Sunday, May 03, 2009

Patronage Payback

Megan McArdle is very insightful about the power of unions in the current political climate.:
"Which brings us to the real question, which is, when did it become the government's job to intervene in the bankruptcy process to move junior creditors who belong to favored political constituencies to the front of the line? Leave aside the moral point that these people lent money under a given set of rules, and now the government wants to intervene in our extremely well-functioning (and generous) bankruptcy regime solely in order to save a favored Democratic interest group.

No, leave that aside for the nonce, and let's pretend that the most important thing in the world, far more interesting than stupid concepts like the rule of law, is saving unions. What do you think this is going to do to the supply of credit for industries with powerful unions?"
Answer: money lending to companies with strong unions will demand a high premium to pay for the extra default risk. That is, the cost of "Patronage Payback" just went up.

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