Financial institutions (led by Citibank) have hundreds of billions of taxpayer money (en route to trillions) to cover their many mistakes. Now the automakers continue to beg for $34 billion more of taxpayer money to bail out their failed business models, and the lame duck Congress seem intent on funding the bailout in exchange for micromanaging the firms and their management, floating lame ideas like merging the two sickest car companies in the world (to make a healthy one?)
The airlines fixed their problems with bankruptcy, but apparently very few people (especially in the ruling party) are giving this serious consideration. The president-elect has written off bankruptcy (perhaps because it would end union contracts?) and seems firmly in the micromanagement-bailout camp. And now pundit Tom Friedman — without the responsibility of ever having to run anything — has shifted his emphasis back to micromanaging camp and away from accountability.
The willy-nilly trend towards bailouts is being decried by at least some who know something about running an economy. Oliver Hart and Luigi Zingales wrote last week:
This year will be remembered not just for one of the worst financial crises in American history, but also as the moment when economists abandoned their principles. There used to be a consensus that selective intervention in the economy was bad. In the last 12 months this belief has been shattered.Absent any sense of principles (or restraint), the temptation for politicians to use Other People’s Money (ours) to intervene in the economy and bail out failed companies is continuing unabated.
Practically every day the government launches a massively expensive new initiative to solve the problems that the last day's initiative did not. It is hard to discern any principles behind these actions. The lack of a coherent strategy has increased uncertainty and undermined the public's perception of the government's competence and trustworthiness.
We believe that the way forward is for the government to adopt two key principles. The first is that it should intervene only when there is a clearly identified market failure. The second is that government intervention should be carried out at minimum cost to taxpayers.
Our desire for a principled approach to this crisis does not arise from an academic need for intellectual coherence. Without principles, policy makers inevitably make mistakes and succumb to lobbying pressure. This is what happened with the Bush administration. The Obama administration can do better.
In November, Jon Fine of Business Week jokingly proposed under this same logic that the government should bail out newspapers, since their business models are also failing. Apparently Connecticut politicians are now seriously proposing such a plan. (Fortunately, the parent of the Los Angeles Times and Chicago Tribune would require a multibillion dollar bailout and so instead will fix its own problems using bankruptcy.)
The Libertarians over at Reason.tv have taken this bailout fever to its natural conclusion, bringing back Sock Puppet to ask for his own bailout — using the same arguments to save Pets.com as every other failed company.