It pays to be big.
The automotive and banking industry bailouts reveal just how much it pays to be huge.
America's car-centric culture and blue collar mythology are leading union-paid Democrats to hold the auto industry's hand through these tough times. Congress has argued that because the auto industry employs so many, its existence has become a public good. This is a strange argument to make; rather than prioritizing a resource or a product as a public good, Congress has decided that the producer is the public good. There is no better example of a distortion of the free market than this. Congress is preventing the free market from one of its most important functions: creative destruction of less efficient producers. Congress is willing to subsidize the consequences of decades of industry-wide incompetence to prevent the short-term pain of job losses.
And why hasn't Congress taken this perfect storm of opportunity to force Detroit into the environmental reforms Democrats have wanted for decades (and campaigned on for two years)? My conclusion is that the Democratic party lacks the killer instinct and resolve to make tough decisions and is willing to forego long-wanted, long-term gains to avoid possible short-term damage to its relationship with Detroit's labor unions. How principled.
Meanwhile, vote-starved and finance-loving Republicans have stowed the tough love rhetoric and indignance about our welfare state to give (and lose track of) huge sums of money to the very people who just got finished losing huge sums of money. They argue that the finance industry is the "motor oil of a free market, capitalist economy" and without it, we'll fry the engine. Even in finance, creative destruction is an integral part of a functioning market. At least Congress is arguing in this case that the product of an industry is a public good.
The free market is no longer free if the government bails it out. Bailouts are precisely the kind of distortion that make the market less efficient and less able to make corrections. It seems that it pays to be a big company.
Except when it doesn't.
How do you take your peanut butter? With rodents, feces, and feathers? Today's lightning-fast info distribution means that the big guys are more susceptible to the whim of the public. Take, for example, the recent salmonella outbreak caused by Peanut Corp. of America. PCA handles less than 3% of the American peanut supply, yet jarred peanut butter sales dropped 22% in January. PCA, undoubtedly as a preemptive defense against litigation, has declared Chapter 7 bankruptcy. Consumer advocates are howling at PCA's attempt to get out of jail free, angry in part because of new allegations from the FDA that PCA knowingly shipped salmonella-tainted foods. The FBI and FDA have opened a criminal case.
PCA was a small operator in a big industry, but the entire industry will suffer, from peanut farmers to food manufacturers to retailers, as a result of one small company's disgusting actions.
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