Monday, December 15, 2008

Why save the banks but not GM?

The Skeptical Optimist answers a great question:

We bailed out financial firms; why not car makers? 

Reason: the government has ultimate responsibility for the soundness of our economy's money system; it is NOT responsible for the soundness of the economy's passenger-car manufacturing systems. Money flows in one direction, real goods and services flow in the opposite direction, as explained here. The government must (reluctantly) step in as necessary to prevent the collapse of the nation's money system; private sector nonfinancial firms succeed or fail within that system. 

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