I am in violent agreement with my friend Todd Zywicki’s commentary in Wednesday’s Wall Street Journal on the Obama administration’s actions in the Chrysler bankruptcy. In particular,
By stepping over the bright line between the rule of law and the arbitrary behavior of men, President Obama may have created a thousand new failing businesses. That is, businesses that might have received financing before but that now will not, since lenders face the potential of future government confiscation. In other words, Mr. Obama may have helped save the jobs of thousands of union workers whose dues, in part, engineered his election. But what about the untold number of job losses in the future caused by trampling the sanctity of contracts today?
The value of the rule of law is not merely a matter of economic efficiency. It also provides a bulwark against arbitrary governmental action taken at the behest of politically influential interests at the expense of the politically unpopular. The government’s threats and bare-knuckle tactics set an ominous precedent for the treatment of those considered insufficiently responsive to its desires. Certainly, holdout Chrysler creditors report that they felt little confidence that the White House would stop at informal strong-arming.
Note also, as David Henderson pointed out at EconLog, that Todd’s point here highlights the unseen consequences of the Obama administration’s expediency-driven actions. Frequently political actors point out the unseen consequences of not taking the expedient actions they favor, but they almost never point out the unseen consequences of the favor-driven expedient actions that they do take. Yet another situation that makes me want to wallpaper Washington with Bastiat’s essay on the topic. Sadly, these situations are arising daily.
Speaking of which, I remember hearing some online wag chattering a few weeks ago about how it’s an indication of the bankruptcy of our ideas that those of us who oppose such government activity keep referring to arcane 18th century writers. Obviously, that is a completely wrong-headed, naive, and anti-intellectual critique. Many of these ideas have stood the test of time — how many other ideas have had as much empirical resonance over the past 200 years as Bastiat’s analysis of the unintended consequences of expedient, lobbying-driven political action? Bastiat’s ideas inform and inspire the modern public choice and political economy literatures, and are far from obsolete.
Even the Washington Post is editorializing on these unintended, unseen consequences of “the government’s hardball tactics in the recent Chrysler bankruptcy.” (thanks to Arnold Kling for the link) And, as Todd points out, the implications here are not just a reduction in economic growth and economic efficiency due to the government’s failure to consider the economic activity that will not take place because of the higher risk of government confiscation. The institutional and moral implications are deep, because the Obama adminstration’s hardball tactics with Chrysler’s creditors take a sledgehammer to the crucial, foundational concept of governance by the rule of law, not by the arbitrary decisions of men and the special interests who favor them.