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Today's must-read comes from The Economist, which believes it owes Barack Obama an apology.
Once a symbol of American prosperity, GM collapsed into the government's arms last summer. Years of poor management and grabby unions had left it in wretched shape. Efforts to reform came too late. When the recession hit, demand for cars plummeted. GM was on the verge of running out of cash when Uncle Sam intervened, throwing the firm a lifeline of $50 billion in exchange for 61% of its shares.
Many people thought this bail-out (and a smaller one involving Chrysler, an even sicker firm) unwise. Governments have historically been lousy stewards of industry. Lovers of free markets (including The Economist) feared that Mr Obama might use GM as a political tool: perhaps favouring the unions who donate to Democrats or forcing the firm to build smaller, greener cars than consumers want to buy. The label âGovernment Motorsâ quickly stuck, evoking images of clunky committee-built cars that burned banknotes instead of petrol—all run by what Sarah Palin might call the socialist-in-chief.
Yet the doomsayers were wrong.
â¦
That does not mean, however, that bail-outs are always or often justified. Straightforward bankruptcy is usually the most efficient way to allow floundering firms to restructure or fail. The state should step in only when a firm's collapse poses a systemic risk. Propping up the financial system in 2008 clearly qualified. Saving GM was a harder call, but, with the benefit of hindsight, the right one. The lesson for governments is that for a bail-out to work, it must be brutal and temporary. The lesson for American voters is that their president, for all his flaws, has no desire to own the commanding heights of industry. A gambler, yes. An interventionist, yes. A socialist, no.
Oh, and the Congressional Budget Office would like you to know, once again, that the stimulus saved us from the Great Depression Part 2. So, you know, shut up John Boehner.
[...] MUST READ: The auto bailout worked (also, so did the stimulus … [...]
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