Stimulus Bill-Bail Outs and The Unintended Consequences

It seems that every day I read about the unintended consequences happening or about to happen due to some aspect of the government bail out activity. The descriptions of these unintended consequences are usually described in language that suggests that there was a lack of sufficient preparation as their cause.

All who have followed my blog know that I am not a huge fan of almost any government messing with business and that remains my basic philosophy. There is however a need to explore this reporting of unintended consequences. In life there are always unintended consequences. People marry seeking happiness and often that doesn’t happen and many times a messy divorce is the result. That surely is not the intended consequence.

Entrepreneurs start businesses with dreams, hope and hard work but often find that the dream falls short of market needs and failure is the result. This is an unintended consequence. The list of unintended consequences in life is almost endless. There are a few unintended consequences happening in the government bail out activity that have received attention filled with description of surprise, by those detailing the consequences occurring.

In the auto industry General Motors and Chrysler begged successfully for a financial lifeline to be thrown to their near drowning businesses. Ford with a stiffer upper lip refused the governments help and determined that they would struggle on with independent plans for recovery. Good for Ford but what about the other two.

Chrysler took the money and announced a restructuring plan that is felt will take them through the current crises with hopes for a brighter future. Not as good as Ford but not terrible. General Motors took the money and almost immediately came back begging for more. They said that their financial arm GMAC needed more government money to support the financing of a flagging sales effort. The government responded by giving GMAC an extra big chunk of money to finance the General Motors vehicles.

The unintended (reward ?) for Ford’s determination not to take the bail out was that GMAC could now offer 0% financing which Ford could not match. The second unintended consequence in the news concerns the billions of bail out funding lavished on AIG. AIG is now offering under priced commercial coverage on a number of their insurance products that the competition cannot match. The competition is not funded by the government. Neither of the fnded companies actions can be totally criticised. No one in government or any detail of the government funding process restricted GM or AIG using the funding to undersell the competition. This was a consequence that government did not intend but obviously lacked the business experience to understand this possibility.

Why is anyone surprised that their have been unintended consequences with the government now so strongly involved in these businesses. With so much money invested in AIG and General Motors is there any question who will be favored in questions of competitive advantage. Let me ponder on that for about 1 ½ seconds and I’ll come up with a good guess.

The distinguished journalist/reporter Eric Severeid once said that:”The major cause of problems are solutions”.

That is what happens everyday in life and in business. When the unintended consequence of a supposed solution happens, the action needed is to rapidly make the required course change to eliminate the problem. In business, success can often be traced to the rapid response and correction of the unintended consequences. The problem that looms in government involvement is the will and capability to correct those results that turn out to be detrimental to the basic plan.

Everyone involved in government and business needs to get over surprise that there are unintended consequences and there is a need to work hard and continuously to keep things rolling towards “The Intended” results.

Afterthought: It would be useful if the basic plan was workable and only unintended consequences were the worry. The government bailout plan has a couple of trillion things to worry about. Plan might actually be a misnomer in this case.