WILL WE BAIL OUT DETROIT? ABSOLUTELY! SHOULD WE BAIL OUT DETROIT? ABSOLUTELY NOT!!
WILL WE BAIL OUT DETROIT? ABSOLUTELY!
SHOULD WE BAIL OUT DETROIT? ABSOLUTELY NOT!!
By
Ken Eliasberg
As all of you know, we are in serious economic straits, with the recent focus on the difficulties that the financial industry has been experiencing (so difficult as to have produced the bankruptcy of at least one financial giant, and the virtual bankruptcy of a couple of others). Now the auto industry has come to the trough (again) to feed — 25 billion a few weeks ago, and a request for billions more today. Will it work? In the long run, not a chance!! There are just too many holes in this economic dyke, and not nearly enough fingers with which to plug them. That said, we’ll do it anyway. Why? On the surface, because in the midst of this economic meltdown, we cannot — or at least we have been told that we cannot — let companies of this size go belly up. The real reason, of course, has more to do with politics than economics, and that is simply this - Obama and the Democrats are in the back pocket of the United Auto Workers (as well as various other labor unions, particularly the teacher’s unions).
Will the bailout help? Only for a brief period of time. This proposal will only postpone, not prevent, the inevitable bankruptcy of one or more of the big 3 in the auto industry; it is like putting a band aid on cancer. We are dealing with a very dsysfunctional industry — at least that portion of it located in Detroit, i.e.“the big three” — which, given current conditions, is quite simply unable to compete in the free market! And, unless some profound change occurs — one foisted on the industry; not one that, left to their own devices, they are likely to come up with — they are destined to go out of business!!
And, in the long run, that’s exactly where they will go; due to the incredible costs that they incur for retirees and other non-working persons, in addition to the increasingly demanding standards that they have to meet to produce environmentally acceptable vehicles as well as other regulatory burdens which are imposed upon them, they are, quite simply, economically unsustainable business ventures. In addition, and most important, they have not learned the simple lesson of the market place, i.e. if you don’t produce a product that people want to buy, you will not be able to stay in business. Sooner or later, we are going to have to let them go into bankruptcy, fashion an economically sustainable consolidated business structure, and allow them to discharge the incredibly burdensome costs- e.g. pensions and health care costs for retirees, etc. — that weak management and strong labor unions forced them incur. Like our own public entitlements — e.g. social security and medicare as presently structured— such largesse is simply not sustainable. This is not an opinion — THIS IS A FACT, one that the Democrats never want to confront, preferring instead to demagogue the issue and just kick this can down the road.
To summarize, the automobile industry suffers from:
Flawed And Weak Management
Grasping and Strong Labor Unions, and
Meddling and Overreaching Government
As the saying goes, other than that Mrs. Lincoln, how was the play? We are dealing with a very dysfunctional industry, made more dysfunctional by the role played by Labor Unions and government. In short what we have here is the perfect failure storm made possible by the convergence of incompetent management, greedy and overreaching labor unions, and interfering, feckless, and politically inspired government (whose overriding concern was imposing environmental standards on Detroit that made it difficult, if at all possible, for auto makers to compete with foreign car producers).
The foregoing notwithstanding, we will still bail out Detroit. Why will we bail Detroit out? Because Obama and the Democrats cannot, and will not, turn their backs on one of his and its most significant centers of support, i.e. LABOR UNIONS!!! And this, more than economic considerations, will be the deciding factor in the bail out decision. Will it work? Of course not, but to a lefty, good results are a secondary consideration (if a consideration at all); good intentions are everything! But here, we have neither; this is pure politics, having nothing to do with either economics or noble intentions. It is quite simply, Obama paying off one of his most important constitiuent “special interests” — you know, one of those entities that so roils the Dems when it takes the form of support for a conservative.
The real problem here is that the over-all problem — the global economic meltdown - is so big that it is difficult, if possible at all, to wrap your arms around it. That is, so many factors play a role in where we now find ourselves economically and financially speaking, that it raises so many questions that even the experts seem uncertain as to the precise manner in which to proceed. Not since the great Depression have we experienced this type of difficulty, and it appears that we may not have learned from that experience— one that was badly managed by Hoover, and horribly managed by FDR (whose recklessness (referred to as courage by his ignorant admirers) damn near destroyed the country; only WWII bailed him out). So, whatever we do, let’s not repeat the mistakes of the ‘30s!!! Do not let government get more involved than is absolutely necessary (as determined by authorities on both sides of the aisle).
The beauty of a free market is that it forces you to produce products that consumers want at a price that consumers can afford. It’s that simple. The free market requires a competitive market place; that’s why so many on the left are against it — they don’t like competition, typically because they can’t compete - academia being a wonderful example of this sentment; they want tenure so that they don’t have to compete. Moreover, they don’t want bad teachers fired, and they don’t want good teachers rewarded — they just want one big egalitarian stew, where all the ingredients are equally tasteless. While it is true that the market place, like any other human endeavor, is run by human beings, and human beings are flawed. Ergo, the market place is not immune to screw-ups — and, as the current situation makes clear, big srew ups. That notwithstanding, if you want to see America return to a competitive position in the global economy, put your money on free enterprise, not on government. If we’ve learned anything from the way that the great depression was mismanaged (by both Hoover and FDR) it is that the last thing that you want to do is put any more power in the government’s hands than is absolutely necessary, and in that event only for the shortest possible period of time. For a reminder of that I recommend a recent column by Amity Shlaes in WSJ.com on November 29, 2008 entitledThe Krugman Recipe for Depression — Massive government spending is no solution to unemployment. Indeed, from your own personal experience with the government — with the INS, with the DMV, with the IRS, with the Post Office, etc., etc. — what would inspire you to entrust them with any more authority than conditions made absolutely necessary? And this is a point that I want you to bear in mind when, down the road, we examine government, bureaucracies, and socialism at greater length.