Did Obama save Chrysler?

That is very much the impression I got after reading this article from Think Progress the other day. And the facts are certainly there. Huge profits, debt repayment, a promising future, and plans to expand production and create jobs. Couldn’t have gone better, right?

I agree with the author that Chrysler is doing well because of a government bailout. The money helped it revamp its production line and increase sales. The point is there is no way to tell if the American taxpayer over-paid for Chrysler’s good health.

I really love it when I can apply the broken window fallacy, and it works perfectly here. The government spent some money, and we can see the benefits. What we do not see is where the funds would have otherwise gone. The fact people were not buying or investing in Chrysler speaks volumes. People demonstrated they would rather spend their money elsewhere, so they lose economic well being by being forced to invest. Essentially, the government had to pay Chrysler to stop making cars no one wanted.

As the article points out, Chrysler going out of business would have been a wash for the American economy. What about all the factory workers who would lose their jobs?

True, that would have sucked, but what happens when a plant like that goes out of business? It’s not as if the now-unemployed managers destroy all the capital when they leave. They sell it! It is perfectly reasonable to assume that at least some of the factories and workers would stay employed in the same line of work under better entrepreneurs and managers.

If nothing else, the bailouts have given the managers who drove the company into ruin increased market share and massive profits. This sort of action keeps upstart car companies with innovations and ideas out of the market. So the very people using these new profits to lobby the government to stop new fuel regulations are kept in control by the government.

The article also fails to mention this is not Chrysler’s first trip to Congress for a handout. It received a massive taxpayer funded loan in 1979. Like today, it rebounded and paid back its government loan.  Twenty five years later, and it’s back for more.

The lesson? The market is face-paced and changes as quickly as consumer preferences do. By giving companies handouts and cheap loans, the government slows the natural process of replacement and innovation in favor of cronyism and corporatism.

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  1. Did Obama save Chrysler? « Hans Economics - February 2, 2012

    […] Obama save Chrysler? Posted by krlatham ⋅ February 2, 2012 ⋅ Leave a Comment Filed Under  bailouts, Barack Obama, Chrysler, Obama, Think […]

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