Detroit Will Fail Eventually (Gulp! Don't Hate Me!)
Now, don't hate me, I care as much about America's working middle class as the next guy/gal, but I have been looking for a reason to endorse the automotive bailout deal for a while now. The reasons are just not there, Detroit will fail eventually anyway.
Yes, as an environmentalist and a liberal I am angry at Detroit for "killing the electric car", ignoring market signals for more fuel efficient cars, and mass-producing the abominable hummer; but these are the wrong reasons to oppose the bailout
Unless Detroit does something to drastically reduce its competitive disadvantage of labor, it will never be able to compete in a global society and it will fail. In order to make the bailout work, it will require nationalization and subsidization at the taxpayers expense or hefty and costly trade protections on our auto markets. Now, I am all for government intervention in markets to provide public goods. But Detroit, at best, only qualifies for intervention as a producer of an externality - and this warrants mere regulations and not nationalization. Furthermore, tarriffs on our auto-markets will make the global auto market less competitive and more expensive, set back trade relationships that took years to develop, and pose serious risks to diplomatic relationships with other auto-producing nations.
Now there is one argument in support of the bailout with some validity: that there is some value to preventing further unemployment during the worst recession since the great depression. This argument may have some merit. Unemployment in the United States is bound reach over 15% in some parts of the country over the next year. Despite the fact that this recession is not a typical recession, it is important to know that recessions are necessary. They restore inflation to normal levels, they force firms with bad business models out of the market, they force firms with good business models to evolve to become even more efficient, and they clear the economy of wasteful practices. This recession is severe - to the point where government aid approaches justification on humanitarian grounds, but we must weigh the prinicpal that bad firms must fail with these humanitarian instincts. It would probably be more efficient to take that bailout money to use to expand unemployment benefits than to give it to firms that are doomed to fail anyway.
Finally, the cliche "main street vs. wall st." debate should be addressed. The world must have a functioning financial system. A systemic failure in the financial system is an apocalyptic event. Without a financial system, well - you get it - everything stops - everything. The world can live with a few less auto companies.
This recession will last at least two years - it sure would suck to get out of it, after having bailed out Detroit (probably multiple times) that we are sent right back into another when they finally do fail.
Yes, as an environmentalist and a liberal I am angry at Detroit for "killing the electric car", ignoring market signals for more fuel efficient cars, and mass-producing the abominable hummer; but these are the wrong reasons to oppose the bailout
Unless Detroit does something to drastically reduce its competitive disadvantage of labor, it will never be able to compete in a global society and it will fail. In order to make the bailout work, it will require nationalization and subsidization at the taxpayers expense or hefty and costly trade protections on our auto markets. Now, I am all for government intervention in markets to provide public goods. But Detroit, at best, only qualifies for intervention as a producer of an externality - and this warrants mere regulations and not nationalization. Furthermore, tarriffs on our auto-markets will make the global auto market less competitive and more expensive, set back trade relationships that took years to develop, and pose serious risks to diplomatic relationships with other auto-producing nations.
Now there is one argument in support of the bailout with some validity: that there is some value to preventing further unemployment during the worst recession since the great depression. This argument may have some merit. Unemployment in the United States is bound reach over 15% in some parts of the country over the next year. Despite the fact that this recession is not a typical recession, it is important to know that recessions are necessary. They restore inflation to normal levels, they force firms with bad business models out of the market, they force firms with good business models to evolve to become even more efficient, and they clear the economy of wasteful practices. This recession is severe - to the point where government aid approaches justification on humanitarian grounds, but we must weigh the prinicpal that bad firms must fail with these humanitarian instincts. It would probably be more efficient to take that bailout money to use to expand unemployment benefits than to give it to firms that are doomed to fail anyway.
Finally, the cliche "main street vs. wall st." debate should be addressed. The world must have a functioning financial system. A systemic failure in the financial system is an apocalyptic event. Without a financial system, well - you get it - everything stops - everything. The world can live with a few less auto companies.
This recession will last at least two years - it sure would suck to get out of it, after having bailed out Detroit (probably multiple times) that we are sent right back into another when they finally do fail.
