Slippery Slopes

I understand the distinction Megan McArdle is trying to draw here, and I think her larger point is basically sound – the financial services sector is more important to our economy than the auto industry. That said, I also think this argument exposes another unintended consequence of the bailout. Politically speaking, it’s extremely difficult to persuade voters that certain sectors of the economy are more deserving of federal largess than others. In fact, I imagine the economic impact of GM going under is a lot more tangible to most people than the prospect of Bear Sterns’ bankruptcy. The decision to bailout the financial sector has created something of a lose-lose situation: if Congress bows to mounting pressure and legislates more bailouts, the risk of a moral hazard increases exponentially. But if we hold the line and let GM die a natural death, many will undoubtedly assume that the financial services sector simply had better lobbyists. I’d probably choose cynicism over another bailout package, but neither option is particularly appealing.

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Filed under Economics, Politics

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