When Henry Paulson began pushing for his $700 billion bailout of the banking industry last month, the first question that came to my mind was, “Where will it stop?” A month later, we still don’t know. And with the Obama-Pelosi-Reid Triumvirate pushing now for a $50 billion bailout of the U.S. Auto Industry and the city of Detroit demanding an additional $10 billion of taxpayer money to pay off its debts, the total bill taxpayers are getting stuck with in this financial crisis is approaching $5 trillion – and we’re not even close to done yet. Having bailed out one industry, others are now demanding similar treatment, and our newly elected leaders are not the sort to say no to “people in need.”
Well, I would like to offer some advice to our new president on the subject of these failing institutions: let them fail.
As Americans, we place great value on our homegrown businesses. Over the summer we saw outrage as Budweiser, the last of the great American beer giants, was purchased by a Belgian brewing company. Many felt that losing one of our iconic businesses to a foreign firm was akin to losing a part of our cultural identity. Never mind the fact that Budweiser’s generic brew pales in comparison to the rich Belgian beers that have become increasingly accepted over the world over the last several years. Forget that Budweiser as a corporation had put itself in a position where it was vulnerable to such a buyout. Classic nationalist populism demanded that we not let Budweiser go. I understand that there is a sense of territoriality involved in American businesses, but the nature of capitalism is that inefficient firms are swept away, destroyed and devoured by their competitors. When we impede that mechanism, the system ceases to function.
On the subject of American automotive companies, there should be no doubt: they are failing miserably in the 21st Century marketplace. But the reasons are obvious – held tightly within the grip of unionized interest, they have quite simply stopped making cars that American consumers want to buy. No one has put a gun to the head of buyers and demanded that they purchase Japanese or German automobiles. But for whatever reason – quality, price, image – people want to buy foreign cars. It is not the responsibility of the consumer to support American car companies; rather, it is the responsibility of the companies to support themselves by winning the consumers over. Ford, GM, and others quite simply aren’t doing this. They have trapped themselves in a failed business model, and without a radical overhaul, they will continue to collapse.
But now the Democrats in Washington want to keep them alive at the taxpayers’ expense. The current deal being bandied about – $50 billion in exchange for a government stake in ownership – reeks of socialism. In addition, it is difficult to see how adding another layer of bureaucracy would make these bloated corporations more efficient. Aside from providing an influx of additional funds, what benefit would a government bailout have to these companies? Stuck in their failed business model, they would take the $50 billion of taxpayer money, burn through it, and demand more, which a government with a stake in them would be all too willing to provide. In essence, the bailout would be the equivalent of throwing $50 billion+ into a black hole.
And yet it seems that this is the road down which we have chosen to walk. Driven by irrational populist fears and an ignorance of the way economies function, we seem committed to bailing out the auto industry. Instead of letting capitalism destroy these companies and free up space and capital to allow something else to take their places, we have decided to prop up a corpse and demand that taxpayers take care of it. Call it the Weekend at Bernie’s School of Economics.
Let capitalism take her course. Let these businesses fail.
