Three Cheers for Government Bailouts!!!

I have a question for those who believe the government should NOT have bailed out the banks and the automobile industry: Why not?

As this is a blog and not a conversation, I will describe what I understand to be the philosophy behind such a position: The market punishes bad businesses by letting them fail and rewards good businesses by helping them grow. (I agree with this premise, actually, to a point.) The market is based on demand and supply. If the banks and car companies go under, new ones will replace them without any outside help. (I actually agree with this too. Don't act so surprised!) But the flaw in allowing the market to solve all problems is that it operates on its own schedule without regard to human suffering.

Recent studies estimate that the bailout of the car companies saved 1.14 million jobs. It is probably true that given time the market would have rewarded a new or different car company with those jobs as demand for cars slowly went back up after the economy eventually recovered from a devastatingly high unemployment rate and a serious depression that would have resulted from the complete collapse of the American auto industry. Not to mention the devastation from a gutted banking industry. But why should we suffer for that long just for some silly principal that sounds really great in a college classroom, but actually can be quite painful when practiced without exception?

To pretend that the government is not a major market player is just setting up your tent on the banks of denial. The US government is the largest consumer in the world, spending more than $500 million a year purchased goods and services. And yet, has this involvement stifled our economy? No. The US has the largest economy in the world, if you rank by country, and it is either first or second if you combine the European Union into one economy. (Yeah, no government involvement in the EU economy at all. (That's sarcasm for those of you who don't know me very well.))

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence[sic],promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America. This is the preamble to the Constitution. Can I summarize? It means, government exists to make our lives worth living. We give up some of our power as individuals and states to that government, that we choose, so that we can live with less fear, with more comfort, and with a system of laws and justice that promote fairness and peace. Ideally. At least that's the goal. And we balance the exercise of government power with our liberties. Or we try to.

What we have learned in the past century is that having a government with regulatory and purchasing power can take the sting out of the market while still allowing market forces to grow the economy. And you can label it whatever you want - socialism, big government, whatever - but it works. It has a cost, sure, but one I'm willing to pay. And if you have ever received unemployment, disability, social security, medicaid, medicare, CHIP or you work for a government contractor, you have benefited from it.

Though it was railed against as wasteful government spending, we bailed out the banks and the auto industry. And the result?

Banks and the auto companies are back on their feet. And even more importantly, the auto bail outs have been paid back and TARP actually made a profit for taxpayers. TARP yielded better than a Treasury Bond (at 8.2% profit).

So can we stop rending our garments over the government interfering in commerce? One hand of commerce may be invisible, but the other is wearing stars and stripes. Allowing the visible hand to steady the market and protect us from disasters is a good thing. And as a practical matter, I prefer that protection to free market fanaticism.