Do the executives of the Big Three automobile manufacturers think we're stupid?
"The societal costs [of the loss of General Motors, Ford or Chrysler]
would be catastrophic -- three million jobs lost within the first
year," said GM chief Rick Wagoner during last week's congressional
hearing.
Fortunately, Congress didn't fall for it -- yet. But next month or next
year is another story. President-elect Obama is sympathetic to a
bailout.
The auto heads tried to pin their problems on the general economic
decline. They also said their companies have gone far in working to
turn themselves around. "We have taken tough actions to cut costs, at
the same time investing billions in fuel-efficient vehicles and new
generations of advanced propulsion technologies," Wagoner wrote in The
Wall Street Journal.
If so, why would that make the companies deserving of a bailout? The
economic slowdown affects everyone. Why single out the carmakers?
And if GM and the others have done so much to raise productivity and
improve their products, they would attract private capital. Investors
are always looking for profitable ventures.
What Wagoner and his colleagues hope we'll overlook is Frederic
Bastiat's lesson: Government intervention must not be judged only by
the immediate and obvious consequences for the intended beneficiaries
but also by the unseen effects on the rest of society. If the
automakers get $25 billion from the capital markets because the federal
government guarantees the loans, other businesses won't be able to
borrow that money. Resources that go into making cars can't be used to
make something else.
Why should politicians decide who gets those resources? It's not as
though congressmen using government force are better than the
decentralized voluntary market at spotting the most promising
investments. Far from it. They will make their decisions on the basis
of political considerations, such as who gave them contributions or
might finance a get-out-the-vote drive in the next election.
Private investors, risking their own money, have an acute interest in
separating the economic wheat from the chaff. Their income depends on
finding ventures that would have the best prospects of pleasing
consumers. We already know that Detroit's automakers have failed that
test against Honda, Toyota, Nissan, Kia, Hyundai, BMW and Daimler.
"The future of the domestic auto business is critical to the health of
the U.S. economy," Wagoner writes. But why should we believe that?
Sure, America needs cars. But there is more than one way to "produce" a
car. You can produce it directly, or you can produce it indirectly by
making something else and trading it for a car. There's no shame in
producing cars indirectly.
Anyway, the Big Three are not the only carmakers in the United States.
Foreign automakers have factories in the United States that employ
113,000 American workers. Who cares if the cars have foreign names?
GM, Ford and Chrysler probably wouldn't even disappear without a
bailout. Bankruptcy would most likely mean reorganization under court
supervision, protection from creditors and revision of union contracts.
The companies would finally do what they should have done years ago:
shut down more plants, eliminate some dealerships and get rid of some
union rules. It would be a good thing. The companies would come out
leaner.
It's clear that Detroit would prefer to deal with congressmen than
bankruptcy judges. Having Congress tell auto companies how to make cars
and what to pay executives is offensive. But that's what will happen if
politicians put up loan guarantees. A bailout would be a reverse Robin
Hood story: robbing from the less wealthy to give to the more wealthy.
As Daniel Mitchell of the Cato Institute writes, "[T]he corporate
bureaucrats at the Big Three are among the very richest Americans. The
UAW bosses make extravagant salaries as well, and even regular union
workers make [more] than the average American." An economy in recession
needs to cleanse itself of bad investments born of years of policy
errors and managerial blunders. Keeping capital locked up in failing
companies will slow the recovery and extend the hardship longer than
necessary.
