Do the executives of the Big Three automobile manufacturers think we're stupid?

"The societal costs [of the loss of General Motors, Ford or Chrysler] would be catastrophic -- three million jobs lost within the first year," said GM chief Rick Wagoner during last week's congressional hearing.

Fortunately, Congress didn't fall for it -- yet. But next month or next year is another story. President-elect Obama is sympathetic to a bailout.

The auto heads tried to pin their problems on the general economic decline. They also said their companies have gone far in working to turn themselves around. "We have taken tough actions to cut costs, at the same time investing billions in fuel-efficient vehicles and new generations of advanced propulsion technologies," Wagoner wrote in The Wall Street Journal.

If so, why would that make the companies deserving of a bailout? The economic slowdown affects everyone. Why single out the carmakers?

And if GM and the others have done so much to raise productivity and improve their products, they would attract private capital. Investors are always looking for profitable ventures.

What Wagoner and his colleagues hope we'll overlook is Frederic Bastiat's lesson: Government intervention must not be judged only by the immediate and obvious consequences for the intended beneficiaries but also by the unseen effects on the rest of society. If the automakers get $25 billion from the capital markets because the federal government guarantees the loans, other businesses won't be able to borrow that money. Resources that go into making cars can't be used to make something else.

Why should politicians decide who gets those resources? It's not as though congressmen using government force are better than the decentralized voluntary market at spotting the most promising investments. Far from it. They will make their decisions on the basis of political considerations, such as who gave them contributions or might finance a get-out-the-vote drive in the next election. Continued...