Help from the goverment

General Motors’ earnings announcement came in a key moment, reaffirming with facts how positive the federal government’s intervention in the economic crisis has been. The government’s move has been harshly criticized in Republican primaries.

The fact that Michigan, home to the domestic auto industry, is the next state to vote in the Republican primaries, has led the candidates to highlight their positions against the federal bailout launched by the Obama administration years ago.

Back then, the White House provided almost $50 billion in return for 60% of GM’s stock. The alternative was a bankruptcy with unpredictable results, especially given the reluctance on the part of banks to issue loans. The risk of the company’s demise was very real, and it would have had a domino effect felt from Detroit all the way to car dealers and auto parts businesses in the country’s most remote corners.

The results show Obama’s strategy of investing in the company and reinforcing the pension fund was sound, even though it is still not a sure thing that General Motors is out of the woods. However, the report of the highest earnings in seven years speaks for itself.

On the other hand, the positive effects of the economic stimulus are not as definite. The economic aid package does not have a convincing story like GM’s. Nevertheless, macroeconomic numbers show the stimulus contained the economy’s free fall and slowed the rhythm of layoffs because of the economic contraction. For example, in January 2009, the biggest drop in the job market in the last 60 years was recorded.

The federal government’s intervention in the economic crisis is the GOP’s favorite target to criticize the Obama administration. We think Republican presidential candidates should remove their ideological blinders and see the reality if they hope to be successful in November.