The rush to lend billions to US car makers, especially General Motors, is being done in the usual fashion: Wild claims of imminent disaster, very little skepticism or hard questioning by the media.
GM has put a video on YouTube summarizing the case, claiming a 4% drop in GDP, millions out of work, decimated tax revenues to the feds, and a loss of large industrial capacity that would cripple US national security (because GM and Ford make military tanks, for example).
Let's back up the panic bus for a minute here.
First, the argument is that *the entire US auto making industry* would collapse -- GM, Ford, and Chrysler. But think about it for a minute: If GM went bankrupt and *stopped making cars,* would that not be GOOD for Ford and Chrysler? A competitor -- who holds half the market -- has just gone away? Won't Ford and Chrysler start selling MORE CARS?
If you wonder, consider this thought experiment: Imagine that Ford and Chrysler are the only two US carmakers, and somebody comes along and proposes, at his critical juncture, to launch a gigantic new card company, one they'll call GM. Imagine the reaction: People would point out that huge new competition in such hard times would devastate Ford and Chrysler!
Well then: Wouldn't GM going away HELP Ford and Chrysler?
Of course it would. Not immediately, because there would be all those stranded GM cars in inventory, thrown on the market at firesale prices. But once that several-months inventory goes away, presumably Ford sales would jump.
Consider this: If Ford sales would *not* jump at that point -- that means Ford can't sell cars even when their chief competitor evaporate! So what would the point of "loaning" them billions of taxpayer dollars? They can't *possibly* recover! And can't possible repay the "loan." Could they!
Companies going out of business is a regular occurrence, even in a healthy economy. In fact, the risk and the fact of bankruptcy contributes to the health of a free economy. The worst thing for the economies of socialist/dirigiste/communist countries has always been the government-owned businesses that cannot fail, no matter what. They eat up resources; they produce inferior products nobody wants; they create a sense of entitlement by everyone in those companies; they encourage the worst tendencies among the populace towards "rent seeking," which is seeking success from the government rather than from the marketplace.
So let's ask the questions nobody so far, nobody in the mainstream media, seems to be asking.
* What happens--really--if GM declares bankruptcy?
* If GM reorganizes under bankruptcy law, they recast their relations with their trade unions and can seek to lower their oppressive costs. This of course alarms the unions, which explains some of the panic language all around-- naturally, the unions don't want to give up their rich contracts, contracts which every student of the U.S. auto industry considers the main cause of the distress of the car business in tough economic times.
* So we're lending billions to the car industry to protect the car unions?
* Doesn't this remind you of government programs that are ever in financial crisis and can never, ever cut costs, but must always, always get more money every year? Hmmm.* Is that a good thing?
* Let's seriously consider what happens if GM goes Chapter 7 bankruptcy and actually goes out of business. (This is the scenario the auto industry and its unions are fearmongering.)
* Won't this help Ford and Chrysler? Might it not actually save them?
* Won't it also help the Japanese car companies, all of whom manufacture in the U.S. almost all the cars they sell here?
* Won't that create new job opportunities for the laid-off workers of GM?
* Won't getting rid of the oppressive, unaffordable, gold-plated, Senator-style retirement and health packages of GM be good for the industry? Currently, it can only afford these contracts during those brief times when the economy is in boom times.
* Wouldn't the bankruptcy of GM be likely to *save* Ford and Chrysler from bankruptcy?
* Will hundreds of thousands have to leave Michigan and find work elsewhere, in other industries? Won't the bankruptcy release tied-up capital and human resources for the rest of the economy?
Once we've taken the path, as we already have in the financial and banking sectors, of "too big to fail" bullshit, where does it end? Where is the line? Why would there be a line anywhere? Why would it end anywhere? Why wouldn't every business be encouraged by this to get as big as possible so as to be able to have that government guarantee for any future foolish behavior?
There are lots of questions. The politicians don't ask them because they like campaign contributions from industry and union lobbyists, and they don't like having union opposition in the next election. The press doesn't ask them because they get all their quotes from the politicians and from the interested parties. There are no more objective third-party commentators.
Except Reason Magazine. I await their next major feature dealing with all this in an honest and hardnosed way.
We are all doomed.
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