If big government ideas work well, can they still be wrong?

This week, three of the most influential papers in the country — USA Today, the Washington Post, and the New York Times — published editorials and op-eds arguing that the jury is in:

Federal efforts to salvage the auto industry worked brilliantly, according to their stock-taking.  What’s more, they say the laissez-faire free market approach advocated by many Republican presidential candidates simply wouldn’t have worked.

Former Bush speechwriter Michael Gerson, writing in the Washington Post, argues that conservative’s stubborn efforts to stick with a let-the-market-decide approach require “an intentional, determined amnesia.”

No president — Republican or Democrat — would have allowed the economic collapse of the upper Midwest in the midst of a national economic panic. A conservatism that prefers ideology to reality is not particularly conservative.

That view is echoed in the New York Times, in an essay by Steven Rattner, who helped shape the Obama administration’s auto industry bailout.

Rattner — a Wall Street banker, not a socialist — describes GOP narratives about the auto industry as “utter fantasy.”

In late 2008 and early 2009, when G.M. and Chrysler had exhausted their liquidity, every scrap of private capital had fled to the sidelines.I know this because the administration’s auto task force, for which I was the lead adviser, spoke diligently to all conceivable providers of funds, and not one had the slightest interest in financing those companies on any terms. If Mr. Romney disagrees, he should come forward with specific names of willing investors in place of empty rhetoric. I predict that he won’t be able to, because there aren’t any.

In a USA Today lead editorial published today, the paper’s editorial board concludes that Republicans should simply acknowledge that they got this one wrong.

Now the passage of time leaves no doubt that the plan has exceeded expectations. The two companies have returned to profitability. Last year, GM sold more vehicles than any other automaker in the world. The domestic auto industry as a whole has added 207,000 jobs since June 2009.

And the cost to taxpayers has been far less than it would have been had the companies collapsed and the government was forced to partially bail out their pension funds, as well as pay for unemployment benefits and other assistance to displaced workers.

USA Today suggests that this kind of reversal would mirror the change of heart that Mr. Obama experienced regarding the troop surge in Iraq, which the president “belatedly and grudgingly admitted…was working.”

But I think there’s a big difference here.

For many conservatives, there is real danger in the success of big government policies.  It’s not just that Mitt Romney or Rick Santorum would have to admit that they got something wrong.

This isn’t a “gotcha” moment or a case of individual stubbornness.

Rather, this is a case where for many conservatives, the short term gain of a salvaged auto industry simply isn’t worth the terrible precedent of a big government program that succeeded.

Rush Limbaugh said it best at the beginning of the Obama administration:

I hope liberalism fails.  Liberalism is what’s gotten us dangerously close to the precipice here. Why do I want more of it?  We’re talking about my country, the United States of America, my nieces, my nephews, your kids, your grandkids. Why in the world do we want to saddle them with more liberalism and socialism? Why would I want to do that? So I can answer it, four words, “I hope he fails.”

In the particular case of the automobile industry, there is growing factual evidence — and growing popular sentiment — that Mr. Obama and his big government “liberal” policies didn’t fail.

Writing in USA Today, the Heritage Foundation’s James Gattuso laments that fact, arguing that in the grand scheme of things the bailout set a terrible precedent.

But more problematic is the legacy of government interference with private business that the bailout left behind….No one knows precisely what would have happened had policymakers pursued a less interventionist road. But the road that was chosen — putting politicians in the driver’s seat of a major American industry — was the more dangerous. “Successful” or not, it’s no model for the future.

So what do you think?  Are there times when free markets and industry need big government to step in and steady the boat?  Has the auto bailout story changed your thinking?  Or do you see this “victory” as a nose under the tent for liberal policies?

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49 Comments on “If big government ideas work well, can they still be wrong?”

  1. mervel says:

    The conservative response is that by supporting and choosing which auto company to help in this case GM in Michigan over Toyota in Texas for example, you sustain what in the long run is not efficient at the expense of efficient companies. Maybe the US auto industry to really compete world wide should not be in the Midwest at all? Who decides? In this case the government decided, conservatives would say let the markets decide in the long run you will be better of.

    I just wanted to make that argument. The problem is what is the long run? Decades, generations? I mean there is no doubt that in this case the short run impact of what was done worked.

    But for example I was against it and I did not think they would succeed as they have, so in the short run, I was wrong.

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  2. oa says:

    That’s a good ideological case, Mervel. One thing, though: Toyota in Texas is already supported by $227 million in state and local subsidies (per Wiki, anyway) and by anti-union laws in that state, which is itself a form of government industrial policy.

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  3. Pete Klein says:

    Free market? The Republicans are all in favor of giving business tax breaks. They would prefer no taxes on business. But if we went down that road, taxes would still be needed to be raised to pay for all the infrastructure needed for business to operate. In a situation like that, every small tax payer would be subsidizing business twice. They would be paying for the products and services provided by business and they would be paying the tax the business doesn’t pay.
    Sorry but there is no free lunch. although Republicans would like business to have a free lunch.
    And let us not forget the military which “subsidizes” many businesses with defense contracts. There is a market for everyone and everything but none of it is free.

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  4. Gary says:

    It would appear at a time when crude went over $108 a barrel yesterday the liberal media is looking for any way possible to boast Obama’s ratings, nothing more and nothing less! Why not talk about raising fuel costs and the lack of a energy policy by this administration?

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  5. oa says:

    The administration’s policy is more drilling. How’s that working out?

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  6. Walker says:

    I was just reading this morning about the Louisiana Purchase, $15 million that conservatives of the time didn’t want spent.

    “Why, they asked, spend money — of which the government had too little — for land — of which they had too much?”

    If the Tea Party of the time had had their way, the U.S. would end at the Mississippi! They’d be asking where exactly did the Constitution authorize such a purchase?

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  7. mervel says:

    That is true OA.

    The other issue is that although Toyota makes a lot of cars in the US, its supplier chain is still largely in Japan. The midwest supplier chain is still largely in the US and Canada.

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  8. TomL says:

    It is pretty ironic that the Republican party decries support of industry. It was the original (Lincoln-Grant) era Republican party that used big government to build transcontinental railroads and telegraph networks, establish land grant colleges, and develop many other forms of infrastructure, education, and agricultural innovations.

    Of course all this is really about the current ‘strategy’ to demonize anything Obama does – even if Obama is implementing a Republican-proposed policy. That, and in the case of Detroit to destroy the unions and drive the auto industry (weak pun intended) to the ‘right-to-work’, ‘weak labor and environmental protection’ states in the southern US.

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  9. That’s the fundamental difficulty of arguing with Tea Partyists. It doesn’t matter if something actually does work. In some case, they will say it’s still not something government should do. Not a position I always agree with but legitimate. But for others, their contention will always be it can’t work, because nothing done by the government can work, by definition, reality be damned.

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  10. Incidentally, those who say moderate Republicans no longer exist are wrong. They do. They’re just now called Democrats.

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  11. dbw says:

    What would the discussion be if the US auto industry had been allowed to go down the tubes instead? It would probably have been something about how the do-nothing Obama administration inaction was leading us down the road of economic decline. That is what is being said, anyway in so many words. This administration has been damned if it does and damned if it doesn’t. Neither supply side or keynesian solutions are working. We are in uncharted territory.

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  12. OnewifeVetNewt says:

    Last Friday night on the PBS Newshour, Mark Shields said something like,

    ” To and ideologue, if something is good, then it will work. To a pragmatist, if something works, then it is good.”

    The Republican Party once was balanced between ideologues and pragmatists (Eisenhower, Nixon, Bush 41, etc.) But now ideologues have chased the pragmatists out of the party, into hiding, or into near total hypocrisy (Romney).

    And it shows.

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  13. Paul says:

    If it was a good investment for the taxpayers than why wasn’t it a good investment for private capital? The answer to that question doesn’t come in a few years it takes more time.

    It is a tricky situation right now. The government is holding about 500 million shares of GM which it wants to dump as soon as it can. I don’t see how the price will ever go up under this scenario?

    The fed backing private capital in this deal (sort of a middle of the road approach) may been the best way to manage this situation.

    But in the short run there is more positive than negative. Personally I don’t see these companies ever evolving in the way they have to given the future of the industry. But you never know. I know I am not buying this stock anytime soon.

    It is kind of funny here to see so many people (including myself) supporting the propping up of companies that by-in-large make mostly gas guzzling vehicles.

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  14. Gary says:

    ‘It would probably have been something about how the do-nothing Obama administration inaction was leading us down the road of economic decline.” You mean like what they are doing now now with fuel costs? Crude is now at $109.64!

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  15. Paul says:

    This is a good point from an ABC news article I saw on the subject:

    “They didn’t bail out the auto industry, they bailed out two companies,” Ikenson said. “They denied Ford the spoils of competition, and I think they injected a sense of entitlement: If things go bad at Ford, they sort of ‘banked’ their bailout. They didn’t get a bailout this time, but they’ve got a pretty strong argument if they run into financial trouble in the future. So there could be lingering costs out there.”

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  16. Walker says:

    Gary says: the do-nothing Obama administration inaction is leading us down the road of economic decline… with now at $109.64!

    Gary, it’s speculation, plain and simple. Domestic oil production is up 8% over the last few years. The U.S. Energy Information Administration reports that the nation is at the high end of the average amount of supplies for a February.

    Light, sweet crude was trading on the NYMEX at $79.20 a barrel just four months ago, but soared past $106 a barrel Tuesday afternoon, partly on news that Iran would halt shipment of oil to Britain and France. But those countries already had stopped buying Iranian oil. And Didier Houssin, the International Energy Agency’s director for energy markets and security, said that “there are alternative supplies that can make up for any loss of Iranian exports,” The Wall Street Journal reported. [...]

    From http://www.dailykos.com/story/2012/02/24/1067897/-Gas-price-rise-has-Republicans-gleefully-rubbing-their-palms-in-hopes-of-scamming-voters-?via=blog_1

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  17. Pete Klein says:

    We need to realize that when it comes to the stock market and future markets, we are not talking logic. The price of gas or anything else is what someone wants it to be.
    As near as I can tell by what I have read and heard, there is no shortage of oil. There is a problem with the number of refineries.
    If Iran stopped selling oil, the slack could easily be taken up by Saudi Arabia.
    In business, any excuse is a good excuse to raise prices.
    People who trade stocks, bonds and commodities are not investors. They are players.

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  18. mervel says:

    Yeah the question is would Ford, Toyota, Nissan, etc have simply gotten that business and become larger while GM and Chrysler went bankrupt?

    Once again, we have the long run short run problem, yes in the long run it is probably better to have well run companies such as Ford “win” in the marketplace, and poorly run companies such as GM lose, but that would not happen overnight. What would have happened in 09 would have been massive layoffs and you would have unemployment rates in some of those states top 20%. and a long slow bankruptcy. Yes over time workers and capital would have been soaked up by better companies, the demand for cars did not change, we will always buy cars. But how long would that take? I think it would have taken 5-10 years for Ford to grow and take that market share.

    So are we saying that the US will never let GM fail no matter how bad of a company they are? This is the philosophical problem that is going to crop up. What are we going to do when they go down next time?

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  19. mervel says:

    And why choose GM? Are we going to help Ford are we going to help IBM etc.? Once we go down that path then we have a political decision, which union gave the most, which company gave the most, it could become the worst sort of crony capitalism.

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  20. Walker says:

    Like we don’t already have the worst sort of crony capitalism? Take a look at the tax breaks, subsidies, loan guarantees, etc., etc., etc. It’s been bad for a long long time, and it’s been getting steadily worse.

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  21. Paul says:

    Walker, yes perhaps, but much of the proposed new energy policy is more of the same. And now we are talking about propping up the companies (like solar, battery, wind, bio-fuel, etc.) that are most likely destined to fail in the long term. It is not pretty from a climate perspective but true none-the-less. You and I both know that if we level the playing field as you describe we guarantee that fossil fuel based energy will prevail as it has for many many years. I am surprised that this is something that you would support. This is more of a Steve Forbes kind of position, I am surprised. Some commercial solar projects right now hoave the type of tax incentives that would make some sick if they were going to oil companies. You can’t have it both ways. Walker, the things you list above are propping up new technology right now do you think we should let it all fall. The bailouts we are discussing are these things on steroids. You must have been opposed to these auto company bailouts?

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  22. JDM says:

    In a typical Chapter 11, bondholders are paid off first. The only thing the bailout did was put the union pensions first, instead.

    Brian’s assertion: “And the cost to taxpayers has been far less than it would have been” is unfounded.

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  23. Walker says:

    Whoa, Paul, who’s putting words in whose mouth? I’m not advocating an across-the-board removal of business supports, but it’s not that hard to spot the unwarranted ones– sugar and corn and ag generally come immediately to mind, oil supports in a time of record profits, etc. I don’t pretend to be an economic expert, but I think it’s safe to say that if you could do an unbiased study of the problem, you could find lots of obvious examples.

    As for green subsidies, I always heard it said that if the government had placed massive orders for solar cells and put them to use reducing the govt’s electric bill, the price of cells would have dropped dramatically. That’s government spending that avoids propping up inefficient companies, and has a reasonable payback, plus it would have accelerated solar development.

    Why wasn’t it done? Beats me. Could have happened any time in the last twenty years.

    Anyway, all I was really saying is that government support of businesses didn’t start with Solyndra and the auto industry. It’s been going on for decades, and much of it has been (to put it mildly) unwarranted.

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  24. sratchy says:

    If the auto bailout worked so well, why are the autoworkers at Massena still unemployed?

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  25. Walker says:

    It has to save every last job to be a success? Like if it saved 90% of all autoworker jobs, that would be a failure? Get real.

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  26. Paul says:

    Walker, sorry I wasn’t trying to put words into your keyboard. You said:

    “Take a look at the tax breaks, subsidies, loan guarantees, etc., etc., etc. It’s been bad for a long long time, and it’s been getting steadily worse.”

    I mis-assumed that you meant that these things were bad for all industries. So what do you think? It is okay for some but not for others?

    “As for green subsidies, I always heard it said that if the government had placed massive orders for solar cells and put them to use reducing the govt’s electric bill, the price of cells would have dropped dramatically.”

    So maybe this one would not have been bad? It seems to me that you shouldn’t want the government picking the winners and losers here. Today it is solar companies, tomorrow it is who knows what. I can’t support it just when it subsidizes the companies I like. That makes no sense.

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  27. OnewifeVetNewt says:

    One of the main reasons (in addition to speculation and fear of a war with Iran ) is increased demand from emerging economies, mostly China. They are taking all that money we send them and buying cars with a lot of it. Then they buy oil on the world market, including the some exported from the good old USA, putting demand pressure on prices.
    It was reported on Morning Edition today that the US is producing far more oil than in any of the Bush years.
    Also, that Romney said that using force to stop Iran from getting nuclear weapons was worth any additional gas price increases to Americans. This, of course, would make the Iraq war look like a Civil War reenactment by comparison, in addition to giving us, what?, $8-$10/gal. gas, but I’m sure it would be worth it.

    To Israel, maybe.

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  28. Walker says:

    Paul, where would the auto industry be today if not for the government’s involvement in it in WW II? What about the aerospace industry? The Internet?

    You have bought into the notion that the government can do nothing right. That is demonstrably wrong! You seem also to have bought into the idea that the marketplace can do no wrong, an equally dismal mistake.

    Look, just because the government makes colossal mistakes sometimes doesn’t make it always wrong, any more than the fact that it gets things very right sometimes makes it always right. You can substitute the word “industry” or “market” in the above sentence and it is still true.

    The market needs government oversight to work well. Adam Smith said so himself. Yes, there is such a thing as too much governmental interference, just as there is such a thing as too little.

    All of the really interesting problems in the world involve such balancing acts. It is virtually always a mistake to have too much of anything. The ancient Greeks said it first.

    Incidentally, harkening back to a dialogue we had before Christmas, you might be interested in this Krugman editorial: http://www.nytimes.com/2012/02/24/opinion/krugman-romneys-economic-closet.html?hp

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  29. Walker says:

    “It seems to me that you shouldn’t want the government picking the winners and losers here. Today it is solar companies, tomorrow it is who knows what.” It’s the old slippery slope argument. Well, sometimes you have to navigate a slippery slope to get where you’re going. You just have to be careful.

    After all, democracy itself is one big slippery slope– it can pretty easily devolve into fascism or communism. We’ve got to keep our balance.

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  30. knuckleheadedliberal says:

    Jeb Bush: “I used to be a conservative and I watch these debates and I’m wondering, I don’t think I’ve changed, but it’s a little troubling sometimes when people are appealing to people’s fears and emotion rather than trying to get them to look over the horizon for a broader perspective…”

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  31. Paul says:

    “You have bought into the notion that the government can do nothing right.” How is that? There are many things that they do very well.

    “You seem also to have bought into the idea that the marketplace can do no wrong, an equally dismal mistake.”

    Again, how is that? Mistakes are far more common than not in the market. I would be the first to admit that more than 90% of what is attempted in the markets fail, and often very quickly before much is lost. Where or why did you think I would think anything otherwise???

    I think you have completely misread my comments.

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  32. Paul says:

    “The market needs government oversight to work well.” Very true. There is a big chasm between oversight and what we are talking about here.

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  33. oa says:

    If you look at the history of openly dirigiste economies the last 50 years–Japan, Taiwan, South Korea, Malaysia, Germany, Singapore, China, and pick a Scandinavian country–it’s hard to argue that government industrial policy, i.e., “picking winners,” never works.
    It’s also hard to argue that the U.S. never picks winners.

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  34. Walker says:

    OK, Paul, but then why not let the government make sensible choices about where intervention in the marketplace is necessary or desirable. So yes, “it is okay for some but not for others,” as long as the choices are made wisely. (And not in exchange for campaign contributions– the fact that these choices must sometimes be made is all the more reason to try to keep money out of elections.)

    “There is a big chasm between oversight and what we are talking about.” Not if we’re talking about WW II, the space program, the Internet, no-bid military contracts, strategic oil reserves, government wheat purchases, etc., etc., etc., etc.

    And if the market is at least as good as the government is at making colossal mistakes, why your opposition to the government intervention in the auto industry? And since private enterprise was apparently never going to get solar cells manufactured at a reasonable price, why not let the government prod them into action? Granted, they seem to have gone about it all wrong in the case of Solyndra, but that doesn’t invalidate the concept.

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  35. OnewifeVetNewt says:

    China apparently has no qualms about this. Chinese government subsidies to their own solar industries are said to have had a lot to do with the rapid decline in solar product princes, which led to the collapse of Solyndra, and other US solar companies.

    Since it’s totally cool with most conservatives to shower billions on companies for national defense, maybe we should also shower billions on non-military businesses under economic attack, though subsidies, etc., from other nations.
    (see my above on pragmatists vs. ideologues)

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  36. Paul says:

    And if the market is at least as good as the government is at making colossal mistakes, why your opposition to the government intervention in the auto industry?”

    Walker, maybe you should read my comments before you comment on them. I never said that I personally was opposed to what the government did with regard to these two companies. In fact if I remember what I wrote I even said that it was a positive move in the short term.

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  37. Paul says:

    “Not if we’re talking about WW II, the space program, the Internet, no-bid military contracts, strategic oil reserves, government wheat purchases, etc., etc., etc., etc.”

    So Walker you consider these things “oversight”? I disagree.

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  38. Mervel says:

    There is obviously a balance.

    If you look at countries where the government tries to control the economy; they have failed, the Soviet Union, the old Chinese communists, Iran today, a good portion of the Middle East today where the military and the Kings own and run the economy etc. Socialism has failed as an economic policy and I think as a social policy as it cannot be done with restrictions on individual liberty.

    However there has also never been a successful country without a successful government, a good government that provides a structure, provides oversight, enforces the rules of the game and provides a social safety net.

    For a long time we have had the government involved in the economy, look at our farming industry for example or aerospace as was mentioned above or banking, airlines. We were much more involved in the past in our economy than we are today. But then again those were different times and people in the 1950′s were in general less materialistic with lower material expectations; than we are today, one car was fine, one home of 1100 square feet was fine, public schools were fine, flying on an airplane was for the rich etc. Can we go back?

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  39. Walker says:

    Paul, fine, it’s not oversight, but it is government involvement in private enterprise. And while you did say that the auto bailout was positive in the short term, you suggested that it was wrong in the long run. I quote:

    “It seems to me that you shouldn’t want the government picking the winners and losers here. Today it is solar companies, tomorrow it is who knows what. I can’t support it just when it subsidizes the companies I like. That makes no sense.”

    Well it makes perfect sense if it’s good for the country. And it’s not picking winners and losers, it’s preserving an industry that was going down the tubes.

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  40. Walker says:

    Or, in the case of solar, making an investment that will be good for the country if it pays off, like the Interstate Highway System was.

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  41. Mervel says:

    Walker, it was preserving two particular companies going down the tube not an industry. So now the US and the Democratic party have a political interest in the success of GM and the success of GM workers and unions. How does that make Ford feel. Why is a worker at GM worth more to the US government than a worker at Ford?

    This is the problem. But like I said in this case the pragmatism of not letting these two huge companies fail at that particular time, I think worked.

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  42. Walker says:

    It was “two particular companies” that represented two-thirds of the traditional U.S. auto industry. And Ford, I should imagine, feels proud that they didn’t need bailing out.

    Why, if we all agree that pragmatically this worked, are you so reluctant to simply say that it was the right thing to do? It was the right thing to do.

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  43. hermit thrush says:

    ford wanted gm and chrysler to be saved. if those two had gone down the tubes then they might have taken the whole north american car industry, including ford, with them.

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  44. knuckleheadedliberal says:

    Politics have gotten so weird.

    As a liberal I thought it was terrible that the government should be bailing out large corporations but I recognized that for the good of the country we could not allow our auto industry to collapse.

    In the mean time conservatives who always mouthed support for American corporations and told everyone we should buy American are saying (at least now they’re saying) that we should have let the auto industry collapse.

    I wish I had a re-wind button to see where everyone lined up at the time because I don’t believe what people are saying now that their position was then.

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  45. Walker says:

    Knuck, a good deal of what “conservatives” are saying comes under the heading of Everything Obama Does Is Wrong.

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  46. Mervel says:

    The US auto industry is not made up of GM, Ford and Chrysler. It is made up of Toyota, Nissan, Honda, Hyundai, Kia and so forth to just name some others I can think of. They all employ Americans, why choose a company like GM which has been a crappy, badly managed company for many decades, I mean come on didn’t you watch Micheal More’s movie!

    Yes I think this worked to save those two companies in a very bad time to have two big companies go down in that respect I think this worked. I am not sure it was the right long term strategy for the US though.

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  47. Two Cents says:

    no-body is patient enough for “the long term strategy”

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  48. knuckleheadedliberal says:

    Like Walker said.

    Now Mervel is referencing Michael Moore!!!!!
    I bought Toyotas for decades because they were inexpensive, economical and highly reliable. Lots of people said I should buy American to support America. I would tell then that in a Capitalist System everyone should buy the best product available and the Genius of the Market Place would sort it out.

    The Big Three American auto companies built CRAP for years and that is why they were particularly vulnerable to failure.

    Still, the collapse of GM and Chrysler at that moment in our history would have been devastating to our already weakened economy and to the psyche of the American public. Obama did the right thing. The lame brains who ran those companies into the ground are gone.

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  49. Mervel says:

    Knuckle,

    I know about the re-wind. How did people stack up for or against the Lee Iacoca- Chysler bailout the first time around? Even those were only loans not direct investment.

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