You might have missed it, but GM stock sale last week sealed the deal on a sea change in how our economy is going to work for huge companies going forward. When the bailouts of the financial industry were initiated, the outcry assumed that the taxpayers were “paying” to save the industry, and that the money was either mostly or totally gone. But in fact, many banks have repaid the money with interest, and while the government has not broken even on the deal, it is still possible that it will turn out to be profitable. We now see that the same may end up being true of GM, too: the sale of the government’s initial batch of GM stock went remarkably well — the company appears to have recovered, and if it continues to flourish it’s possible that the remaining stock will be sold at a sufficiently high price that we taxpayers will end up making money on the GM bailout, too.
This should make us uncomfortable. And the not unreasonable presumption that the government’s interventions in the management of GM had a role in the success should make us even less comfortable. Because these pieces of good news set an irresistible precedent for how to deal with future calamities.
Liberal and conservative economists so vary in their proposed remedies to problems that it’s it’s seldom possible to untangle economic facts their statements. But in the darkest days of the financial collapse, the one thing that all economists agreed on was that if you were going to bail out these huge companies, you had to make sure that no company was allowed to stay “too big to fail” going forward. Companies behave dangerously if they believe they have the safety net of a government bailout protecting them, but the safety net is unavoidable for huge companies. They’d have to be broken up into smaller companies, lest the whole process be repeated in the future.
But when the financial reform bill came along in July, too big to fail provisions were conspicuously absent. Why? Well, the whole bill just barely squeaked by Republican opposition. Measures to limit the sizes of companies were practically laughed out of the legislation by Senate Republicans, who instead proposed new bankruptcy procedures for large failing institutions. Republicans are fundamentally responsible for the absence of too big to fail provisions in the current legislation.
So consider these two facts: that the U.S. government now implicitly backs our largest corporations, and that when needed, government intervention may likely be good for both the taxpayer’s bottom line and for the companies involved. This, much more so than healthcare reform of anything else that has happened under the Obama administration so far, is classic Socialism. It’s richly ironic that Senate Republicans and the administration of George W. Bush, which began the whole process, are the ones fundamentally responsible.