Are we going to subsidize failure … again!
Authored: November 16th, 2008 @ 4:31 PM
From a NYTimes article:
Do we really want to rescue these firms? Since the writing first appeared on the wall in the 1970s they have ignored the future to grab the quick profits of a so-called the free market. Yeah, if you think that a market that includes $5B per year to modify demand through advertising is the informed consumer required to make the free market work to solve problems, that is. I don’t think so, look how well that worked for us in the last national election. Paraphrasing one of our brain trust …
While it might be argued that government regulations (union shops in the Rust Belt, CAFE standards, corporate income taxes, possibly an inequitable trading relationship with Japan (health care bills are a favorite here)) have caused them big problems but fundamentally their problems stem from their inability to make a product people want. Toyota, Nissan, et al are all having troubles with sales right now but they have strong balance sheets to withstand their present difficulties because they have consistently made cars people want and they have sold them at a profit. The present crisis is not something that would kill a healthy car company–it will kill a company already on life support.
What is a principles based analysis of this situation? Let’s see …
People should be free to make choices (otherwise we would simply outlaw the purchase of gas-based vehicles). The government should not be in the business of picking winners and losers. Why not? Because the government picks based on political power and as such is NOT a good consumer. We are going to be saddled with years of problems from the last time the government tried because corn-based ethanol is not a winner unless government makes it so.
Application: If the people won’t buy their products, a cartel of failed companies and their unions should not be able to force taxpayers to fund their rescue because they control a block of electoral votes and congressional seats in the Midwest.
Decision: Let them go. The role the government has is to provide for an orderly disposal of the assets of failed companies through the bankruptcy court.
So, we conclude that a principles-based decision comes down on the side of
“it’s more principled to cover the pensions than to bailout the firms”
The cost of covered pensions is a major argument often used to support bailing out these firms. Well, that’s like solving your credit card problem by getting a new credit card so you can quit using the one that’s maxed out.
Update: even as I post this I am hearing on NPR that some Democrats are also not going to push for a bailout. Maybe we are going to see real change …
Update:(2008 Nov 20) Thursday NPR reported that Democrats have finally seen the light and may be giving up on trying to bailout these companies.