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Blog

    Detroit 3 Bailout Update

    12/10/2008

    For anyone interested, here are the final vote counts from last night.  There was an unsurprisingly geographic pattern to the conservatives (who otherwise claim they believe in fiscal responsibility, except when it affects them) who voted to bailout the Detroit 3.

    Even before the bailout got to the floor, however, GM's vice-chair Bob Lutz was already beginning to say the bailout wouldn't work (h/t RedState).  If Americans aren't so keen on letting go of their large cars now that gas prices are finally going down, will an Oil Bailout be far behind with inflated price supports that would force us to buy the new "green" cars?  These days, I think it's more the fact that people don't want to spend money on any new car, not a matter of gas guzzler vs. hybrid choices.

    Carpe Diem pointed me toward this great comparison that illustrates what government interference will do to the so-called "American" auto industry.  What if FDR had bailed out the piano industry?

    Let's say that FDR had initiated a bailout of the piano industry and then even taken it over and nationalized it. The same firms would have made the same pianos for decades and decades. But that wouldn't have stopped the Japanese industry from taking off in the 1960s and '70s. Americans would have far preferred them because they would have been cheaper. American pianos, because they would be state owned, would fall in quality, lower and lower to the point that they would become like a Soviet car in the 1960s. Of course you could set up tariff barriers. That would have forced American pianos on us. Except for one thing: demand would still have collapsed. The pianos still have to have a market. But let's say you find a workaround for that problem by requiring everyone to own a piano. You still can't make people play them and value them.

    The entire story is worth a read.

    And here, reprinted at the American Spectator blog, is the indomitable Milton Friedman on the 1979 Chrysler bailout, a story that we aren't hearing enough about.  Chrysler has been given a second chance before.  They didn't learn their lesson then, and probably won't now because they haven't been forced to fail and reorganize.  It's not as though it's a secret that more bailouts will be coming after this one - and there's no telling when they'll stop.  But apart from the fact that the bailouts truly aren't in the best interest of the Detroit 3, Friedman explains the unintended consequences that extend to the rest of the economy and to the many who are looking for jobs even now.

    Bailing out Chrysler will not change the total amount of capital available to the economy. But it will divert capital to Chrysler from other more productive uses.

    Bailing out Chrysler would simply preserve unproductive jobs at the expense of productive jobs. However, the people who would be denied jobs by a Chrysler bailout do not even know who they are, so they cannot speak out to counter the self-serving claims of the firm's present management.

    The private enterprise economic system is often described as a profit system. That is a misnomer. It is a profit and loss system. If anything, the loss part is even more vital than the profit part. That is where it differs most from a government-controlled system. A private enterprise that fails to use its resources effectively loses money and is forced to change its ways. A government enterprise that fails to use its resources effectively is in a very different position.

    Now that even non-profits are starting to wonder where their bailout is, the WSJ reports that the U.S. will indeed bailout Christmas.  But like all the bailouts so far, there's no end in sight.  According to the article, Easter and Valentine's could be next.