Provocation of the day: it is increasingly looking possible that BP may be in serious trouble, and there is a non-zero chance of bankruptcy; if the worst case does begin to emerge for BP, should the government give them a bailout? I would like to see this provocation evaluated by proponents of the GM bailout.

Clearly, the direct jobs impact will be lower than a GM bankruptcy, since GM employed somewhere around 200,000 and BP has only 23,000 employees. But the argument for bailing out GM was based primarily on indirect impacts, with proponents citing a 3 to 2 million job loss number. Since petroleum is in input in…well, all industries, a shock to oil prices would have a much wider negative impact than a shock to the automotive supply chain. Since automobiles are durable goods, the impact of a GM bankruptcy would have traveled mostly up the supply chain, whereas a BP bankruptcy can travel both up the supply chain and down it, all the way to businesses and consumers who use it as a productive input. You can be very much for higher gas prices via a carbon tax while still very much opposed to a shock to gas prices, and you don’t have to be a Real Business Cycle theorist to believe that it would have serious macroeconomic effects.

There’s also the problem that not bailing out BP could jeopardize future claims against them, and that the alternative scenario of a bankruptcy may allow them to shake some of their obligations that will result from fines and litigation. So if a $5 billion bailout increases our odds of recovering $50 billion in fines by 11% then it is worth it on those grounds alone.

Here is James Surowiecki arguing that you can’t be against a BP bailout and for a new jobs bill:

…the great virtue, from a stimulus point of view, of giving the loans to BP is that the money will be immediately put to work in the economy, as opposed to dribbling out over the next six to eighteen months, which is what will happen to much of the spending in the jobs bill. From a Keynesian perspective, there are few things we could do that offer as much immediate bang for the buck as keeping BP in business. In the end, if you opposed the jobs bill, then it makes sense to oppose a BP bailout. But I don’t really see how the combination of being in favor of the jobs bill and in favor of letting BP go under makes sense.

Just kidding, the paragraph of his was really originally about GM and the stimulus bill:

…the great virtue, from a stimulus point of view, of giving the loans to the automakers is that the money will be immediately put to work in the economy, as opposed to dribbling out over the next six to eighteen months, which is what will happen to much of the spending in the stimulus package. From a Keynesian perspective, there are few things we could do that offer as much immediate bang for the buck as keeping G.M. in business. In the end, if you opposed the stimulus package, then it makes sense to oppose an automaker bailout. But I don’t really see how the combination of being in favor of the stimulus and in favor of letting G.M. go under makes sense.

I would like to know on what grounds those who wanted a GM bailout would reject a BP bailout. I will aknowledge in advance I believe there are important differences, but do they?

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