Insufficient success measure

President Obama announced recently that GM and Chrysler bailouts were a success; most of the media agreed. The reason is that, since receiving government money, both companies started turning up profits, for the first time in a long, long time.

But is this enough to be so confident that the bailout worked? After all, it shouldn't be very surprising that if a business that's in bad debt trouble all of a sudden gets outside help with their debt, it can become profitable. Opponents of the auto bailout (the intelligent ones, at least) never said that the bailout was a bad idea because the automakers were inherently unprofitable. They said it was a bad idea because it wasn't worth the cost. Costs of the bailout are of two sorts: opportunity costs (distorting allocation of resources) and moral hazard (sending a signal to the economy that if you're "too big" or "too important" to fail, you can get away with more because if you end up getting yourself in trouble, you will be bailed out). No one knows how large these costs are. But unless you somehow estimate them, you can't claim that the bailout worked. Anther issue is, it's only been a year and a half since the government injected cash into GM and Chrysler. Who's to say that their newly found profitability will last any significant amount of time? What's the guarantee that, in say five years, another bailout won't be needed?

Of course it's better to show profits than not. But that's about the only conclusion that can be drawn right now.