Bad bailout logic

Conservatives need to choose between conflicting talking points.
On the one hand, they fault President Barack Obama for bailing out U.S. automakers.
On the other hand, they blame Obama for the nation’s 8.3 percent unemployment rate.
Conservatives’ criticism of Obama for using a combination of loans, equity investments and bankruptcy to keep the automakers afloat is not irrational. In the long term, many economists believe, allowing large corporations to fail is healthy. Capitalism is brilliant at allocating resources efficiently, but only if inefficient ventures collapse.
In 2009, the U.S. auto industry would have failed without governmental assistance. More than 100,000 people would have lost their jobs, by many estimates, if the federal government had not intervened. Their income loss would have damaged other businesses.
The conservative argument — which has considerable support in economic theory — is not that job loss is a positive, but that it is a necessary step in the transition to a more efficient use of labor and capital.
Eventually, other enterprises would have sprung up. Eventually, the thousands of unemployed auto workers would have obtained training in other fields and found employment in other companies.
While it may be that such a devastating loss of jobs would have benefited the nation’s economy in the long run, it also would have dramatically increased unemployment for many years. The U.S. unemployment rate, which topped out at about 10 percent, would have gone much higher. January’s 8.3 percent unemployment rate is far lower than the rate we could have expected if we had allowed the market to run free.
Conservatives can criticize Obama for bailing out Detroit or they can criticize Obama for an unemployment rate that is uncomfortably high. They cannot rationally do both.


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Filed under bailout, Conservatism, Free Market, obama

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