The Cost of My Economic Righteousness

I am very against the idea of the government giving money to car companies, AKA "Bailing Out" any of the three major automakers in the U.S. - GM, Ford and Chrysler.

This is not the real point of this post, and hopefully most 4ECon readin' types already agree with me, but I'll explain why before I go on to brighter subjects:

(...In numbered list form, of course...)

1. Taxpayers should not pay for companies to sell uncompetitive, unnecessary goods.

There, that's it.

What? You want really long explanation? Shucks:

Imagine the U.S. government decided to give a typewriter company a couple billion dollars to make sure they didn't go out of business. Almost everybody is buying computers instead of typewriters, so the company and its many employees would surely be doomed if the government didn't bail them out with a lot of cash. Of course, the government can't let all those jobs disappear, so they give a bunch of taxpayer money to the employers, Typewriter Co. So now Typewriter Co. and its employees continue to sell typewriters for around the same cost as before, but now the taxpayers (computer owners, largely) are basically purchasing typewriters for other people who want them; Other people, that is, who don't want typewriters enough to pay a higher, company-sustaining price for them. But hey, at least all the Typewriter Co. employees have jobs, right?

The only difference between this example and the Big 3 Bailout is that car companies A) employ many, many people and B) have a remote possibility of making a product everyone might someday want.

First off, B) is a not legitimate reason to save a company or even an industry. People seem to think that auto companies create some unique good that our lives would be worse without. This isn't true. Even if it were, American auto companies aren't the ones creating the unique goods... Put simply, if GM, Ford or Chrysler are employing resources (people, that is) that might one day create something that people really want, but it requires the framework of a massive corporation to bring this product to market, these resources will be put to better use by companies with more experience in selling innovation to the public, e.g. Honda, Toyota, et al.

But what should we do about A) all the jobs that would be lost if there were no bailout? Well, that's a problem, yes, but it doesn't mean that we should give money to these employees - via their employers - to make stuff (e.g. Chevy Tahoes) that nobody really wants to buy, does it? Following this logic, why not just pay other companies to hire these employees to do [somewhat] different jobs altogether? We could just as easily ditch the bailout, then institute a tax credit for other companies hiring former auto workers, and a little unemployment insurance boost in the meantime. This would be government-subsidized job training for employees from The Old Economy. This is not the worst idea in the world...


2. Chapter 11 Bankruptcy exists.

This is why you shouldn't give a few billion dollars to GM in the form of a direct bailout. Without a bailout, what happens? That's right: Another kind of bailout called Chapter 11. In bankruptcy reorganization, a company must take a good, honest look at whether it is a necessary entity or not.

If the company is unnecessary, useless, stupid, a waste of time, never learned right from wrong, from the gutter, livin' on a prayer, taking up space, etcetera, then its assets will be sold off and that'll be that. No more company, no more employed GM auto workers. In this case, the government should (and would) offer hefty unemployment benefits (at the very, very least) to former employees.

However, if the company is somewhat useful - if it'll make more money for its creditors by staying in business than by selling off its assets, then it'll just reorganize. After spending a few protected years (or months...?) trying to figure out how best to emerge from bankruptcy into the glorious world of profitability, it will emerge, or it will give up. Either way. Does it matter? I mean, whatever the answer is - give up or become profitable - a company will be better off than it was in the money-losin' years leading up to its bankruptcy, right?

So by all means, allow GM, Ford and Chrysler to file for Chapter 11. Sure, they might have fewer employees in the short term, but in the long term they will in all likelihood employ far more people at far more competitive (read: lower) rates. In other words, more jobs, more sustainable company. Also, fewer billions of dollars spent on bailouts this year, and in two or three years when GM & Friends need a bigger bailout. Bonus. Good stuff.

So there you go. Two reasons to be against an auto company bailout that, when combined, form an awesome powerhouse of "There is Absolutely Nothing But Negatives in an Auto Company Bailout."

...If you think there is some benefit to bailing out the automakers that doesn't specifically involve a higher opportunity cost, then you're missing something, or possibly simply weighting your variables like a noob.

...

But this was not the point of this post. The real point was supposed to be about trying to figure out the cost of making me feel better about an auto company bailout, should it actually happen. That, dear 4ECon browsing types, I will cover in my next post.

For now, I've got to go jam some foodstuffs into my mouthhole.