By Scott Boykin
Here’s a bargain for you. General Motors’ current market value is about $500 million. In a breathtaking abuse of executive power, the Bush administration “loaned” GM $13.4 billion from the Troubled Asset Relief Program (“TARP”) in December, 2008, plus an additional $4 billion in February, 2009. (Congress had not authorized the money to be “loaned” to GM.) On June 1, 2009, the Obama administration announced that it would invest an additional $30 billion in GM. About $41.2 billion of the “loans” will be converted into equity in GM, making the United States the principal shareholder with 60% of GM’s stock. You, the United States, have paid $41.2 billion for $300 million worth of GM stock. Congratulations! You overpaid for GM stock by 137 times its value.
The bankruptcy petition GM filed this week has been its only reasonable course for a long time. Bankruptcy protection will allow GM to shed assets and debt and renegotiate labor contracts. GM’s plea for your money to avoid bankruptcy on the ground that consumers would not buy their cars if GM were bankrupt never made sense, as the whole world has known for months that GM is insolvent. Had there been enough leaders in Washington with the courage to reject GM’s demands for cash, GM would have petitioned for bankruptcy months ago and might even have emerged from bankruptcy by now.
The GM bailout is incredibly unjust. Over 5 million people have lost their jobs since the recession began. Those millions of Americans lost their jobs because their employers had to lay off workers to stay afloat, and those workers are no less important than GM employees. But GM has political power, and those other employers don’t. GM’s power has now forced all of us, including those people who have lost their jobs, to dramatically overpay to enable the failed automaker to postpone its inevitable bankruptcy until now. It’s just that simple, and just that ugly.
As economist F.A. Hayek argued for over sixty years, a free society does not exist to serve any particular goal. Rather, it exists to enable the individuals in that society to pursue their own goals, which may be known to no more than a handful of other people. In such a society, the law must be a predictable part of the background information that individuals use to plan as they pursue their own goals. For that reason, it is essential that a free society be governed by general rules that apply to everyone equally. In contrast, a society that is organized to pursue specific goals must be governed by commands to specific groups or individuals rather than general rules applicable to all, because achieving the chosen goals requires direction, not freedom.
In this instance, our federal government has decided that the automakers must not be allowed to fail at any cost, so it has commanded you to buy GM stock. You have indeed paid an outrageous price for that stock, because the GM bailout cost more than money: it was also a grave injustice. And this injustice, like the bank bailouts that have made you the proud owners of failed financial institutions, is another step toward transforming our society into an organization that commands its powerless members to serve the interests of those with political power. If you have never read Hayek’s classic The Road to Serfdom, read it now.
Scott Boykin is Chair of the Alabama Republican Liberty Caucus.