By this logic, as the BlogProf argues, we may someday have to bail out Pepsi to save Coca-Cola. Harry Reid tries to defend the unpopular bailouts of two of the Big Three American automakers by claiming that the US would have no auto industry at all without them. The continued existence of Ford, which refused to take government bailout money, would make that claim difficult for anyone other than a desperate Democrat:
The Senate’s top Democrat argued Ford Motor Co. probably would have collapsed if the government hadn’t bailed out its top two competitors.
Sen. Harry Reid, D-Nev., chided Republicans for opposing Democratic efforts on a number of fronts and defended the Obama administration’s auto bailout.
“Isn’t it a good thing today in America that we have an automobile manufacturing sector? If it had been up to them, General Motors would be gone. If it were up to them, Ford Motor Company would probably be gone. Chrysler definitely would be gone,” Reid said on the Senate floor today. “We decided that they need help, just like New York City needed help 25 years ago.”
Well, it was left up to Ford, and they survived the crisis on their own. Chrysler would almost certainly have collapsed, but it’s all but gone now anyway. GM will survive in something resembling its previous form, but only after taxpayers assumed almost all of its liabilities in the bailout and after its senior creditors took a beating in a political machination that made a mockery of bankruptcy law.
Ford did praise the bailout, but hardly claimed that it saved their bacon:
Ford executives have never said the company would have collapsed if the government hadn’t bailed out its cross-town rivals.
In December, Ford executive chairman Bill Ford Jr. met with President Barack Obama and praised him for rescuing GM and Chrysler.
Nor would it have made any sense to make that argument. Elimination of competition would not have caused Ford to collapse; it would have given them a stronger position as the sole remaining domestic auto company (although not the only domestic auto producer, as Toyota and Honda build cars in the US). Had GM and Chrysler gone under, it may have given Ford more leverage to deal with union wages and pensions, especially the latter.
The Blog Prof notes that bankruptcy wouldn’t have necessarily meant the end for GM and Chrysler, either, and that the government’s interference in the process did more harm than good:
Without the bailouts, GM and Chrysler could have gone through bankruptcy restructuring without the 800-lb government gorilla on their backs. As it is, the bankruptcy restructuring occurred in a way to help Obama’s primary constituency – unions – rather than the long-term health of the companies. We are yet to see whether the restructuring will work, but if it does, it will be despite the government takeover, not because of it. There are in fact plenty of good people still working for the autos. I know because some of them have been my best engineering students.
And don’t forget that we spent over $60 billion on those bailouts just to see the companies go into bankruptcy anyway. A proper bankruptcy would have maintained order in capital markets and reallocated resources rationally without the $62 billion in taxpayer money that we had to borrow for the bailout. As we service that debt, it will come out of the pockets of Americans who might otherwise have spent it on actual growth-producing activities — like buying cars.