Governments intervene in markets all the time — and they should, in order to make markets more competitive; to solve problems of externalities (which are ubiquitous); to resolve difficulties caused by individuals’ shortsightedness, including the spurring of innovation; and to reduce transactions costs.
Where does the auto bailout fit in?
It certainly doesn’t make markets more competitive; instead it subsidizes American oligopolists. It certainly doesn’t spur innovation; while the provisions may talk about this, bailouts have proven to be a poor way of getting firms to innovate.
It doesn’t reduce transactions costs; Chapter 11 bankruptcy procedures exist for that purpose, and they do well at it. The only possible economic argument might be fear that a bankruptcy by G.M. might spook many other markets. What about a bankruptcy by Wal-Mart? It’s much bigger than G.M., so wouldn’t the spooking effect be bigger?
Let’s face it — the bailout is purely political, pushed by troglodyte companies and their unions of high-paid workers, and helped by their agents — elected representatives from the many states in which auto production occurs. Once again, as was true with the Chrysler bailout of the late 1970′s, the taxpayer will take a beating. To quote the old protest song, “When will they ever learn?”
and 
. You can also watch it on 
I remembered when TV’s died in the US. Boy, we are hurting in that department now.
Nice display of intellectual laziness.
No antibiotics for people whose hygiene is poor? Even if it might keep the rest of us from their contagion? Statrs to seem absurd, doesn’t it?
So, then, you were against the much bigger Wall Street Bailouts?
Talk about high-paid workers!
But this myth of high paid union workers is getting old. Fact is, the people who are against the auto bailout are from right to work states with large foreign owned auto plants.
There are many reasons to be against the bailouts, mostly starting in the board room. To blame the union workers, who have made plenty of concessions is disingenuous at best. At the very least, though, we should be consistent. If Wall Street deserves to bailed out, at much higher cost, then why does Detroit not?
I thought it was because now-a-days bancruptcy means certain liquification.
Brian, if I’m not mistaken, GM and Ford are both top 10 on the Fortune list, so I would say anything that large is a different case from, say, number 490 on the Fortune 500 list.
Similarly, I would say that ExxonMobil and Wal-Mart are also part of the category of companies that are ‘too big to fail’.
The proposed bailout is even worse than you characterized it, Dr Hamermesh. It’s not mere politics at work. It is, rather, bona fide, out-and-out, plain-to-see blackmail.
Why do I say that? Look at how it’s being presented by its own advocates: “Bail out the Big Three, or a million people will be out of work!” To me, that constitutes a threat, and cannot be called anything else. They’ve dismissed the option of bankruptcy out-of-hand, even though this sort of thing is EXACTLY what bankruptcy is designed to take care of. Rather than do that, they’re opting for extortion.
Having said that, this matter isn’t all that simple … other countries have already bolstered their own car companies. This means there is no worldwide level playing field on which the Big Three can operate; some of their competitors have gotten help.
So am I saying we should bail out the Big Three, in spite of their extortion attempt? I honestly don’t know. As you point out, the Big Three’s own practices, as well as the unions, have contributed to the problem. Just throwing money at them because other countries have thrown money at their own auto makers, will not help substantially. The business will have to change. But I’m not foolish enough to think that it’s government (aka “the Car Czar,” a catchy phrase but a silly notion!) which should do that.
That other countries’ governments have involved themselves means that ours most likely will have to play at least some role here … but just paying off the Big Three is not the best option. Rather, what’s required will be a subtle combination of less-drastic actions on the part of everyone concerned. I am not confident, though, that anyone involved … government, the companies, the unions, or even consumers … understand the problems enough to solve them, using such an approach.
GM is the 11th largest company in the world by revenue. Depending on how you look at it, you could argue that means it is the 11th most “economically impactful” company in the world. The ripple effect from the company going bankrupt would be enormous – an elimination of $300 billion worth of spending from the world (but primarily US) economy. Even if a cash infusion just delays the inevitable by another 5 years I say it’s worth it. We don’t need an “anti-stimulus” of that size at this point in time…
Daniel I think you are just thinking using classic Economic principles and since you are a micro economist i think you are ignoring a lot of other things. If times were normal I would have agreed that let these automakers fail. They should file chapter 11 and restructure. But this is just not the right time. Did you see latest unemployment report? Ford said it could survive without help but did you ever wonder why Ford would ask government to help one of its major competitors? Clusters !!. If GM goes down so would many of its suppliers. Bailout will not be the best use of money in normal times but these are not normal times. One thing that is not being considered with bailout which I think should seriously be considered is scrapping of UAW. There should be no UAW. But this probably wont happen for political reasons. There are too many stake holders. I just hope sanity prevails (that doesn’t happen very often in Washington though).