Benton Crane

There are two separate and distinct debates going on over the automotive bailout. Being able to distinguish them might help you choose your stance.

1. Is the automotive bailout (or any bailout) fundamentally sound? Will it accomplish what it is intended to? What will the unintended consequences be? Is it constitutionally okay?

2. Should the automotive industry receive funds already allocated for bailouts? Is it the best way to allocate the funds? Is Detroit more critical than other companies and industries lobbying for the money?

When broken down to its core principles, the first debate has a pretty simple answer. The second debate, however,seems to have no foundation off of which to draw a conclusion. Lets take a look at each in turn.

Debate 1

The bailout is intended to:

• Protect/create jobs.
• Save companies from failure.
• Stimulate the economy.

An important part of understanding the bailout is knowing where the money comes from. The government has three, and only three ways to raise money:

1. Taxes.

2. Borrow from other countries.

3. Print more money.

In any and all three cases, it’s the country’s citizens that pay the bill. The government produces nothing on its own.

Right now, without a bailout, I am free to spend my money on whichever car I choose, or no car at all. I happen to choose an old Toyota Camry because I am too broke to replace it. Meanwhile, my sister spends her money on a Suzuki and my dad on a Buick.

With the bailout all three of us, and every other working American, would be FORCED to give approximately $230 to Detroit (assuming a $25B bailout).

This money would certainly save the big three automakers from bankruptcy, at least for the time being. It would stimulate the economy in Detroit and wherever the cars and their parts are made. Many jobs in those same areas would be protected/created.

At what cost?

Every working American would have 230 fewer dollars to spend on cars, toys, food, clothes, or whatever else they might choose. This translates to job losses, small businesses forced under, and a drain on the overall economy. All of these effects will be very dispersed throughout the nation. These small, but numerous, events will rarely make the news; but when summed together the losses are, by the laws of economics*, greater than the gains in Detroit.

Further, this act of charity being forced on each citizen is a loss of economic liberty. The Constitution says nothing specific about bailouts but the preamble makes it clear that one of the Constitution’s purposes is to secure the blessings of liberty to ourselves and our posterity. Another of its purposes is to promote the general welfare. The bailout promotes Detroit’s welfare at the expense of the general welfare.

Debate 2

This takes everything we just discussed and tosses it out. Congress already passed a $700B bailout. In this debate we no longer care if it was right or wrong. The only question now is, whether or not Detroit should get in on the loot.

I’ll be blatantly honest. I don’t know. I don’t even have an opinion. I can’t find a single principle on which to judge. How do you compare the companies? Is it a question of size? Of need? Size and need? If you give to one, do you have to give to another?

I will say this, there is a VERY significant factor for which I have heard very little discussion. I hope someone is considering what will happens to all of Detroit’s competitors who are insourcing jobs to America? Take Toyota for instance, they employ 402,800 people here in America with an average salary of $63,538. What will happen to their willingness and ability to expand their American operations when they see the federal government stacking the deck against them? See the potential for a serious backfire?

Conclusion:

Yes, the bailout will save the domestic automotive industry from bankruptcy. It will save/create jobs within the big three auto manufacturers and their suppliers. It will stimulate the surrounding economies. All of this, however, come at the expense of other industries and American citizens. It degrades economic liberty and does not fit into the mission of the US Constitution.

When debating over funds that have already been allocated to bailouts, I don’t know how to decide if Detroit needs/deserves them more than other companies and industries.

Do you think Detroit should get a piece of the $700 billion?

*Note: For an in depth look into how this is so, I recommend the book “Economics in One Lesson” by Henry Hazlitt. It’s written to be understood and enjoyed even if you don’t have a background understanding of economics.

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