Some commenters are pushing back on my previous post by suggesting that the GM bailout was desirable and the AIG bailout wasn’t.  I don’t have hard evidence for this, but I’m pretty sure economists in general are more supportive of the bailout of AIG than the bailout of GM. For one thing AIG is a financial company whose failure would have brought down many banks, and we have known for over 100 years that preventing banking panics is an important function of central banks. Justifying bailouts of manufacturers on the basis of economies of agglomeration does not fit within the well understood and commonly agreed upon tenants of central banking. Regardless of the end desirability of the GM bailout, it is certainly a more controversial thing for a central bank to do.

More importantly though, the issue here is that Treasury issued a notice that exempted companies which the government became an owner of in a bankruptcy preceding from the established section 382 of the tax code. Are those who criticize the AIG tax benefit but not GM really arguing that this ruling should be amended so that whether section 382 applies is subject to the discretion of the Treasury? For one thing I’m not sure that would be legal (somebody who knows more can tell me if this is the case). But even if it were it strikes me as pretty undesirable to give administrations that level of discretionary taxing power, essentially allowing the President to provide a potentially massive tax benefits to companies it bails out if it feels like it. No, I would rather not give Presidents more arbitrary bailout power, especially of the kind that tends to be hidden and unreported.