Dear Post: Auto Bailout Will Lead to Economic Contraction
Martin Feldstein and George Will each offer excellent reasons for opposing a bailout of
The number of different places from which these resources will be taken is large and spans a continent. So it's easy to overlook the fact that each of many productive firms from across the country will, as a result of this bailout, pay more for steel, machine tools, fuel, and other inputs they use in production. These other firms will contract their operations; they'll employ fewer workers; they'll produce less output.
The bailout might well save GM, Ford, and Chrysler. If so, politicians will celebrate it as "successful." But that success – which will be easy to see and capture on video tape – will likely really be an economic failure because of the resulting (if hard to see) contracted economic activity throughout the economy.
Donald J. Boudreaux
Don Boudreaux is the Chairman of the Department of Economics at George Mason University and a Business & Media Institute adviser.