CORPORATIONS ARE POLITICAL ENTITIES

There has been a good deal of discussion lately about Federal govenrment bailouts of industries. The AIG bailout may be the largest, but it is hardly unique. Some of us may recall that in 1979, Jimmy Carter bailed out Chrysler which actually paid off the loan early. Also a duty was put on Japanese imported automobiles which raised their cost by about $2,000 to make the U.S. automakers more competitive but hurt American consumers.

There was also a railroad bailout, in 1959 of the Great Northern Northern RR. In a recent article in the WSJ (06-10-2010), the headline reads Bernanke Expects "AIG To Repay Aid." And in a hearing, the CEO of AIG Robert Benmosche "...said taxpayers are 'going to get your money back plus a profit.'" So eventually this may turn out all right.

I think that there is a great misunderstanding about what corporations are. They are political organizations that are supposed to play by the rules set out by the government. Of course, they develop a life of their own and do their best to get around the rules all they can. One of the biggest political aspects of corporations are that stock holders are not liable for losses sustained by a corporation. We like to fantasize that there is some macho aspect to corporations that they are tough guys who live or fall by their own merits. Actually they are political organizations that go to the government whenever they are in trouble and continually try to skew the laws in their favor.

More common are indirect bailouts, such a tariffs. Just within the last decade, tariffs were put on imported steel and Canadian lumber to bail out the American steel and lumber companies. And of course, an infamous one is the tariff put on imported sugar cane ethanol, mainly from Brazil, to make such importation uneconomic so that the American corn ethanol agribusiness is profitable but again at a cost to the consumer.