The Redistribution of the 2009 Auto Bailout

This week, President Obama touted the benefits of the $25 million auto bailout in 2009. Obama said that, “We refused to let Detroit go bankrupt. We bet on American workers and American ingenuity, and three years later, that bet is paying off in a big way.” In section 5.1, Mueller writes that without unanimity, there is redistribution from those worse off to those better off. Even if policies benefit all citizens, the use of majority rule to make collective decisions (i.e. the bailout) still results in redistribution, whether efficient or not. I would like to explore the bailout in terms of three types of redistribution resulting from simply majority voting.

(1) Redistribution as Insurance: When the utility function accounts for the utilities and probabilities of a good and a bad outcome, you voluntarily agree to redistribution to ensure against the bad outcome. This type of redistribution usually occurs from behind the veil of ignorance. It applies to the bailout because in 2009 nobody knew what other industries would need help. Citizens, voting as workers, agreed to the bailout as insurance in case their own industries would need government assistance. The auto bailout created a precedent and an argument for bailouts of other industries, should they need it. 

(2) Redistribution as a Public Good: This occurs with interdependent utility functions: when you care about another person’s utility as well as your own. This means that Americans cared about the welfare of the American auto workers and workers in related industries. People were happier with redistribution, because then the workers were better off, so this result occurred under simply majority voting.

(3) Redistribution as Taking: This is when you take money from others using the tools of democracy: it is involuntary redistribution using the state. It would not occur with unanimity and typically involves lobbying. In the bailout, union members received disproportionate benefits at the expense of the shareholders of the auto companies. This policy then made the shareholders worse off (involuntarily redistribution) to make union workers better off, using the force of the state.