Rachel Maddow recently devoted a lengthy segment on her show chirping about how the GM IPO demonstrated the “success” of the GM bailout. She invited, Ron Bloom who directs Obama’s Task Force on the Automotive Industry, to pop the champaign bottle with her as they gloated over GOP politicos failed predictions of GM’s fate. Hallelujah, political bailouts work. The IPO proves it. Of course, I would expect Maddow, in order to be consistent, to likewise invite Henry Paulson and Timothy Geithner on her show to celebrate the great success of TARP and the improved stock prices of Goldman Sachs, JP Morgan Chase, Citigroup and Bank of America. In fact, the TARP bailouts have been such a magnificent and glorious success, the beneficiary firms have figured out how to consistently beat the market with zero risk and no losses. Really, how can any fool, unless he/she wants to be a reality denier, argue with the obvious, empirical benefits of political intervention?
Since I don’t I want to be a reality denier, I would certainly concur that those on the receiving end of favorable political intervention benefit. And we can find plenty of empirical evidence to prove this. I would expect photo-ops at the NYSE, higher stock prices, human interest media stories about the plant worker whose job was saved. I would never predict that a Goldman Sachs or a GM couldn’t benefit from political intervention. Simply, if political intervention was impotent vis a vis creating advantages, then there would be no politics; there would be no rent-seeking. However, because I’m particularly sensitive to this reality denial business, I must scientifically point out that while political intervention or rent-seeking benefits the beneficiaries, it, nonetheless, has negative overall welfare consequences. It reduces overall welfare.
Articles like, say, Selling our GM Stock miss the bigger point. Simply analyzing the necessary “break-even” price for GM stock assumes that rent-seeking political intervention is just a mere wealth transfer, a re-shuffling of wealth. No it’s not. Public Choice scholarship(which,in a sense, is just a rediscovery of the old French Laissez-Faire analysis that had been buried by 20th century Neoclassical Welfare economics) demonstrates in peer-reviewed scientific fashion that political interventions can have significant deleterious impact on overall welfare.
Here’s a easy thought experiment. Imagine firms A,B,C,D,E,F,… in market competition. Now imagine the State enacts punitive tariffs on every firm except C. It gives C a great advantage. It could certainly, in addition, invest “public money” in C and get back a nice rate of return. This “profit” to the taxpayers could be trumpeted as empirical proof of the success of the political intervention.But this doesn’t stand up to scientific scrutiny, particularly in the public choice literature that has examined the welfare effects of such things as trade tariffs. A few benefit, but there are significant welfare costs imposed for the monopoly special privilege enjoyed by such a few.
Another easy example is copyright enforcement in the digital age. You essentially have to erect a police state to enforce it. So you end up with a steady stream of rent-seeking legislation to do just that. And what you end up with is one “political entrepreneurial group” seeking special privileges, another group that wastes much of it’s productive time trying to figure out ways to evade the rules imposed by special privilege, and an enforcement police arm, subject to it’s own rules of public choice, that ends up seeking it’s own special privileges and continued growth of itself just for the sake of itself. Now do you see how incredibly wasteful this is? And technology, which should be a liberating thing, ends up becoming a prison. Trust me, the last thing you want is a technology society underlain by an insider/outsider political rent-seeking economy.
Regarding Rachel Maddow, it’s apparent that Oxford doesn’t teach political economy. And I wouldn’t put much stock in her political punditry. Progressives the last two years have been arguing that the bailouts(crises) would engender some grand new political realignment built on the back of “Stimulus Spending” that would serve as a new baseline for a Social democratic State. Libertarians such as myself have argued that these bailouts would portend an insider/outsider economy that would create a backlash and lead to a re-emergence of “class conflict” into the political lexicon. Who has been the better prognosticator? You know, I click on the Washington Post these days and I’m not seeing editorials celebrating the coronation of Barack Obama as FDR 2.0. Rather, I’m seeing editorials by formerly staunch Democrats bitching and moaning about the Public Choice Rent-seeking Political Economy and the need for an “Entrepreneurs Party.”
Brush up on your French…