Let ’em fail

| Staff Columnist

For the few remaining capitalists in Washington, watching the American auto manufacturers line up to plunge their heads into the public trough must be too much to bear. Since arguments acknowledging the unconstitutionality and immorality of taking from one group in order to subsidize the poor choices of another group do not go far in Congress, champions of the free market must focus their efforts on pointing out the imprudence of supporting a failing firm with public money. It is starting to seem like no one wants to lose in America. Ever since the idea of being “too big to fail” was introduced by the banking industry, there are few firms that don’t think they are above defeat. I believe quite firmly that it is high time for American citizens to stand strong against any further attempts by corporations to socialize their losses.

The very idea of a bailout is based on the flawed premise that government possesses a magic power to prevent loss. Government (especially our current one) has nothing and produces nothing. Every action it takes must be funded through taxation, borrowing or (their latest fetish) printing. Each of these actions has consequences that are just as bad as the failure they are trying to prevent. When the government taxes to save a failing industry, they are taking money from productive firms in order to prop up unproductive ones. Consequently, workers in successful industries must lose their jobs so that people in Detroit can keep theirs. When the government borrows to rescue a failing firm, credit is denied to potentially successful entrepreneurs in order to protect demonstrably bad ones. Finally, when the government prints money to pay for a bailout, they devalue the American currency held by everyone around the world. This devaluation is nothing more than a regressive tax, because it is felt most by the poor in the form of higher prices. Government should never be regarded as problem-solver, but only as a problem re-distributer.

If the Big Three had a convincing plan for future success, they would not need to run to Washington to beg for money. Companies with good plans for the future need only to visit Wall Street, where there are plenty of investors willing to voluntarily contribute in order to enjoy the future gains. General Motors, Ford and Chrysler, however, do not have good plans for the future. The only plan they do have is to continue the devastating union contracts that have been bankrupting these companies for years. Because of these union contracts and the regulations that exist in northern states, labor for the Big Three costs $70 an hour. In the south, Toyota and BMW only pay $48 an hour in total cost for their labor. Given the difference in cost, it is hardly surprising that the northern manufacturers can’t compete.

At this point, the only solution for GM, Chrysler and most likely Ford is bankruptcy. Bankruptcy is the way that bad debt is liquidated in a free market system. When a company goes bankrupt, its factories and equipment don’t sink into the earth. Bankruptcy allows companies that can competently manage an automobile manufacturing firm to buy up the old firm’s previously-owned capital. Once bankruptcy occurs, union contracts can be renegotiated, and a sustainable plan for the future can be put in place.

Preventing bankruptcy, however, ensures that the same problems will continue. One can bet one’s next economic stimulus check that if GM is rescued, they will be back, hat in hand, asking for more, faster than you can say “bailout!” Those who claim that our entire economy will be destroyed by the loss of three firms need a reality check. That sort of fearmongering is reminiscent of the threats decried by liberals in the run up to the Iraq war. The American economy is not dependent on Detroit. While I do not deny that there will be rough times ahead, liquidation of the bad debt is the quickest path back to growth.

I can’t say that I was ever more pleased with the inefficiency of government than when I saw that the bailout failed in the Senate. Yet if I learned anything from the banking debacle, it was to never doubt the likelihood of Congress making a bad bill worse, returning it to the floor and scoring more votes. An even more frightening prospect was suggested by Nancy Pelosi, who, after the failure, called on President Bush and his sugar-daddy Bernanke to start doling out the cash to the auto companies despite the lack of approval from Congress. In a world where failed corporations and bloated unions seem to have a stranglehold on some of our leading politicians, it is imperative for each hard-working American to stand up against the Washington wealth redistributers. Now is the time to remember the free market tenets that brought our country to greatness and to stand firm in our belief that American innovation can overcome any loss.