Bastiat Lesson #2

Just as in the first example (i.e., Bastiat Lesson #1), these praises for the auto bailout are wrongheaded in that they ignore opportunity cost.

New York -- Former White House auto czar Steve Rattner said Wednesday the state of Michigan and the city of Detroit would have been forced into bankruptcy if the Obama administration hadn't rescued General Motors and Chrysler last year.

Detroit almost "certainly would have gone bankrupt," said Rattner, who spoke at a bankruptcy conference sponsored by Dow Jones.

"The state of Michigan would have declared bankruptcy," he said.

First, in bankruptcy liquidation, those resources would not have just languished.

And then,

Rattner said the government's $50 billion investment in GM is now worth $40 billion to $45 billion-- a vast improvement over prior estimates that suggested the government would lose $20 billion on its bailout of the Detroit automaker.

I don't buy the rosier scenario. Only in Washington is a negative $10 billion return on a $50 billion investment regarded as praiseworthy.

More importantly, how else could those resources have been used? Propping up a failed company means these same resources could not be used by another company that would operate profitably. Detroit may certainly have been "saved" from failures of its own making, but at what cost?