Huh? How the hell do you take money "out of the economy" short of putting it into a mattress?
The government put a lot of money into GM, granted. And you're right, the company turned around and put that money into executives, dealers, bondholders, shareholders, union workers --- and probably doctors, lawyers, Indian chiefs, and grounds keepers. Who, in turn, took their money and spent it on beautiful women and olive oil, and the beautiful women turned around and spent it on cell phones and lipstick, and the lipstick manufacturers spent it shipping more makeup to the store, and the trucking company gave their share of the money to the tire manufacturer, who ....
This is "out of the economy"?
This is reducing the number of people employed?
What economic theory is this?
Hi drkitten,
More explicitly what I was talking about was that the government took money out of the economy that would otherwise have been spent on products that are almost always made by people who make less money than GM executives, GM dealers, GM bondholders, GM solitaire players, and GM workers. In addition, the government incurred a cost at retrieving that money from the tax payers.
So the net effect of the government's largess is to increase the unemployment rate or at the very least make everybody else a little poorer.
Now you might argue, "no, allowing a giant corporation like GM to fail with all of the waste of invested capital that would entail (both GM capital and GM supplier capital) would cause more unemployment".
If that was your argument, I would think it was at least a plausible one. However, I suspect that there are some things that make it not correct in this case.
1. If GM had been allowed to declare bankruptcy or at least a pseudo bankruptcy had been attempted, the capital of GM's production would not evaporate into thin air. It is possible (and I think likely) that a GM reinvigorated with new labor contracts, new concessions from its bond holders, stripped of its legacy costs, with a reduced brand port folio, with at least some significant new management and a reduced number of dealerships might be in a position to make very good use of its capital and become a successful company again.
2. If GM still failed despite all that, its production capital would still not evaporate into thin air. It would be purchased on the cheap by other companies who might be able to make more advantageous use of it than GM.
3. And if I was completely wrong about 1 and 2 then what was the point of saving GM? The production capital must have been of such low value because the country just didn't need as many car companies as it had and it needed to reduce some of that capacity. And whose jobs would you seek to get rid of in that case? Toyota workers who are building cars that people are buying or GM workers and GM solitaire players who are not building cars that people are buying right now?
