The View From 1776
Sunday, November 09, 2008
The Auto Bailout
Classic socialism in action.
Socialism is characterized by ignoring the free marketplace and empowering intellectual planners to control the economy with a cocoon of regulations and directives. In Europe (and today in China) economically moribund companies are designated national champions and kept alive at taxpayer expense, even when they can’t compete in the free market without government subsidies.
This flows from socialist governments’ belief that full employment can be maintained only by massive deficit spending. J. M. Keynes, the economics guru of the the New Deal era, opined that it would be suitable government policy to hire men to dig holes one day, fill them up the next day, then re-dig them and refill them ad infinitum.
In contrast in a free marketplace economy, consumers, not government planners, are the final arbiters of which products and which companies survive and prosper. Despite the endlessly repeated liberal-progressive-socialist dogma, no corporation is able to trick consumers, let alone to force them, to buy its products by use of advertising.
If that were possible, GM, Ford, and Chrysler would not be in trouble. They would simply increase their advertising budgets and compel consumers to buy their vehicles.
The simple fact is that automakers’ rearguard efforts to offset labor-union-inflated production costs have been unsuccessful. Their production economies, coupled with the anti-company antagonism and shoddy workmanship, even deliberate sabotage, by their unionized workers, have resulted in over-priced products of inferior quality. Consumers have recognized this and turned their preferences to the products of foreign manufacturers manufactured in the United States by non-unionized, reasonably priced labor.
Bailing Detroit automakers out of their financial dilemma, as well as Federal support of unions’ monopolistic extortions, thus are classic socialistic management of the economy. A bailout will not cure the problem. It will only exacerbate matters and make ultimate resolution more expensive and disastrous for all concerned.
Everyone has to regret the distress that will befall the thousands of workers and suppliers in the auto industry and related companies if the Big Three go under financially. Remember, however, the root cause of this distress is President Franklin Roosevelt’s New Deal Wagner Act that enabled communistic and socialistic unions to hamstring the auto industry.
Note also that the incoming Obama administration has signaled its support for measures that will tighten the unions’ python grip on American industry. Labor unions expect a payoff for their having massively supported, as usual, the Democrat/Socialist Party with campaign contributions and get-out-the-vote free labor.
Then, as Lenin famously asked, what is to be done? The solution is this case, however, is not a radical turn to socialism.
However painful, the cleanest and most effective approach is to allow the Big Three to file for bankruptcy. That might open the road to washing out all the crippling union contracts, creating new and economically viable corporations that could re-employ many of their former employees at competitive labor rates.
Stockholders, of course, would likely lose their investment in the bankruptcy workout. But that too is the nature of a free-market economy. Investors take a risk in expectation of a profit. They can’t always be successful, particularly when impending doom has been on the horizon as long as has the Big Three situation.
Were the bankruptcy courts to approve such a settlement, the restructured, slimmed-down corporations emerging from bankruptcy would have a far better chance to survive against foreign competition. And their domestic suppliers would be in a sounder position, no longer squeezed by wafer-thin, cram-down prices and attenuated payment schedules.