Writing off Detroit

So, with the caveat below on the record, I'm pleased to offer my first completely inexpert musings on the economy. One of the big questions floating around is whether or not to bail out the so-called "Big Three," named GM, Chrysler and Ford. All three are, by all accounts, rapidly hemorrhaging money, and all three seem to have been horribly mismanaged in ways that I can't begin to understand. (Well, OK, I can understand the error in producing cars with poor fuel economy when the prevailing winds indicate that higher fuel efficiency is going to be the major criterion by which people will be choosing vehicles from now until forever. So, poor show, guys.) Now, all three are looking for some manner of federal hand-out, and lots of people have opinions about whether or not this is a good idea.

From what I understand (mainly from recalled posts I've read by Megan McArdle at The Atlantic), the arguments against bailing them out boil down to a couple of major themes:

1) The moral hazard concern, which essentially says that it creates a morally unsound precedent to rescue industry from its own failures. The same beef was taken up with the financial sector, and applied (somewhat inconsistently) to the various investment firms.

2) In the same vein, it makes it hard to determine which industries one rescues and which ones are left to fail. Shall we hereafter rescue the print media? Which other companies are valuable or big enough to bail out?

[For those of you who might be reading (God bless and keep you!) and understand economics better than I do (including, perhaps, various toddlers), please feel free to comment and correct or augment my list above.]

Now, I happen to think that bailing out the Big Three is both a good (or, at least, less terrible) idea, and the only politically viable option. Nobody (people, businesses, countries) makes money except in exchange for goods or services. The automotive industry is one of the major sources of American export, and there isn't anything produced in the US (to my knowledge) to compensate for the huge loss if we no longer produce automobiles. Further, the American automotive industry isn't limited to production, but also includes dealerships all over the country, the loss of which would have widespread negative effects on innumerable local economies through the nation.

I also think letting the Big Three die would be political suicide. There is just no way the Democrats will let Michigan go to the GOP, which it very well might if the Democratically controlled Congress lets Detroit die. Further, the large psychological blow to the country that would follow the loss of a quintessentially American industry, something that has been part of our economy since the start of industrialization itself, would be devastating. I don't see it happening.

Update: it appears that arguments on the subject are moot, at this point.

Update #2: So, about that print media collapse?

1 comment:

  1. Good point about Dems having to weigh an unpopular bailout vs. losing Michigan in 2012. I've been wondering whether Obama would be able to set up some of his "green jobs" program (I'll believe it when I see it) in Michigan. Michigan might be a good place for hydroelectric power or wind farms, maybe? But then, it's like, if you try to set up cutting-edge jobs in Detroit, will happy California people really relocate there?