THE OBAMA administration announced Thursday that it would sell its remaining shares in General Motors by the end of the year, heralding an end to the largest direct government bailout of a U.S. industry in modern history. The U.S. government stands to lose $10 billion on its investment, based on GM’s current stock price. Combined with the Treasury Department’s already realized loss of $1 billion on its smaller investment in Chrysler, that brings the total cost to taxpayers of rescuing two of the Detroit Three to $11 billion.
Was it worth it? Anyone who claims a definitive answer to that question is not being honest. The government could have spent less on the bailout if it had driven a harder bargain with the autoworkers’ union, which made only modest concessions. But taxpayers would likely have ended up on the hook for a substantial amount anyway. That cost would have to be weighed against the costs of not intervening, which might have resulted in liquidation and a cascade effect throughout the auto industry supply chain. Not even financially healthy Japanese, German and Korean factories could have escaped that unscathed, to say nothing of the surrounding cities and towns. On the other hand, resources not devoted to propping up GM and Chrysler could have found alternative productive uses, perhaps yielding more jobs and other benefits to society in the long run. . . .
Here is the letter that I sent to the Washington Post:
Letter 145 words
Dear Letters Editor:
The Washington Post uncritically accepts the Obama administration claim that the GM bailout lost only $10 billion (“Closing the door on the GM investment,” 11/23). But that estimate depends on believing the bailout was limited to $50 billion in TARP funds.
The list of funds funneled to GM includes: waiving $45.4 billion in taxes on future profits, exempting all product liability on cars sold before the bailout, and $360 million in stimulus funds. Other programs are harder to quantify but include some of the $15.2 billion that went to Cash for Clunkers and the $7,500 tax credit for those who buy the Chevy Volt.
Take an example. Suppose the government had waived another $50 billion in GM’s tax liabilities before selling GM’s stock. The stock price would surely rise appreciably. But would doing that then mean the government actually profited from the original bailout? Hardly.
John R. Lott, Jr., Ph.D.