Published in The Tennessean, Sunday, February 5, 2012 and Forbes
by Richard J. Grant
An economy that is “built to last” will never be built by government. This might come as a surprise to President Barack Obama, but what is frightening is that it might come as surprise to a plurality of the American electorate. There is nothing like a sweet-sounding, and all but meaningless, phrase to persuade voters to stick it to themselves once again.
The great advantage of using government to subsidize or operate businesses is that we can ignore some or all of the costs. That is why so many people believe that their “green energy” projects are profitable and create numerous jobs. They ignore the burden of the subsidies and mandates that is shifted onto other people. It is also why many people believe that the nationalization of health care services saves resources in those countries so blessed by it. They ignore the burdens shifted to those who face doctor shortages, waiting lists, reduced innovation, and anticompetitive denials of a “certificate of need” for new hospitals.
Audiences are soothed by President Obama's words, “The American auto industry was on the verge of collapse. And some politicians were willing to let it just die. We said no.” And so it came to pass that the benevolent hand of government reached down and raised-up the industry again. The government just happened to find $85 billion supposedly lying around with nothing better to do.
But what was really saved? The American auto industry was not on the verge of collapse, and politicians don't let industries die, former customers do. The “industry” the president referred to was only General Motors, Chrysler, and the United Auto Workers. Ford declined to be messed up by further government intrusion into its affairs. Auto manufacturers with their operations mainly in right-to-work states were never in danger of bankruptcy.
Bankruptcy does not necessarily result in the disappearance of either a company or an industry. Customers will trade voluntarily with any company that offers them valued goods or services at an acceptable price. Whichever company does this best will be supported by customers. Companies that do this poorly will lose their customers, their employees, and their capital to other companies.
Although these transitions might bring periods of discomfort, this is how we make economic progress. But when government overrules our actions in the marketplace, it subverts that progress. When government tries to “protect jobs,” as if they are museum pieces, it ensures only that other more productive jobs will not come into existence.
Even if all the $85 billion of federal auto-bailout money is paid back, which is hardly likely, the net effect on our economy is already a loss. The federal government still owns a quarter of General Motors. Even if the share price rises sufficiently to produce a paper profit, we can never say that we are better off than we would have been had the government stayed out.
Government investment is coercive. It is not equivalent to private investment, which is voluntary and the investors necessarily bear the costs of their decisions. As governments invest in more projects, we are less likely to reach consensus on their worthiness. When local projects are funded by the federal government, with its widespread tax base, we are susceptible to the illusion that the money is free.
That's not a system built to last. It is built to waste.
Richard J. Grant is a Professor of Finance and Economics at Lipscomb University and a Senior Fellow at the Beacon Center of Tennessee. His column appears on Sundays.
Copyright © Richard J Grant 2012