Newsweek Op-Ed: Stop the Bailouts Now

Check out this new entry in Newsweek

On both sides of the Atlantic, governments are considering ways to buffer their automobile industries against the economic downturn. The EU has just agreed on a $50 billion package to help its companies meet new environmental standards. With Ford, General Motors and Chrysler on the ropes, Washington has just provided an injection of $25 billion to help Detroit retool for stricter mileage standards. Now the Big Three are alreadyclamoring for $50 billion more. Money being fungible, it’s not clear how it eventually will be used in both the European and American cases. There are lots of lives at stake here, so no one should be cavalier about government help. But bailing out the auto companies themselves is precisely the wrong medicine.

First came the bank bailouts. Then came the efforts of central banks to lower interest rates and keep economies from imploding. Now comes the attempt of specific industries to get a piece of government largesse, and politicians are particularly susceptible to giving in at this moment. They have dispensed so many hundreds of billions of dollars to save financial institutions that it has become easy to agree to another several billion here and there. Already the U.S. Treasury has given strong indications that it would take stakes in insurance companies.

But once you start, where do you stop? If autos, why not airlines and trains, both of which will suffer from recession. Why not oil companies, which could claim that since petroleum prices have lost more than half their value these past few months, they will be forced to curtail much-needed investment in infrastructure? Why not biotech, which is now suffering from lack of venture capital on one end and a closed market for public offerings on the other, thereby retarding progress on critical medical breakthroughs?

It’s great to see the popular media finally starting to come around to the side of common sense.