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Let's Not Cut Off Our Face To Spite Our Face

Saturday, December 06, 2008
Anyone who is policy maker opposed to preventing the liquidation of the U.S. auto industry is quite simply out of their minds. I can understand why parts of the general public might be skeptical, but those who are supposed to be informed about political economy should know better. I'm relieved that we appear close to an agreement, but I've been outraged that there was every any doubt. For me, those who opposed any assistance on principle (as opposed to objecting to specific types of support) should no longer be taken seriously on matters of significant import on economic matters. They've demonstrated either gross negligence and irresponsibility. Predictably most of them have been Republicans.

Why am I being so belligerent on this issue? Well, because I can't think of a rational case that can be made against helping the auto industry survive, while I can think of a whole host of reasons to do it. The economy appears in free-fall (which is one of the causes of Detroit's problems), and the collapse of the auto industry would lead to millions - yes, millions - of additional job losses. The ripple effects would be truly horrifying, and could very well send us into a Depression (that's with a "D", not an "R"). The auto industry is one of the linchpins of the struggling U.S. manufacturing sector - a sector that desperately needs encouragement. Sacrificing it in the name of economic ideology would gravely undermine our industrial and (ultimately) strategic position. The only word I can think of describing the idea that we should let the Big 3 go under is "insane."

So what are the arguments opposed to the bailout. The first is that the auto industry made its mess and has to bear the consequences - that it's not the government's job to bail out the industry. Sorry, but the "moral hazard" argument went out the window when we started rescuing the financial sector. Second, it could be claimed that the auto industry has been in long-term decline for decades, and we should just let it go - more funds would be throwing money away. I can think of several responses to this. Many of Detroit's problems are not of its own making. Health care costs and perverse economic incentives (both partly due to government policies) have facilitated its current woes. In addition, the decline of something does not mean that it cannot revive, or that it has disappeared. Just because something isn't as good as it used to be doesn't mandate that you throw it out. I'm not getting a new battery for my Mac just because it doesn't hold energy as well, because I can still get some good use for it. Finally, this crisis can be viewed as opportunity. Detroit has come so close to death that now, with proper encouragement from those rescuing it, it can make the fundamental reforms necessary to regain its long-term viability.

If you can think of another good reason to abandon the U.S. auto sector, I'd love to hear it. In the mean time, putting together some sort of package just seems like a no-brainer. I'm glad that the Democrats in Congress appear to be coming around.
Posted by Arbitrista @ 8:52 AM
  • I guess I am out of my mind. I really think Chapter 11 is the way to go. But hey, I am just a former bankruptcy lawyer. I think some money should be granted, but I also think having the protection of the BK courst will allow the big three to re-work the contracts, particulary the union contracts. Myany corportations, even those linked to the auto indurstry have survived...and thrived under BK protection and assitance.

    I live in an area that relies heavily on the auto industry. I don't want to see it go under without a fight. I just think the Congress is not the right group to provide that assistance.

    By Blogger Seeking Solace, at 11:32 AM  
  • My understanding is that for various reasons the Big 3 are unlikely to able to resolve their problems with Chapter 11, and the more likely result would be liquidation. And we're not talking about just one of the Big 3 going under - we're talking about the entire auto industry.

    Also, I get very suspicious when I hear language like "re-work union contracts." A lot of people want to use this an opportunity to bust the UAW out of ideological reasons, when the UAW deserves at best on part of the blame for what has happened.

    By Blogger Arbitrista, at 3:45 PM  
  • Indeed. I don't understand the double standard here. It's considered down-right un-fucking-American to question the moral validity of CEOs (even piss poor CEOs in the financial sector) making loads of money, but all of a sudden we get huffy about a person who busts his or her ass in a sweltering factory making a living wage?

    Management is at fault. They design, engineer, and market the cars, they balance the books, they buy the private jets. UAW contracts that strengthen local and state economies and fuel small business aren't the problem, even though they have made concessions over the last few years that could fill the back of an F-150.

    By Blogger AnthonyS, at 2:36 PM  
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