Bain, Bailouts, and Beneficiaries

From a utilitarian perspective, an ethical decision should be based on what the greatest good is for the greatest number of people. Are bailouts a good thing in this sense? Bailouts are essentially transferring assets from efficient uses to inefficient uses. In bailing out a company who is not making efficient uses out of its resources, money must be transferred from one more efficient and productive industry to another. In terms of total GDP of the economy, losses will exceed gains when a bailout occurs.

The people who voice their opinion the most are those who stand to lose the most if a given industry or company is not bailed out. In contrast, citizens who have to pay for the bailout are unorganized and have little motivation. Economists would say that these citizens are rationally ignorant because they are choosing to be uninformed and less passionate about stopping a bailout, because the inconvenient cost is greater than a potential gain of getting a few hundred dollars back in taxes if a company was left to die. Essentially, a citizen will not go to Washington to protest the bailout if the probability of success is low and their own cost due to the bailout is relatively low as well. They also have less to lose than those who want the bailout. These people have a large incentive to lobby legislators because they work in the industry or own shares of companies.

In 1991, Bain and Co. was bailed out with $10 million dollars from taxpayers. Mitt Romney had a direct stake in the survival of Bain, a firm where he made a fortune of 250 million. He clearly did not care who would pay for the saving of his own career and prosperity, despite claiming there was no upside and saying “there was no particular reason to do it other than a sense of obligation and duty to an organization that had done great things for me.” He fought for his company and convinced the federal government to give him the $10 million. It is interesting to think about how Bain managed to hold on to its credibility. What does a strategy consulting firm do? They offer expensive advice to well-known businesses detailing how they can stay afloat and be more effective and efficient in their industry. The fact that Bain needed a bailout is nothing short of ironic.

So when it comes down to it, in strictly a utilitarian ethical sense (not looking at moral hazard, etc.), I can’t help but ponder if it is more beneficial to bailout certain companies, or simply let them fail. If what is important is the greatest good for the greatest number of people, perhaps inefficient companies shouldn’t be saved. Just because on the surface pro-bailout people are more vocal about it, and anti-bailout people are less fervent about their views, doesn’t mean our economy will be helped by a bailout.


One thought on “Bain, Bailouts, and Beneficiaries

  1. Wait, so Romney says he opposed the auto industry bailouts when he himself received a bailout at Bain? How can you go from fighting for federal funds to claiming that government bailouts are “the wrong way to go?”

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