What is the true cost when government bails out failing companies?
Well, first there is the visible cost. In the case of the hundreds of billions of dollars in bailouts that Congress started providing to financial institutions and the auto industry in 2008, it is now expected that taxpayers will ultimately lose as “little” as $25 billion or as much as $380 billion.
Neither figure is “chump change,” especially in a time when even greater debt is the last thing America needs.
But those losses don’t begin to measure the bailouts’ full negative effects — many of which might not be readily visible but are painfully real nonetheless.
Washington hurried to the rescue of companies that in some cases had made bad management decisions and performed poorly in the market. By doing so, Congress essentially rewarded failure with bailouts but punished better-performing, more successful companies, which did not receive bailouts.
So the free-market ideal of businesses being rewarded by consumers for providing good products and services at desirable prices was turned on its head.
Plus, by using taxes and borrowed money to fund the bailouts, Washington removed current and future dollars from the productive private sector, where it might otherwise have been used by go-getting entrepreneurs to create jobs and economic growth.
Unfortunately, politicians who approved the bailouts have little interest in talking about the economic growth that never happened as a result of their market-distorting actions. They are instead claiming that they rescued the economy, when in fact so many of our economic problems are direct results of excessive government intervention through everything from bailouts to subsidies to high taxes to undue regulations.
With the collapse of the housing market having been a huge part of what led to the financial crisis, just think what economic heartache might have been avoided if only government had not pressured lenders to make home loans to lots of risky borrowers. Those borrowers would not have wound up losing homes that they could not afford in the first place, and other homeowners would not have seen the value of their houses plunge because of widespread foreclosures.
But in the name of “fairness” and “economic justice,” government was determined to intervene in the housing market, and now we’re all paying the awful price.
If anything needs “rescuing,” it is our wonderful but often abused free-market system — not from “Greeks bearing gifts” but from “politicians bearing bailouts.”