In last night’s debate, President Obama once again bragged about pouring taxpayer dollars into GM and Chrysler, while chastising Mitt Romney for wanting to “let Detroit go bankrupt.” Presuming that Detroit in this context refers to the auto companies that received a bailout, this charge makes no sense. They did go bankrupt. The problem, as the following video explains, is that the bankruptcy process was hijacked by the administration and used to achieve political ends, rather than being allowed to serve its role in the economy.
Sbarro went bankrupt last year, but you’ll probably still see one serving pizza the next time you’re at a mall or airport. That’s because bankruptcy is not necessarily a death sentence, even sans government in fusions of taxpayer dollars. Sometimes, either because of changing market conditions, technological developments or corporate mismanagement, a once successful enterprise can stop being profitable. It would do no good for the economy for unprofitable businesses to just churn on forever wasting resources that could be put to better use, assuming someone was dumb enough to continue providing it said resources (a not entirely outlandish possibility, given the fact that the New York Times is still convincing suckers investors to put up dough). That’s where bankruptcy comes in.
Depending on the source of the problem a business might be able to use the process to adapt to new market conditions, or eliminate sources of waste and inefficiency within the company, emerging stronger than they went in. In other words, it’s an odd insult to accuse someone of wanting an unprofitable business to go through this process. Sure, not every company that goes into bankruptcy comes out. But if the market simply no longer supports their business model, allowing their resources to be redistributed to profitable enterprises helps keep the economy healthy.
