Lost Entrepreneurial Initiative: An Unseen Cost of Auto Bailouts

Over at Cafe Hayek, Donald Boudreaux writes a letter to the editor that impugns an editorial in the Wall Street Journal for ignoring the unseen costs of the auto bailout. He argues (emphasis mine):

[T]he heart of the case against the bailout is that it saps the life-blood of entrepreneurial capitalism. The bailout reinforces the debilitating precedent of protecting firms deemed ‘too big to fail.’ Capital and other resources are thus kept glued by politics to familiar lines of production, thus impeding entrepreneurial initiative that would have otherwise redeployed these resources into newer, more-dynamic, and more productive industries.

The ‘success’ of the bailout is all too easy to engineer and to see. The cost of the bailout – the industries, the jobs, and the outputs that are never created – is impossible to see, but nevertheless real.

This is particularly relevant to Missouri, because the $150,000 tax credit package that Missouri decided to give to Ford is Missouri’s version of the auto bailout, and is also associated with unseen costs. Although it is easy to see the benefits of the policy, it is impossible to see the economic activity that would have otherwise occurred (Merci, Frédéric Bastiat!). When the state government provides financial assistance to specific companies or industries, it crowds out private investment and entrepreneurial initiative. In addition to many other negative consequences, it incites the producers to invest their resources in an activity for which the state does not have a competitive advantage, at the expense of investing in activities that are “newer, more-dynamic, and more productive.”