When the “Free Market” Needs a Handout

Written By:  Arnie J Olsen  10/28/19

Food for thought – Government Bailouts, Subsidies and “Socialism”:

The auto industry bailout that took place in 2009, cost the taxpayers $80.7 Billion on the front end of the deal. George W Bush actually agreed to $24.9 million originally in late 2008. By the time the deal was finalized and signed by Obama, the amount had risen to $80.7 billion, but he also got them to give up shares of stock to the U.S. government, making them the temporary owners of GM, GMAC and Chrysler (Ford was not a part of this deal), as well as to fast track more energy efficient cars (which Congress has already previously approved $25 billion for before the bailout, so that was included in the $80.7 billion total).

Because the U.S. Government took the shares of stock instead of just handing out money, they were eventually able to sell those shares of stock once the companies were back to profitability, and recoup most of the money used. By late 2014, basically 5 1/2 years after the initial funding took place, the last of the stock was sold for a total of $70.5 billion. In other words, when it was all said and done, the bailout cost taxpayers $10.2 billion, got all of their demands met for new, fuel efficient cars that they were originally planning to spend $25 billion on, and all in all, saved an entire industry and about a million jobs.

Currently, in a different government bailout, the Trump Administration has authorized $16 billion in subsidies to help farmers that have been negatively impacted by the Chinese tariffs he implemented, and in spite of Trump’s claims that revenue from the tariffs (that he says China is paying) will be more than enough to cover the cost of the bailout, Customs and Border Patrol (who is the agency responsible for collecting tariffs) say this is absolutely not true. Regardless, this is on top of $12 billion that was handed out in trade relief the previous year, so a two year total of $28 billion, at least $38 million of which has been documented to not even have gone to people who work on farms.

Note: This is also in addition to all of the previous subsidy programs than have existed for years, most of which went to large corporate farms and not individual family farms that are hurt the most as they are the ones frequently financed to the max and have no safety net whatsoever.

Finally, whereas the auto industry bail out under Obama had three major end results when it wrapped up…the security that allowed the government to recoup most of the bailout money (nearly 90%) by taking stock/ownership of the companies receiving help, the new fuel efficient car models they were going to subsidize anyway, and a million jobs were saved that would have been lost (and that does not include all of the downstream 3rd party companies that rely on GM and Chrysler as their primary or only customer), the farm bailout was self inflicted by initiating a trade war, has no mechanism for recouping the money, as it is a pure giveaway, and so far, bank foreclosures of farm operations in the 6 primary “farm belt” states of the upper Midwest were up 30% in 2018 and past due loans in the same region were up 287%.

Now, critics of the federal government providing bailouts will lump these two deals into the same category and just call it all socialism. The reality is both industries are critical to our economic success and even security as a nation, so letting them simply be consumed by the free marker and doomed to failure is not really an option. That leaves us with deciding how to handle these kinds of situations. By all measures, it sure seems like the auto industry bailout can be considered a success, especially given that the crisis faced was not inflicted by the government in the first place, but rather was a situation that presented itself and had to be dealt with. On the flip side, the current farming crisis and subsequent bailout was completely self inflicted, there is no end in site, the bailout is just bleeding tax dollars, and in spite of the money being spent, the situation in getting worse, not better.

When you’re thinking about which party has better vision and better results when it comes to the economy, how to spend tax dollars, and supporting the core industries of America, the real answer does not match the propaganda and rhetoric too many people believe. You can obviously make your own decision on who you think is better at handling these situations, but the data seems quite clear.

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Oh, and one final note…in the auto industry bailout, the other string attached to the funding was that the executives of the companies that needed the money were all fired and replaced. The people who created the mess were not allowed to benefit from the recovery. In the farm bailout, at least among the large corporations receiving most of the funding, there were no such strings…those executives just keep getting richer.

One thought on “When the “Free Market” Needs a Handout”

  1. Way back in in 1968 at Drake University, I had a professor who maintained that our political process is the method through which decisions are made about who gets what and when they get it. This is a gross oversimplification for sure, but it certainly is an element of our system. Our perceptions of what is in the public interest/common good shape our preferred policies about how public resources ought to gathered and dispersed. Self-interest and organizing ourselves into special interest groups is a part of the political fabric of the nation. The use of terms like welfare, bailouts, handouts, safety net, stimulus… take on loaded meanings. For example, a given public assistance program is seen as essential safety net by some and by others as handouts funded by hardworking… Both terms and the logic gets a bit twisted as the arguments are framed in keeping with the values and interests of the various individuals and groups framing them. Seldom do we manage to get to the foundational/philosophical underpinnings for the policies we advocate. Battles are waged in terms of power, strategy, winning and losing. Too seldom do listen with the goal of understanding and learning. Compromise frequently results in inferior policies to those that might have crafted had the parties discovered each others interest and worked to find the best solution to meet as many mutual interests as possible.

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