Dear Post: Auto Bailout Will Lead to Economic Contraction

Editor, Washington Post

1150 15th St., NW

Washington, DC 20071

Dear Editor:

Martin Feldstein and George Will each offer excellent reasons for opposing a bailout of Detroit automakers (Opinion, Nov. 18). Here's another: resources given by government to these corporations must be taken from somewhere else. Government cannot conjure billions of dollars of resources out of thin air.

The number of different places from which these resources will be taken is large and spans a continent. So it's easy to overlook the fact that each of many productive firms from across the country will, as a result of this bailout, pay more for steel, machine tools, fuel, and other inputs they use in production. These other firms will contract their operations; they'll employ fewer workers; they'll produce less output.

The bailout might well save GM, Ford, and Chrysler. If so, politicians will celebrate it as "successful." But that success – which will be easy to see and capture on video tape – will likely really be an economic failure because of the resulting (if hard to see) contracted economic activity throughout the economy.


Donald J. Boudreaux

Don Boudreaux is the Chairman of the Department of Economics at George Mason University and a Business & Media Institute adviser.