Don J. Boudreaux on the possible bailout of the big three:
So, far from solving this problem, any "bridge loans" from Uncle Sam to the Big Three will only delay the inevitable need to restructure. Bailout money would force taxpayers to foot the bill for Detroit's irresponsible past promises while it protects these firms from having to do the hard work of correcting this real source of their unprofitability. (Of course, bailout money would also protect overpaid and over-pensioned UAW members from having their pay and pensions scaled back to reasonable levels.)
With the symptoms of this serious ailment socialized for however long the bailout funds last -- that is, with nothing done to cure the ailment -- GM, Ford and Chrysler will be no better able to operate profitably after they run through the bailout funds than they're able to do now.
So if they're bailed out now, they'll inevitably be back in Washington in the near future to beg for another bailout.
My Comment: No one would have imagined a world without Pan Am or Woolworth's. I remember those big companies from my youth. After they were gone, the airline and retail industry continued merrily without them. Why do some people believe that if the big three go under it would be the end of the world? Yes, it would hurt to absorb those unemployed auto workers into our ailing economy but a bailout may simply prolong the inevitable. There is no guarantee that if given a bailout loan, the big three would make a triumphant comeback.
5 comments:
I still don't understand why bankruptcy is not an option for them. Many companies have gone bankrupt and come out of it - Trump, K-Mart, Jewel-Osco - etc. This is supposed to be a free-market society. Let the chips fall where they may! Kick the damned unions out and get rid of the strangling regulations and perhaps they might flourish once again. Let them build the cars we want...not the ones the government wants us to have.
I have read that President Bush is now planning to try and use some of that $700 Billion bailout money for the automakers.
Go figure.
Apart from being grossly immoral to take taxpayer money to loan to firms (and ones which will probably not survive no matter what, so long as the UAW has them by the cohones), there are three words which best describe the practical flaw in the plan:
Broken window fallacy.
Bobo,
I have only an educated guess, but bankruptcy is being strongly resisted because it would allow the companies to void their onerous labor contracts and start fresh, something the UAW will fight hammer and tong.
Bobo,
This is from George Will's RCP column
"Mulally says bankruptcy, which has become almost routine for airlines, would be fatal for a car company: Passengers will fly on an airline undergoing reorganization in bankruptcy because their tickets are short-term transactions, whereas customers cannot be confident that a car company in bankruptcy will be around to honor its warranties years hence."
Mullaly is the CEO of Ford so it's possible the explanation is self-serving. But Ford isn't asking for bailout money (just "access to money" if needed), so he may be giving it straight. Anyway, I was thinking something along those lines myself.
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