The bailouts 10 years later: I told you so

GM is a mess despite being saved by taxpayers — the inevitable result of public sector corporate cronyism, writes National Review correspondent KEVIN D. WILLIAMSON

General Motors just shared some very bad news: It is closing five factories in the United States and Canada, eliminating 15 percent of its work force (and 25 percent of its executives), and getting out of the passenger-car business almost entirely to focus on SUVs and trucks. President Donald Trump threw a fit, but GM shrugged him off. The facts are the facts.

What did U.S. taxpayers get for their $11.2 billion bailout of GM? About 10 years of business as usual, and one very expensive lesson:

Bailouts don’t work

Never mind the moral hazard, the rent-seeking, the cronyism and the favoritism, and all of the inevitable corruption that inevitably accompanies multibillion-dollar sweetheart deals between Big Business and Big Government. Set aside the ethical questions entirely and focus on the mechanics: Businesses such as GM get into trouble not because of one-time events in the wider economic environment, but because they are

so weak as businesses that they cannot weather one-time events in the wider economic environment.

GM’s sedan business is weak because GM’s sedans are weak: Virtually all of the best-selling sedans in the United States are made by Toyota, Honda and Nissan. The lower and middle sections of the market are dominated by Asia, and the high end of the market by Europe: Mercedes, Audi, BMW. GM can’t compete with the Honda Civic at its price point or with the Audi A7 at its price point.

Consumers like what they like, and they aren’t buying what GM is selling. It isn’t winning in the dino-juice-powered market, in the electric-car market, or in the hybrid market, either: GM is not exactly what you would call a nimble corporation.

So, things are grim for GM

That’s the case on the car front, anyway. GM has a much healthier business selling trucks and SUVs, a business that it now will focus its resources on — as it should have done long ago. Why didn’t it do that?

In part, because we — you and me, suckers — paid them not to. We were told that we simply must bail out GM during the financial crisis because if we failed to, that would lead to a bloodbath of job losses and cascading business failures. But the job losses were always going to come: Paying people to build things that consumers don’t really want isn’t a sustainable business model. That’s a reality you cannot bail your way out of.

The U.S. government was buffaloed into the bailouts. The socalled experts argued that if GM went down, it was going to take the whole U.S. automobile industry with it and that its failure would do such violence to the supply chain and automotive ecosystem that it had to be prevented at practically any cost.

But the U.S. automobile industry was never going to fail in toto. The unprofitable parts were. There are billions and billions of dollars to be made selling Americans pickup trucks and SUVs, and GM knows how to do that. And if GM doesn’t do it, somebody else will. We’ve already seen that as U.S. automakers wind down their passenger-car businesses: Soon, you won’t be able to buy a Ford sedan in the U.S., but you can do yourself a favor and buy a Toyota Camry, instead. “But what about our jobs?” the socalled nationalists demand. The Toyota Camry is made in Kentucky, which, last time I checked, was still in the Union.

Then there are the banks

The same thing holds true, broadly, of the banks we bailed out. The “Too Big To Fail” institutions are bigger than ever as regulatory pressure and ordinary competition encourage consolidation in the financial-services sector. Does anybody really think that the practice of lending money for interest — a business model old enough to have a Biblical injunction against it — was going to stop if we let a half-dozen banks reap what they sowed?

Of course there would have been disruption. But there’s going to be disruption, still, because we didn’t solve the problem. Bailouts don’t solve problems. Bailouts at best delay the day of reckoning.

Subsidies eventually run dry. Surely this has occurred to Jeff Bezos and his team at Amazon. If New York City and Virginia made sense as new corporate homes only because of a few billion dollars in subsidies (about 2 percent of Jeff Bezos’s personal net worth), then it would be the height of stupidity to build permanent facilities there in return for a one-time offer of largely fixed benefits. Of course, Mr. Bezos et al. are not above picking up free money.

Or consider that subsidy from the point of view of Gov. Andrew Cuomo and Mayor Bill de Blasio, the Tweedle-Dum and TweedleEvil of New York politics. If New York City can hope to attract a firm like Amazon only by essentially bribing its shareholders (legally), then what does that say about New York City? A city with excellent schools, a first-rate mass-transit system, a sensible tax and regulatory environment, and better public sanitation might not have to pay off corporate shareholders. That kind of New York City would have the confidence to say: “This is New York. Lots of people want to be here. You’re welcome to join us, and we’ll provide the best municipal services we can, but don’t act like you’re doing us a favor. We were a big deal before you came along, guys.” But fixing the schools and subways is hard work, and doing it economically is even harder. You know what isn’t hard work? Giving somebody else’s money to a third party from whom you want something. That isn’t leadership. It’s cowardice and sloth.

The dead hand of bigness

Big Business and Big Government have a lot in common: the challenge of trying to manage complexity through bureaucracy, the deadening mentality and corporate culture of the Organization Man, inertia, internal politics, the agent-principal problem. Sometimes, they deal with those problems in remarkably similar fashion: by convincing us that they are so big and so important that we cannot manage without them. But it is not so. If you can’t get a slick black Cadillac, the hardworking gentlemen in Stuttgart are ready to take care of your big-sedan needs — and their colleagues in Alabama will take care of your little-sedan needs. Meanwhile, a million Uber and Lyft drivers are helping many urbanites see that they don’t really need a car at all.

There was moneylending before J. P. Morgan, and there will be moneylending after JPMorgan Chase & Co. And here’s a little something you may not know: “Too Big To Fail” isn’t a problem that crept up on us in 2008 — The Wall Street Journal was writing about the issue as early as 1983, identifying 11 large financial institutions that the federal government would not allow to fail.

Why didn’t we do anything? Nobody wants to rock the boat during the good times, and during the bad times politicians become so fearful of job loss that they will abandon principle and intelligence to prevent that from happening or to stanch it when it is under way.

In the short term, that may be good politics. In the long term, it’s bad policy.

Jobs aren’t an end — jobs are a means, the way we get cars made and chickens plucked and code written. It is no fun losing a job, and it can turn your life upside down: I used to be a newspaper editor, which means I oversaw a good deal of downsizing before eventually getting the ax myself.

We engage in a great deal of social spending that encourages people not to work when we probably should spend some of that helping people to work, for instance by repackaging some unemployment benefits as relocation assistance to help unemployed workers go where the jobs are. But just giving companies money — in the form of bailouts or Amazon-style incentives — in exchange for their “creating jobs” is a losing proposition. The market decides what jobs are worth doing and at what price — and no politician has the power to change that. That’s reality, and reality isn’t optional.

In the decade that has passed since the financial crisis, we haven’t learned anything. The lesson we should have learned — to let business be business and let government be government — seems for the moment to be beyond our political imagination: left and right alike are partly or wholly captive to the fantasies of managerial progressivism and neo-mercantilism, with the left imagining that Washington can intelligently direct energy and labor markets and much of the right falling in behind protectionism, “managed trade” and corporate welfare for every company from Boeing to Foxconn.

Never mind whether that’s right — our self-styled political “realists” don’t worry much about that sort of thing anymore — it won’t get you what you want: a world with all the benefits of economic dynamism and all the comforts of stasis.

As anybody who saw what became of the Chevy Malibu knows in the depths of his heart, GM will always disappoint you — whether you’re in for a few thousand or in for a few billion.