I reluctantly supported the bailouts in the financial sector but oppose the proposed bailout of the auto industry. I say I “reluctantly” supported the bank bailout because I would have really liked to let those large financial institutions that created the foreclosure crisis pay the price for their greed and bad decision-making and go belly-up. Unfortunately, a financial melt down would not be contained to the financial sector. If credit dries up, the economy grinds to a halt. I think the bank bailouts were necessary but that doesn't mean I liked it.
I know the argument of those who support the proposed auto industry bail out is that if we can bail out the fat cats of Wall Street we ought to bail out the industries that keep American laborers working. If Wall Street deserves a bailout so does Detroit, they will argue. Bailing out the auto industry is keeping Americans working and the economy humming. We need to support the autoworkers and save American jobs.
The counter argument is that the Government is not a rich uncle whom we can keep going back to for more and more money every time we get in trouble. The government cannot bail out everyone. There are limits. If we bail out the auto industry, the airlines, appliance manufacturers, tractor makers, farmers, miners, commercial fishermen, and boat builders will be next in line for us to save their jobs. It has to come to stop somewhere. Stop it now.
I am persuaded by the second argument, but still feel that there is a more fundamental reason why the bail outs in the financial sector may have been proper and the bailouts in the auto industry are wrong. I think it comes down to this: Banking is a more legitimate government concern than manufacturing.
Monetary policy is a basic government function except in the minds of the most extreme market purist. Among the powers given Congress by the Constitution are the powers: “To borrow money on the credit of the United States; To regulate commerce with foreign nations, and among the several states, and with the Indian tribes; To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures; To provide for the punishment of counterfeiting the securities and current coin of the United States.”
That is long way from saying it is a function of government to prop up AIG or Bear Sterns, but nevertheless it seems that “money” is a government responsibility. To ensure liquidity and prevent a collapse of the banking system appears to me to be a legitimate government function and is fundamentally different than producing goods and services.
In addition to a concern about the legitimate roll of government, it seems that funding the auto industry puts government into the business of picking winners and losers in the economy and makes the government a competitor with everyone who is not getting a government subsidy. GM is not only competing with Toyota for the consumer dollar but they are competing for that dollar against everything else in the market. To prop up GM appears counterproductive to bringing about efficiencies, innovations, and creating wealth. If, when the auto began to replace the horse and buggy, the government had moved in to protect the buggy whip makers, I suspect the government would still be subsidizing the production of buggy whips. If the Big Three cannot produce vehicles American want, why should the government prop them up?
I think ensuring a proper functioning system of money and banking is an appropriate government function; owning the means of production and making decisions about what is produced is not.
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I agree that this whole mess should be paid for with the salaries and bonuses and "perks" of the people who got us (and the world) into this. Greenspan noted that he forgot to take into account "several key factors" when he predicted that the real estate market could never bottom out; people act irrationally and are greedy. I didn't even know how extensive this whole mess was until I heard this story from NPR:
ReplyDeletehttp://www.npr.org/blogs/money/2008/11/hear_a_tale_of_intertwined_mis.html
I agree also that the so-called "Big 3" need to really, really be taught a lesson. If they aren't allowed to fragment, I fear we will have a repeat of the '79 bail out of Chrysler; fuel efficient cars for a few years, then larger, more fuel-inefficient (and non-competitive) vehicles that will make them vulnerable to Japanese car manufacturers.
Thanks for the insightful analysis; great website, by the way.
A few random thoughts:
ReplyDeleteThe Big Three have produced cars that Americans wanted. They produced tons of SUVs. However, those wants changed faster than the Big Three can retool, and the wants have further decrease because of the current economic malaise.
Perhaps the big three should die if they can't retool faster. I don't know. It seems like there may be other systemic issues in the system, such as the role health care and pensions play in the equation, or whether or not the government is encouraging or discouraging innovation.
I write a little bit about this in my blog post, My Socialist Plan for the Auto Industry.
Yet since I'm a disgruntled Democrat, you might find my views vary with yours. Nonetheless, I think we are all better off when we bounce around ideas like these.
It will never end. Every industry, every sector that is hurt by this downturn is going to come crying to Uncle for help.
ReplyDeleteUnfortunately GM/Ford/Chrysler are also "too big to fail." The cascade of failing businesses and lost jobs caused by their going belly up will be more than we can bear.
In the case of the auto-makers' bailout, it's a relief to have a national issue that is so straightforward: American cars tend to break down and fall apart therefore people have stopped buying them. If GM and Ford don't want to go out of business, they should start making decent cars. To bail them out would be to reward their terrible manufacturing standards.
ReplyDelete