There are two separate and distinct debates going on over the automotive bailout. Being able to distinguish them might help you choose your stance.
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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?
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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:
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Taxes.
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Borrow from other countries.
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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.
Tags: Automotive, bailout, Liberty Links
Here’s my take on it. The big 3 CEO’s flew in on private jets to ask for funding. all were asked if they flew commercial (none did) and all were asked if they’d sell their planes if they had to save their business (again none would).. So, from that I take, as long as they can keep their deep pockets and the Gov’t can bail them out, then they are happy.
As far as I’m concerned the company should be required to liquidate their assets in order to start the ball in motion, if they refuse, then let them hang themselves.
Also, I think the unions should be heavily investigated. As the union leaders are being payed large amounts while their consituant union employees dangle in the wind..
If a company CEO is not willing to give up everything to keep his business, he has no right to expect me to help him out. (which I’d be doing as my taxes would be increased)
Perhaps, I’m older and jaded, as I’ve lived through the recession of the 80’s and again am living through another one, and in each case, Wealthy or poor are forced to “save” these billion dollar earners.. What happens when these men get their necks saved? They go right back to taking care of themselves and don’t offer anything back to the little ones that saved them.
Perhaps if we required them to filter a percentage of their profits back to the govt which could them return it to those that are in need (those below the poverty line.. which amazingly enough is considered 17k a year.. For 17k a year, I couldn’t pay my mortgage, let alone any bills, food, clothing or gas etc…. personally, I’d consider mid 20k to be the poverty line, but I don’t get to pick that..) Or require the big money makers who receive grants/loans to take an active interest in restoring the squallers that many people are forced to live in due to having little or no money.
One of these days, even the free countries will realize that the poorest in our country are just as important as the wealthy..
http://www.abcnews.go.com/Blotter/WallStreet/story?id=6285739&page=1
here’s a link to the story about the CEO’s…
Seth Godin has this to say:
http://sethgodin.typepad.com/seths_blog/2008/11/what-to-do-abou.html
HT: Jeff Harmon
Hmm, I wonder what would happen if there were actually companies competing to redesign the overall engine of the car..Combine new companies with new technology, hydrogen, electric, etc and I am sure we could push the technological envelope past what the big 3 have managed to undo in the past 15 years..
It’s amazing that in the early 90’s they were working on cars that could get 72 MPG and that was abandoned in that late 90’s.. Why?!?
It’s amazing that in the early 90’s they were working on cars that could get 72 MPG and that was abandoned in that late 90’s.. Why?!?
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Because no one was buying them and they were losing millions of dollars a year!! Back then people wanted bigger cars not more fuel efficient ones. So all of the money and research was going into what the American people wanted. GM is designing the Volt that they are planning to make no money on that will get over 100mpg (depending on how much and often you go over the 40 mile limit). This is partially the American peoples fault, partially the unions fault, partially the economy, and partially the Big 3s fault. All of the automotive manufacturers are doing poorly this year, this is just to save American Companies and American Jobs.