The Bailouts Just Keep Coming
By Alan Stewart Carl | Related entries in Business, Congress, Economy
After securing a $25 billion government loan from Congress before the election, the auto industry is back at the soup line begging for more assistance. And House Speaker Nancy Pelosi wants to give it to them.
GM, Ford and Chrysler say they need another $25 billion to stay afloat and $25 billion more to cover future health care payments. Pelosi argues that, if the funds aren’t granted, the American economy would be severely damaged by the failure of these major corporations.
Forgetting all reasonable arguments in favor of this bailout, let me go prickly conservative for a moment. Is it just me, or has our government decided to keep our nation’s major corporations in a static state, protected from their own failures and monopolizing resources that could be better used by newer, more dynamic companies? With the recent bailout of the giant financial firms and the continued propping up of our moribund auto industry, why don’t we just go ahead and nationalize the major economic movers? At least then we wouldn’t have to hear the constant begging from these organization’s failed leaders.
The reason we don’t nationalize industries is that doing so removes any incentive for innovation, good management and quality service (would you work harder or better or smarter if your paycheck was guaranteed for a lifetime?). Constantly bailing out poorly run businesses has the same, if somewhat lessoned, effect. Why should Ford, GM or Chrysler ever become truly competitive when they can just turn to Uncle Sam anytime things get dicey? And why should our financial giants ever take proper care of our investments if they know, should they fail, Congress will save them?
O.k. I’m done. I understand the real-world consequences of not providing government assistance to large, failing businesses. And I understand that providing government loans is a far cry from providing handouts. But I do think we’re setting a less than positive precedent. At some point, don’t we have to let one of these companies fail?
I’m sure “now is not the time.” But we can’t keep authorizing more and more loans. Those companies that still can’t make a buck after this round of bailouts is through shouldn’t get a second chance.
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November 11th, 2008 at 5:20 pm
National governments throughout the industrialized world have been doing this for a long time. This level of involvement by the government of the United States may result in a national industrial policy that benefits Americans rather than benefitting a select few as it does now. Laissez Faire can’t work in the current climate since the Capitalists have either gone out of business or in line waiting for their cut of the $750 billion. I appreciate your focus on precedence, but in this instance I really don’t see any other way. Capitalism as we knew it ceased to exist when the bailout package passed and signed - now the rules are being written as the game is being played. Keep your eye on the Organ Grinder not the monkeys.
November 11th, 2008 at 5:23 pm
I feel the same way Alan. I know they’re not stupid and I know they’re not socialists and I know there are more informed people than I advising them but its hard to shrug off the feeling of being hoodwinked.
I would actually be interested in reading a blog in defense of the bailouts. Since the justifications seem to be on a case by case basis it would have to be something that publishes often and explains each decision in depth with preferably a nod to sustainability and the long term.
Anyone know of such a thing?
November 11th, 2008 at 5:31 pm
I know how you feel Alan. I know the democrats are not stupid and I know that they are not socialists and I know that there are people who are both smarter and closer to the ground than I advising on these matters but it is still awful hard to shake the feeling of being hoodwinked.
I would actually be quite interested in reading a blog in defense of the bailouts. A simple article or two would not do since the bailout decisions seem to be on a case by case basis and I would like each defended, preferably with an eye to sustainability and the long-term.
Anyone know of such a thing?
PS (hehe, the captcha is “robbery things” how appropriate)
November 11th, 2008 at 5:38 pm
Alan,
I’m glad you took a ‘devil’s advocate’ tone to your first suggestion to nationalize all the major co’s, b/c that would be an extreme remedy even for the Dems to try. But this is another situation that you’re damned if you do or damned if you don’t, as you well know. That’s why this whole economic crisis is so difficult - there’s no esy way out.
Now if you’re a Republican, how can you rationalize throwing all that bailout money at the financial institutions, being that it was their bad judgement that caused the problem in the first place? And if you do agree that the Fed was acting in our best interest then, why not help the Auto Co’s who employ many thousands more American workers throughout the country, not just on Wall St.
If you’re a Democrat, how can you keep dipping deaper into the Federal Treasury and increase the National debt to the point that you can’t do any of the important things you wanted to do? If you continue throwing good money after bad then you may kill any chance of making a difference before you ever get started! And if you want to establish a bipartisan effort getting started, how can you make ultimatums like do this or we will without you?
November 11th, 2008 at 5:48 pm
Couldn’t have said it better myself. We need to let these big boys fail, otherwise, we’re just supporting bad business. As you point out, if we keep giving them handouts so they don’t fail, there’s no incentive for them to perform better and innovate. I liken it to the “welfare trap” on steroids.
November 11th, 2008 at 6:51 pm
I tend to agree with you about the risk of this turning into a “wefare trap”, as one of your respondents put it. Sadly, because these businesses were slow to adapt they are less car companies than welfare organisations.
But this is really the wrong way to be looking at this, I think. The better question is this: What do we do when nearly half a million American’s hit the unemployment roles if the three majors fail?
If we can’t develop a good answer to that, then I think maybe Government assistance is the lesser of evils.
I would be interested to see ideas on that from others.
November 11th, 2008 at 7:49 pm
Too big to fail…too big to fail…too big to fail…too big to fail…too big to fail…too big to fail…too big to fail…
If the government had been acting in the countries best interests rather than the interests of corporations, we would not have this problem.
When a company gets so big that is controls too large a part of the economy, or when its failure is too damaging to contemplate, we should be splitting these companies up, which also fosters competition.
There was a time when even Republicans understood that (God bless Teddy R)
Instead, the last 30 years have seen consolidation of power and wealth so that even if we wanted to say no we cannot. All in the name of free market capitalism.
Privatize profit, publicize risk.
Yeah. Go team.
November 11th, 2008 at 8:05 pm
NPR was talking to an analyst tonight who said that the claims of 3 million jobs lost if there was a complete collapse of the Big 3 wasn’t really necessarily that far off when all the collateral damage would be accounted for. Even a merger or other drastic move would cost over 30,000 jobs just from the car companies involved, completely ignoring the other businesses that depend on them. We have created an environment full of corporations so large that if they fail the cost to our society in terms of human suffering is large and in some cases just the tipping over of the first domino. In fact there are very reputable people who think that allowing Lehman Brothers to collapse made things much worse than they otherwise would have been in the financial collapse.
I am not saying that the existence of businesses that put our society in this position is a good thing. In fact I think I agree with Robert Reich, who said that too big to fail means it’s too big, period.
November 11th, 2008 at 8:18 pm
To add insult to injury, CNN reported GM’s CEO as basically saying, “Bail us out but I’m not resigning and don’t expect to have a say in how we run our business, like building more fuel-efficient cars.” I understand the need to not let our economy implode, but for crap’s sake let’s at least keep track of where our taxpayer money is going.
November 11th, 2008 at 9:46 pm
I would have rather seen the 700 billion go to insuring individual investors assets and let the cancerous companies fail. Washington still hasn’t executed effective root cause analysis and done anything to shore up falling housing prices.
The auto industry is also a bit of a different beast. You have unionized employees making $20 an hour to screw a bolt into a piece of metal all day, and no politician would dare suggest that that’s an impediment to running an efficient business. You have executive decision makers turning a blind eye to true innovation, ensuring products gobble up fossil fuels and have planned obsolecense/parts failures. So regardless of how much money Washington throws at Detroit, the current business model itself will never allow the industry to be competitive globally.
I wonder what would happen if Congress gave 25 billion dollars to an innovative motor vehicle startup that didn’t have a hundred years of Detroit baggage to lug around….
November 11th, 2008 at 9:52 pm
Anybody ever hear of Joseph Schumpeter or his writing…”Capitalism, Socialism and Democracy.” I find his hypothesis compelling and more and more likely to come true.
From wikipedia:
“Schumpeter’s theory is that the success of capitalism will lead to a form of corporatism and a fostering of values hostile to capitalism, especially among intellectuals. The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism; it will be replaced by socialism in some form. There will not be a revolution, but merely a trend in parliaments to elect social democratic parties of one stripe or another. He argued that capitalism’s collapse from within will come about as democratic majorities vote for the creation of a welfare state and place restrictions upon entrepreneurship that will burden and destroy the capitalist structure”
And a longer analysis of his book…
http://www.humanities.mq.edu.au/Ockham/y64l12.html
November 11th, 2008 at 9:54 pm
I am not sure if my post about Schumpeter got deleted, but instead of spamming I will just say to look up Joseph Schumpeter and Capitalism, Socialism and Democracy. He makes a compelling hypothesis that more and more appears to be true. Also look up his book (Capitalism…Democracy) on google for a longer analysis than wikipedia might give it.
November 12th, 2008 at 9:37 am
Hopefully I didn’t lose my privilege of commenting on Donklephant, but it looks like two of my posts didn’t go through yesterday, so sorry if all three pop up at once.
Anyway, I wanted to post about Joseph Schumpeter, who wrote a book Capitalism, Socialism and Democracy in which he laid out an interesting hypothesis, some of which appears to be predicting the recent trend. Here is a brief summary from the wikipedia page:
“Schumpeter’s theory is that the success of capitalism will lead to a form of corporatism and a fostering of values hostile to capitalism, especially among intellectuals. The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism; it will be replaced by socialism in some form. There will not be a revolution, but merely a trend in parliaments to elect social democratic parties of one stripe or another. He argued that capitalism’s collapse from within will come about as democratic majorities vote for the creation of a welfare state and place restrictions upon entrepreneurship that will burden and destroy the capitalist structure.”
Might be worth reading for anyone closely following politics and also interested in economics. This is also pretty brief, if you look up the title of his book you’ll also find more in depth summaries.
November 12th, 2008 at 11:30 am
I think the idea of this bailout is a good idea, it just doesnt seem to be as effective as what we all had hoped. But what did peopel expect they were going to give all this money to banks and big corporations and over night our economy will be good again? Of course it wont. And what would it do to give all the lower and middle income families and little chunk of change? nothing. We thrive off these comps and they set the economy. If we really want to make things better we all need to not be afraid and start spending. That would be the hardest thing for most when all they can think about it saving there money right now. But really if we all act like nothing has happened it will all mostly go back to normal.
November 15th, 2008 at 4:14 am
[...] GM, Ford and Chrysler say they need another $25 billion to stay afloat and $25 billion more to cover future health care payments. Pelosi argues that, if the …Read More?http://donklephant.com/2008/11/11/the-bailouts-just-keep-coming/… [...]
November 19th, 2008 at 9:08 pm
My problem is that I care about everyone and realize that should enough people become unemployed it will affect all of us. Having said that, I believe that in order to continue to be a democracy with a free market, sooner or later the bailouts must stop and we all must feel the pain. There is no other way.
In addition, as a military brat, I consider changing to a socialist country through a 700 billion dollar bogus bailout plan insulting to the brave men and women who have bled and died for our freedom to try and fail or succeed. If our success is guaranteed- what is the point of trying to do better? I am having a very difficult time explaining this insanity to my teenage son.