual viability of our entire system is at-risk, if we are going to bail out these companies, we need to resist the urge to micro-manage their businesses.

However, that is exactly what is beginning to develop.  Senate Banking Committee Chairman Chris Dodd inserted a provision into the bailout proposal that would require the Big Three to look at building buses and trains.  During the hearings last week Dodd has this exchange with GM CEO Rick Wagoner:

“You all made buses at one point, didn’t you?” Dodd asked.

“Yes, we made buses. We made … we were in the rail business, as well,” said General Motors Chief Executive Officer Richard Wagoner.

“Any thoughts about getting back into that line of work?” Dodd interrupted.”

It is one thing to set the rules by which all companies must play (i.e., if you are a car company, you must meet “x” fuel efficiency standards), and it is quite another to say a specific company needs to start building a specific product, which is what Sen. Dodd is effectively suggesting with GM.  It is a slippery slope that we shouldn’t be on, but since we’re already on it, we must be exceedingly careful.