December 13, 2008

The majority of the American people oppose bailing out the Bit Three automakers at a clip of 61 to 36, and it was thus perfectly sensible for Senate Republicans to reject the $14 billion “€œrescue”€ bill that was presented to them on Friday. The idea that the GOP should have attempted to buy the votes of Ohioans by giving their employers money expropriated from the rest of the nation is not a political stratagem I”€™d ever endorse. (Nor do I think it”€™d much work, as Barack Obama would undoubtedly reap whatever electoral rewards were to be had by propping up the Big Three for another few years.)

But, of course, none of this matters because Secretary Hank and his Goldman Sachs bureaucrats will be giving the Big Three some cash from the TARP“€”that is, funds allocated by Congress for another purposes altogether. Hank & Co. shouldn”€™t be able to get away with this, but they will.  

I actually don”€™t think American heavy industry would vanish forever if the Big Three were allowed to dissolve. The main reason others are so convinced of this, I think, is that the Big Three have been dying a slow, agonizing death for the past thirty years, shedding more and more jobs each season. With the Big Three in place, the trajectory is towards zero. But in the end, it’s the presence of these kinds of terminally sick companies that prevent dynamic new ones from arising. As Jim Rogers said yesterday, in a free market, the companies that make bad decisions”€”like making nice with the UAW and paying labor $75.86 an hour”€”should fail, and the competent people, who didn”€™t make such errors, should be allowed to come in, liquidate the bad aspects of the companies, salvage the good ones, and start again from a new, stronger base. What Washington is doing now is rewarding and subsidizing incompetence, constantly resuscitating companies that are no longer capable of regaining health. 

Moreover, this same point holds for the prospect of the government’s guaranteeing the Big Three loans, a seemingly more benign kind of bailout. If Washington is doing this, this means that private capital is unwilling to loan the Big Three anything under normal circumstances and only if the companies are backed by the government in the case of default. One must remember that there’s a limited amount of credit in the world, due to the fact that there’s a limited amount of savings in the world, the indispensable foundation for credit and loans. The government’s guaranteeing of anything to the Big Three means that the credit pie will be smaller and other companies won”€™t be able to get loans”€”companies that might actually prove to be viable, that might actually lead an economic revival in America. The question is not, Should we help out the Big Three? but instead, Who will not get funding due to the fact that Washington’s propping up unsound companies?     

I also don”€™t buy the argument that we need to prop up failing firms so that the government’s massive influx of liquidity can be, in the words of John Basil Utley, “€œeffective“€”€”i.e. so American’s will have something to buy once the banks are again able to loan them more money. But the fact is, Americans don”€™t need any more loans! And the government should not attempt to re-inflate the credit bubble that got us into to this whole mess. Americans have gone into massive debt paying for their new home, last year’s new car, and all kinds of consumption. Basta! They need to learn how to save again, build up capital, and not take on more debt, credit, and leverage.

With the coming collapse of the value of the dollar in the next few years, there will be some amazing opportunities for export-driven industrial production. These new companies will make small, highly efficient models, and employ workers that have no connection whatever with the UAW. The new firms will look a lot like Tata Motors, and nothing like General Motors.  


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