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Sunday, March 11, 2012

General Motors and Chryler Bailout

Was General Motor Bailout a Market Success?
From economic perspectives there is a market failure and most know causes of it are namely externalities, public good and monopoly. If economists talk about market failure when should we recognize market success? Well, one would say when there is pareto optimal… It is in this light that I am taking this argument talking about the GM bailout. When it comes to current political debate you will often hear president Barack Obama arguing that the bailout of GM and Chrysler was a must because it was too big to fail. On the same token he contended that if the failure of bailing out GM and Chrysler had happened it would have potentially took other mid and small size businesses down with them. Therefore, it was a bold move when the government used taxpayer money to bail out the American number one automaker that was on the verge of collapse.  Needless to say, the stepping in by the government stirred up conflicting sentiments between conservatives and liberals. Obama cogently talks about his vision about GM and Chrysler bailout at first saying “I'm confident that the steps I'm announcing today will mark the end of an old GM, and the beginning of a new GM; a new GM that can produce the high-quality, safe, and fuel-efficient cars of tomorrow; that can lead America towards an energy independent future; and that is once more a symbol of America's success.” In line of the argument, in September 2011, president Obama told a gathering of GM workers in Ohio, "Your survival and the success of our economy depended on making sure that we got the U.S. auto industry back on its feet." In other words, the president got the auto industry "back on its feet."

Conversely to his opponent republican hopeful presidential candidates who took a different approach on the matter, president Obama continue to defend his position in bailing out GM. In fact he assails his opponents based on recent financial report in which GM gained beyond the predicted expectation by beating its best quarterly performance in ten years and its fifth consecutive profitable quarter with 3.2 billion gains. The question at hand is “When is it right for the government to intervene, and how the bailed out of GM is a sustainable success for Obama to be given credit for?” Should we say there has been a pareto optimal in any case?
Nevertheless, the notion of too big to fail is somewhat uneven in the eyes of some critics from republican presidential candidates who continue to fight the involvement of government in free market. For instance Mitt Romney recently argued that the government would not have used taxpayer money to rescue GM and Chrysler rather the government should have let the market run its discourse. Now that report show both GM and Chrysler are financially doing well and thousands of jobs were saved as well as consumer and investors are once again having confidence in both aforesaid automakers, who is right between Obama and his republican opponents like Mitt or Santorum?
Also, in his blog post entitled “Hard Lessons from the Auto bailout” , Daniel J Ikenson, http://www.cato.org/pubs/policy_report/v31n6/cpr31n6-1.html expressed that taxpayers are now majority stakeholders in a company whose success depends on good stewardship from 537 CEOs, most of whom do not consider GM's bottom line a priority. The pursuit of profits and political objectives often work at cross purposes, and many in Congress see GM as a vehicle through which to demonstrate the virtues of green production, regardless of economic viability. Others see GM as a jobs program, also without regard to the economics.
Next, one thing to recognize in the line of the argument is that the role of government in free market will always cause clashes along with different scope of people on what might be right from a business perspective and what might be imperative politically. Thus it is safe to say that the decision for the government to step in free market is hard to forecast its success and hard to induce to fit people preferences. For instance, Robert Jensen, professor at the school of journalism at Houston, Texas criticized Josiah Neeley, policy analyst for the Armstrong Center for Energy & the Environment at the Texas Public Policy Foundation, a nonprofit, free-market research institute based in Austin on role of government causing market failure on grounds of Solyndra - the solar panel manufactures that filed for bankruptcy after getting a $535 million federal loan guarantee - in trying to make a case against government support for alternative energy development.

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