The Hummers Must Die

After the government had set an example of its commitment to strengthen the economy by committing $700 billion dollars to rescue the financial industry, it is only fair that it must consider providing aid to other industries that are performing poorly, especially when a high social cost is involved. So, it is to no one’s surprise that Congress is debating on the bailout of the Big Three, AKA the American auto industry. The house speaker, Nancy Pelosi had already voiced her support for the bailout. And the democrats are eager to be the heroes that will save the city of Detroit. For once, filibuster might actually prevent the government from allocating taxpayers’ money into inefficiently means under the misguided notion that this is for the welfare of the taxpayers themselves.

For a country that holds firmly onto the principle of free market economy, government bailouts can only be justified when a significant social cost is involved if particular industries or firms were to fail. TARP with its $700 billion safety net was established to save the overall economy from an ugly depression, which would in turn negatively affect everyone. The effectiveness of a bailout should not be measured by whether a particular firm or industry was able weather the storm but by how it prevented people from losing wealth, jobs and confidence.

How effective would the bailout of the Big Three be in terms of helping the average Americans who are directly threatened by the evaporation of these companies? Despite all the brilliant minds and economics Ph.D.s in this country, no one can deliver a definite answer. They are much more inclined to measure the cost of letting these companies fail. But instead of saving the people through these firms, why can’t the government just reach out directly to the people?

Let’s elaborate further on this idea. Since the government is willing to put up some serious cash to bailout the automakers so they can keep their employees employed. Why can’t the government let these firms wobble (perhaps fail) and set aside some of the bailout money and be prepared to issue unemployment benefits. The sustainability of this approach is reprehensible, which is why this is only part 1 of a two parts solution. Part 2 prescribes that the government needs to start on some projects related to infrastructure maintenance. Most highways in the U.S. were built by President Eisenhower. According to a recent study by the American Society of Civil Engineers (ASCE), 40% of the roads in America need seriously maintenance. It’s not difficult to see that in order to sell cars, functional roads have to exist for the cars to run on. If the government can manage to bring on these projects, the blue-collar workers that were laid off as a result of the auto industry’s failure will be reabsorbed into the workforce. Viola! Problems of massive unemployment solved.

Some people will probably pounce on the notion of increased welfare and the New Deal-style expansion in government’s role in the labor market because of obvious socialist dispositions. However, issuing unemployment checks and maintaining public infrastructure is no more socialistic than nationalizing major industries. Since some recourse in the socialist nature must be undertaken, why not maximize the efficiency of it?

Another argument that supports the bailout is the issue of confidence. Letting the most well known companies fail can send a hard message to the general public, which might incite more panic and sink confidence further. If it is the confidence that the government is trying to establish by saving the automakers, the response to this is simple: It’s not worth it. Taking billions of dollars from taxpayers to buy confidence? In other words, taxpayers are paying to establish their own confidence in the economy. The notion is simply absurd. Plus, confidence is not something that can be bought by money.

True, GM, Ford and Chrysler were the synonymous with many things that America stood for, efficiency, power and prosperity. But the operative word here is “were”. What GM, Ford and Chrysler are now and have been for quite some time are not exactly what Americans associate themselves with. As a nation, we pride ourselves for the productivity and efficiency of our economy. The government, along with Americans must ask themselves, do we want to keep these inefficient, arguably corrupt and prodigal companies as emblems of who we are and what we are capable of? Maybe it is the time for them to go. And this is not a permanent destruction to American auto industry. A new wave of firms that are well adapted to the new rules of the automobile industry will emerge over time. Americans are known for their innovation-driven qualities. All will be well again.

Sure, Wagoner, Mulally and Nardelli might lose their jet privilege but they can always drive Hummers down the road. After all, that’s the American way.

-Kat