A GOOD WAY TO THINK ABOUT BAILOUTS

FROM BILL BONNER:

There are only so many resources in the world - only so many workers…only so many tons of steel and only so many barrels of oil. In a real, free-market economy, ordinary people decide how these will be used. They vote with their money. They buy a beer, for example…and send a signal to the whole world. "Beer is what we want!" So, the hop growers get hopping…the beer truckers get trucking… and the brewers get brewing. The 'hidden hand' directs resources to where they are needed. People get what they want.
And then, along comes the U.S. Congress…in its all its majesty. We don't care what Mr. Market says, it declares, 'It is cars from Detroit that the people shall have.' And then, the money that would have gone into making beer is diverted to the auto industry. Resources follow the money. The steel delivery trucks head for the auto plants, not to the brewers. The oil that might have been used by a distillery is instead siphoned off to fire up an auto plant. The capital that might have been used to build more breweries in Anaheim is instead used to prop up old assembly plants in Detroit. And then, the consumer pays more for his beer - because the brewers didn't increase production - and more for his cars too…Detroit knows the game is rigged in its favor; why bother to cut costs?
Of course, subsidizing the domestic auto industry is just what economists have been cautioning other countries NOT to do for decades. Typically, a woebegone country in Africa or Latin America wants its own airline and its own auto industry. Its citizens could perfectly well buy their sedans on the open market…and count on the commercial airline industry to move them through the sky. But where's the prestige in that? Where are the sweetheart contracts…the bribes…the payola…the baksheesh?