Bankruptcies, Bailouts, and the Politics of Corporate Reorganization

Bankruptcy law has evolved over the centuries as an orderly way to deal with dying firms. However, during the recent recession, many policy experts, officials, and legislators advocated sidestepping the bankruptcy process and resorting to so-called bailouts.

Bailouts have been praised for reducing systemic risk and transforming failed firms into going concerns. Alan Krueger and Austan Goolsbee expressed that view in their paper, “A Retrospective Look at Rescuing and Restructuring General Motors and Chrysler.” However, in our recent paper, “Bankruptcies, Bailouts, and Some Political Economy of Corporate Reorganization,” we argue that defending bailouts on the grounds that they transform dead … Read more

The Economy Isn’t a Machine, and Politicians Aren’t Mechanics

A good deal of current American political commentary centers on disputes about whether the American economy has truly recovered from the slump of 2008. Our political candidates offer different narratives about the causes of the slump as well as about how to promote societal flourishing going forward. What should an ordinary citizen make of these sharply divergent narratives? Despite this divergence, both narratives use the same rhetorical imagery of politicians as mechanics, economies as machines, and economic theory as providing tools for the mechanics.

This image has been reinforced by a century of economic theory that treats an economy as … Read more