I do not believe that the Detroit Three should be bailed out, loaned money or allowed to operate under bankruptcy protection. A swift Chapter 7 bankruptcy liquidation is not only the best solution, it is also the only one.
First, the federal government is massively in debt, and because of other bailouts, further expanding our national debt. This expansion will only be met with new taxes either through inflation or the bayonet. In other words, the solution is taxes.
Second, even if the federal government was running a surplus or had no debt, which I believe is impossible for a government to achieve, it would still be impossible to save the Detroit Three. In 2006, when the market was flush with credit and the economy was “booming,” there were record auto sales. Even then, the Detroit Three were not making money. Why should other states be forced to pay for our mistakes? Let’s subsidize those who fail, and tax those who succeed.
Third, contrary to popular claims, 3 million jobs are not at stake. For one, workers at General Motors Corp. receive about $70 per hour in compensation, while other foreign auto manufacturers pay Americans an average of $40 per hour. This discrepancy is ultimately unimportant, that is unless the Detroit Three fail and other auto companies could employ millions more Americans. The machines and skilled laborers have real value, and although they may be sold at fire sale prices, this just means that GM’s creditors and stockholders suffer. The companies that buy these assets get a bargain. Ultimately, companies like Toyota would employ more workers than GM currently does due to excellent management they run successful businesses. Let those who can run a business properly do so.
Lastly, what signals would a possible bailout send to the market? Should we also not bailout house building companies? They employ lots of people, and their death could hurt Home Depot or Lowe’s, which would in turn hurt lumber mills and wiring plants. Bailing out the Detroit Three would have seemed unlikely nine months ago, but since then the allegedly “laissez-faire” Bush administration has bailed out every financial firm accept Lehman Brothers that has run into trouble. Now everyone else has an excuse for a handout, and the auto companies are first to the trough.
Chapter 7 bankruptcy would allow for a swift liquidation of capital assets so that they could be bid to their discounted marginal value productivity. When that is allowed, new jobs will be created in other states. There would be a period of dislocation of people and jobs, but it will not last forever. We need to cut taxes, cut regulations and massively decrease government spending. Perhaps GM would not need billions of dollars in cash infusions from the federal government if it was not being robbed by unions and the government in the first place through high taxes.