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October 26th, 2012

Let Detroit Go Bankrupt

By Nathan Tucker

President Obama gives businesses federal loan guarantees before they declare bankruptcy, while Republican presidential nominee Mitt Romney wants to give them the loans after they’ve already failed and declared bankruptcy.  So much for free markets, or the Constitution.

In Monday night’s final presidential debate, President Obama accused Romney of saying that he would not have provided government help to the distressed auto industry.  “You were very clear,” Obama maintained, “that you would not provide government assistance to the U.S. auto companies, even if they went through bankruptcy.  You said that they could get it in the private marketplace.”

Sadly, President Obama was wrong, as Romney was quick to point out.  “I said that we would provide guarantees,” he responded, “and that was what was able to allow these companies to go through bankruptcy, to come out of bankruptcy.  Under no circumstances would I do anything other than to help this industry get on its feet.”

With obvious relish, GOP fact-checkers declared that Romney was right, pointing to a 2008 New York Times op-ed in which he wrote that “it is not wrong to ask for government help” and that “the federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.”

In their eagerness to score political points, however, Republicans have conveniently glossed over the fact that Romney’s position is neither consistent with a free market economy nor the Constitution.  For a political party which claims to stand for both, Romney’s remarks should be an embarrassment rather than a talking point.

Despite the fact that the Constitution gives the federal government just 14 limited, enumerated powers, the document only garnered one reference in the debates when Romney explained that the role of government is to “promote and protect the principles” of “the Constitution and the Declaration of Independence.”

Neither Romney nor Obama, however, sought to explain how the Constitution justified their domestic programs, nor could they.  In this case, Congress is without power to engage in corporate welfare, whether in the form of direct bailouts or in taxpayer-backed loans.  It has only the limited power to use taxpayer money for one of its enumerated powers, none of which involve aid to businesses.

But even if it did have the constitutional authority to do so, the federal government should not seek to, directly or indirectly, intervene, manipulate, or otherwise control the economy.  Romney did, at one point in Monday’s debate, appear to agree that the government should “absolutely not” “invest in companies” like “Solyndra.”

Yet there is no principled difference between what Obama did with Solyndra and what Romney wanted to do for Detroit.  They both involved the federal government using taxpayer money as collateral for business loans.  The only distinction, such as it is, lies in each candidate’s claim that he would be a more successful venture capitalist with your money than the other guy.

This desire to take from taxpayers to give to businesses is premised on the wholly unwarranted belief that government can put other people’s money to better use than they can themselves.  It is a fundamental distrust of the free market and the decisions people make about how to spend their own money.

To that end, therefore, they want the government to act as venture capitalists to boldly go where the free market fears to tread.  They overlook the simple fact that there would be no need for public investments if private investors believed that the venture was profitable.  Public investments only subsidize unproductive, inefficient businesses that produce goods at prices undesired in the free market.

And by leaving the taxpayers with less money, they are unable to give it to efficient, productive companies that they believe would give them the most return for their money.  This disruption of supply and demand in turn leads to slowed productivity, innovations, wages, and employment.

Government “investments,” therefore, are paid for by a lower standard of living caused by anemic economic growth.  While politicians will brag about how many jobs they allegedly “created or saved” with your money, what is not seen are all the jobs and inventions that would have been but for the legal plunder in the first place.

Doubtless many jobs would have been lost, in the short-term, without government intervention in the auto industry, but that neither justifies violating the Constitution nor the free market.  In the end, picking winners and losers only slows economic growth and long-term job creation.

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About the Author

Nathan W. Tucker
Nathan W. Tucker is a Davenport attorney and author of We The People: The Only Cure to Judicial Activism. He can be contacted at

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