Ilya Somin
The Volokh Conspiracy
September 25, 2008

Recently, I warned that if Congress passes the Bush Administration’s massive bailout plan for investment banks, we are likely to get more bailouts for other industries. It turns out that at least one industry – the Big Three Detroit auto manufacturers – have already gotten a bigger bailout than they would have otherwise. And that’s just a result of the mere consideration of the administration plan (combined with the earlier Fannie Mae/Freddie Mac bailout); things will be far worse if the plan passes:

With Congress preoccupied with the massive, $700 billion bailout plan for the financial industry, General Motors, Ford, and Chrysler have finally secured Part One of their own federal rescue plan. A bill set to be passed by Congress and signed by President Bush as early as this weekend—separate from the controversial Wall Street bailout plan—includes $25 billion in loans for the beleaguered Detroit automakers and several of their suppliers. "It seemed like a lot when we first started pushing this," says Democratic Sen. Debbie Stabenow of Michigan, one of the bill’s sponsors. "Suddenly, it seems so small…."

It might seem like a stealth rescue, but the plan has been in the works for at least 18 months. Approval for the loans was first included in last year’s Energy Independence Act. Earlier this year, the automakers sought a first installment of loans totaling about $6 billion. But the nationwide credit crunch severely crimped their ability to borrow, and besides, next to bailouts like $200 billion for Fannie Mae and Freddie Mac, a mere $6 billion started to seem unduly modest. So Detroit raised the ante to $25 billion, the most allowed under current law.

Notice that the auto makers decided to up the ante from 6$ billion to $25 billion in part because the Fannie/Freddie bailout made the former amount seem "unduly modest" by comparison. Similarly, Michigan’s Senator Stabenow notes that the auto bailout "suddenly . . . seems so small" next to the Bush Administration’s gargantuan bank bailout proposal. This illustrates two facets of the slippery slope problem I mentioned in my earlier post: First, the enactment (or even possible enactment) of one big bailout would lead other industries to step up their efforts to lobby for their own handouts. Second, the Bush proposal creates an "attitude-altering" slippery slope under which bailouts (especially those that are smaller in magnitude than the administration plan) come to seem "normal" to public opinion and are therefore less likely to encounter strong resistance.

Finally, it’s worth emphasizing that, as the above-linked article points out, the current auto industry bailout is much larger and has fewer strings attached than the federal government’s notorious 1980 bailout of Chrysler. At the time, the Chrysler bailout was highly controversial and took months of debate in Congress before passing. Today’s much bigger auto industry bailout has drawn far less opposition – in part because we have slid so far down the slippery slope since them. Even worse, the current bailout is just the beginning for the Big Three. Next year, the article says, "[t]he automakers plan to ask the government for another $25 billion in loans . . . It’s just spare change, after all." Compared to the proposed bank bailout, of course, it really is "just spare change." That, of course, is a big part of the problem.

If we want to get out of this hole, a good first step is to stop digging. Sadly, the Bush administration and many in Congress want to do the exact opposite.

Truth Rising 9/11 Chronicles Part One: Truth Rising
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