Big Three Auto Makers Must Have Free Markets to Survive : No BailOuts!

I believe it is the correct solution to allow the big three automakers to fail if need be. It doesn't make sense to prop up a company that doesn't produce a product that is competitive in a free market. It has always worked this way and now is not a time to change horses in the middle of the stream when we need the system to work it's magic.

The real stumbling block, of course, is the government. Our government doesn't see this as a free market situation but one of political opportunity. Not only will the new government get control of a million workers by supporting the union in this crisis, and this is what the bailout is really all about, supporting a liberal voting base, but they will get to control the companies by demanding what kind of product they build as well. That is, one that matches their agenda, not one that the people want.

I know, it's hard to believe, but here is congress, a body of people that have no clue what it takes to run a company or what competition is as they are a closed society of ideologues and malcontents, dictating rules about markets. Congress has no idea what they are doing and, for the most part, never have.

They are, for the most part, a worthless organization of self-serving, power driven, money grabbing little tyrants. They don't represent the people of this country, at least not me and many others as well. I find it extremely difficult to have these thoughts about my
American government - it's like I'm living out a life from a novel about old Europe before the second world war.

Keep the faith - always look ahead but study the past.


Bankruptcy Doesn't Equal Death
The auto industry could use the process to get competitive.
By DON BOUDREAUX
http://online.wsj.com/search/search_center.html?KEYWORDS=DON+BOUDREAUX&ARTICLESEARCHQUERY_PARSER=bylineAND

The spectacle of corporate magnates from Detroit pleading to be on Uncle Sam's dole is a sordid one. So why aren't more Americans appalled? One reason is widespread misunderstanding -- much of it sowed by these auto makers -- about the size of their firms. The Big Three, we are told, are "too big to be allowed to fail."

This myth begins with the idea that GM, Ford and Chrysler are so huge that if they go belly-up, the livelihoods of a disproportionately large number of workers and suppliers would be affected. At once, the market for their services and products would close. Therefore, the argument concludes, government must prevent any such failures.

Nonsense.

Bankruptcy doesn't make assets -- such as factories, machines, contractual options to buy raw materials, workers' skills -- disappear. If markets still exist for products produced by these firms, Chapter 11 is the best way to discover this. Some workers might lose their jobs and some suppliers might lose their markets, but there would be no industry-wide collapse of the sort portrayed by the bailout's cheerleaders.

But what if refusal to bail out these firms results in their complete failure? Even then -- especially then -- the case for a bailout crashes. Really big firms such as GM, Ford and Chrysler are really big users of productive inputs, like rubber and steel. Almost all of these inputs have alternative uses and could be used by other firms or in other industries.

A government bailout of the Big Three keeps huge amounts of productive inputs in firms that can't use them efficiently. Forcing taxpayers to subsidize the continued employment of gargantuan quantities of raw materials, labor and capital goods in unproductive pursuits is a recipe for economic stagnation.

The popular and politically convenient myth has matters backwards: The bigger the unprofitable firm, the more vital it is that it be allowed to fail.

As it happens, I doubt that GM, Ford and Chrysler will all stop operating without a bailout. Firms that together produce close to half of all new cars and trucks sold and leased in the U.S. each year are unlikely to find the market for their products suddenly too small to justify continued operations. (And if they do, what would this development say about the quality of those firms' products and about the efficiency of their operations?)

Restructuring under Chapter 11 will oblige Detroit's Big Three to shrink, and perhaps even to merge together or with other automakers. This will unquestionably cause hardships to some workers and suppliers, but hardships no different than those suffered routinely by workers and suppliers in other industries whenever economic change reduces consumer demands for some products.

If Washington gives no special subsidies to workers and suppliers outside of the auto industry, why treat GM, Ford and Chrysler differently? Are their workers or owners more worthy? Not at all. The jobs and good pay that they've enjoyed were made possible by the very economic openness that now requires significant restructuring of these three firms. Their shareholders, workers and suppliers have no moral or economic claim on special treatment from government.

It is precisely because the Big Three differ in no essential way from America's other firms that bailing them out runs a real risk of cascading into a march on Washington by countless firms unable to see why they are less entitled to taxpayer funds.

What will President-elect Barack Obama tell these other firms when they come begging? If he says no, he'll be seen as having played favorites with three firms that deserved no such special treatment. If he says yes, he gives private industry a blank check drawn on the American economy. To imagine that firms will not draw on that account too often, too greedily, and without real justification is a dangerous fantasy.

*Mr. Boudreaux is chairman of the George Mason University department of economics.*