A couple days ago we told you about the latest attempt to bail out the Detroit Three. Perhaps Richard Beales of BreakingViews.com (via the WSJ) also reads our blog, as he published a great piece that reiterated our major points.
The three big U.S. car makers are angling for government help to the
tune of $50 billion. It is understandable: They are struggling, and
policy makers have thrown money at financial sector basket cases. But
Chrysler, Ford Motor and General Motors shouldn’t get handouts.
First, a bailout promotes pathetic leadership. Leadership that didn’t have the vision to see what was going to happen in six months, let alone a decade. But some companies like Toyota did.
Aside from the cost to taxpayers, a government safety net for companies discourages prudent management. Moreover, the U.S. auto companies’ problems are largely of their own making. They didn’t invest enough in smaller, more-efficient vehicles when they could have. Now that higher energy costs have finally caught up with them, it is unconvincing to say the government should help them meet the tougher fuel-economy regulations they have long opposed.
Second, a bailout completely wipes out the "trade barrier" argument that U.S. companies are competing with foreign companies that are subsidized by their governments… because the same would be happening here.
Financial support for the U.S. companies would undermine longstanding American criticism of companies that subsidize "national champions." It also would set a precedent for other industries to raid taxpayers’ wallets.
Of course that’s a white elephant anyway, as the U.S. regularly subsidizes the cost of farm goods, eventually making them more expensive to everyone while creating massive overproduction… until they then subsidize the farmers again to keep land unused. A double whammy of waste. And don’t get me started on the ethanol subsidies that create artificial demand and raise prices of basic foodstuffs for the people that can least afford it.
If the politicos are going to once again be suckered into giving a bailout compliments of the taxpayer, perhaps we should take a page from our friends in the land of the escargot.
In an election season, the Detroit car makers might get lucky. The possibility of such industrial favoritism seems more characteristically French than American. The French, however, might well force the three to merge, throw out two sets of executives and pay the remaining group a lot less. That probably isn’t quite what Detroit’s bosses have in mind.
Not at all, and I don’t favor that either. Let the pain resulting from pathetic leadership create new leadership with new innovative ideas.