The Obama Administration and the Importance of Failure

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Yet “commandeering the bankruptcy process was not…the only hope for G.M. and Chrysler,” observes David Skeel, professor of law at the University of Pennsylvania, in a Wall Street Journal column. He says the long-term costs will be “enormous.”

Both companies were required to file for bankruptcy. And, instead of restructuring under usual bankruptcy rules, each company pretended to “sell” its assets to a new entity created as part of the sale. Other bidders could not qualify unless they had the same deal the government had, namely a big payment to the union retirees.

The “sale,” which gave the government 61 percent of the GM stock was what Professor Skeel called a “sham.” The Obama Administration decided there was no need to let “the pesky rule-of-law considerations interfere with its plan” to help the unions and “other favored creditors.”

The companies would not have collapsed if the government hadn’t intervened. General Motors could have been restructured under the regular reorganization process. As for Chrysler, its Jeep division would have survived in a normal bankruptcy, Skeel maintains.

The claim that the bailouts were conducted at little cost, is quite dubious, Skeel points out. The taxpayers “are still likely to end up with a multi-billion dollar bill…” The car bailouts sent the smelly message that if a politically important industry is in a fix Uncle Sam will step in and dictate the results it wants. It won’t permit failure.

Our Keynesian government has thoroughly disrupted the process of economic information sharing by restricting the ability to fail. Farm subsidies, for example, permit U.S. agriculture to stay in business artificially, blocking its failure and limiting access to new parties who may be able to identify methods of farming that would not lean on government support.

If the main purpose of the market were merely to allocate known resources to currently efficient uses, we would be stuck in a primitive world, the Freeman authors observe. For example, if a plow is determined to be the best use of iron, “how could iron ever be allocated for a new invention such as a tractor?” Horwitz and Knych ask.

“Competition figures prominently in this system,” the authors add. “It promotes entrepreneurial activity and the discovery of knowledge” by empowering decision-makers to find new ways of using resources.

“Centralized planning, like other forms of government allocation, necessarily relies on the knowledge of fewer people, limiting discovery, and restricting knowledge-dissemination to fewer channels, “ Horwitz and Knych explained.

For a high standard of living we must “constantly change how we do things.” Change won’t be fueled by “lucky guesses or bureaucratic decrees,” but instead by entrepreneurial activity in the face of possible failure in the market. That has always driven the train of progress. “The tracks must be cleared of government obstacles.”

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  • StephenD

    "For a high standard of living we must “constantly change how we do things.” Change won’t be fueled by “lucky guesses or bureaucratic decrees,” but instead by entrepreneurial activity in the face of possible failure in the market. That has always driven the train of progress."

    Not if we listen to this Administration. After all, Solyndra was a perfect example of what our tax dollars could accomplish.
    “It is here that companies like Solyndra are leading the way toward a brighter, more prosperous future,” Obama said of Solyndra.
    So, we see a few elites that think they know better how to use our money as an investment when they really have no right to do so.
    Why haven't there been lawsuits against this fraudulent use of our money?