Thursday, December 11, 2008

Reason For The Bailout

I'd like to look at the reasons being offered for bailing out Detroit and comment on them.

1. We will lose 1 million jobs. 

First off, if there are a million jobs associated with the auto industry, they will not go away overnight. Detroit still makes almost half of the cars and trucks sold in the US. One of these companies will find a way to survive. Which brings us to...

2. If one auto-maker goes down, they will all go down.

I have heard Ford's CEO say this, yet he has never offered any convincing evidence, nor have I seen the claim questioned in the media. The supposed reason is that a collapse of GM and Chrysler will result in the collapse of suppliers that service Ford. I find it hard to believe that this would be the case. There is still great demand for vehicles, even if it is down. As vehicle prices rise temporarily as a result of lower supplies, Ford will find a way to keep the suppliers in business. And the suppliers may have to consolidate or change as well. This will not be easy, and will result in job loss, but the job loss is coming one way or the other.

3. This will add an intolerable shock to the economy.

The economy is not going to collapse. Despite the confidence-destroying comments of Hank Paulson, the credit markets have not collapsed. Things will be not be as easy they were a year ago, but we are not going to witness the end of civilization. The economy will probably always go through booms and busts; it always has and it always will until we find a way to allow every player to have perfect  information. The economy right now is telling us that our information, which we use to determine the best place to invest money, was wrong. It is telling us to find a better place to put that money. 

4. We cannot lose such a big part of our manufacturing base.

Building on the last point, a manufacturing base that is losing money is not worth having. But there are, undoubtedly, manufacturing sectors that need capital and will use it correctly. They will create jobs that will last longer than Mar. 31, when we realize we've wasted $15 billion. But they won't get this capital if we insist on propping up broken companies.

I realize that real people occupy those jobs at GM and Chrysler. I know they will be hurt. I do not think it enough to say the hell with them. I think the government should find a way to help them- retrain them, make sure they have sufficient unemployment benefits, etc. We live in a society that can do that, and it is the right thing to do. 

But if GM was in the business of selling steam powered buggies, we would not be trying to save them in order to save the jobs. We would find different jobs for there employees. We should be working on this. It's time to move on.

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