Big-government advocates crowed when the General Motors initial public offering was launched at a share price of $33 and ended its first day at just under $35 last week. President Barack Obama said the IPO signified that “one of the toughest tales of the recession took another big step towards becoming a success story,” and he predicted that “American taxpayers are now positioned to recover more than my administration invested in GM.”
But, as usual, there is much more to the story than the dreamy claims of that political fairy tale.
First, as The Wall Street Journal reported, at the opening price, taxpayers still lost at least $10 billion. That’s because the government paid $40 billion for its 61 percent share in GM, and the initial IPO sale generated only about $30 billion. Taxpayers were left with a 37 percent share, meaning that to break even, the price must climb to around $51 for the government to recoup its investment.
To be sure, GM’s product line was being dramatically improved even before the bailout and has since made further progress. In the absence of a President Ronald Reagan-type economic expansion, however, only a wildly unrealistic optimist can envision GM shares selling at $51. So the taxpayers are still likely to end up losing money in this deal.
But whether the bottom line on the GM bailout ultimately is red or black, the far more serious consequence is that it will be cited in the future by advocates of a politically planned U.S. economy as evidence that their way “works” when the reality is nothing of the sort. Call it “industry policy,” a “command economy” or whatever, but the truth is Obama and his allies want Washington, D.C., politicians and bureaucrats to decide what goods and services are to be produced and sold and at what price, rather than leaving these decisions in the wise hands of a free market.
Economic decline always follows from substituting the whims and prejudices of the political class for the free market’s natural impulse to provide consumers with products and services they want or need at a price they can afford.
Obama and company will claim theirs was the “only way to save GM,” but, as The Heritage Foundation’s Conn Carroll pointed out, that is simply not true. Remember that federal officials imposed the bailout over the objections of GM creditors. Those creditors had previously agreed to a settlement in which they, not the government, would have a controlling interest in the restructured company and their claims would have been settled in a lawful bankruptcy process, thus preserving the sanctity of contract law.
With bailouts, “law” becomes whatever the politicians and bureaucrats say it is. So much for a government of laws, not men.