The US House of Representatives recently passed a bailout for the "big three" automakers. However, passage of the plan is in doubt in the US Senate.
This is obviously a major issue in Michigan. All the Republican members of the Michigan congressional delegation voted for the bailout except for Tim Walberg, who did not vote. This was one-fourth of the total number of Republican supporters of the plan in the House.
The bailout plan is presented as necessary to save the big three, save millions of jobs, and the American economy. But is this true?
Certainly the government can keep the big three in existence indefinitely, provided that it can continue to borrow or steal enough money indefinitely. But propping up businesses that can't compete indefinitely is the road to stagnation and poverty. It's better to let such businesses fail.
Instead, the advocates of the bailout present it as a one-time thing. But is it? To answer this, we need to know what happened to the big three in the first place.
Doubtless there have been some bad management decisions along the way. But the major reality facing the big three is that labor costs them much more than it costs their Japanese competitors that make cars in America. The available statistics show that the big three spends $73 per hour for labor, including all the benefits, which Japanese companies spend $48 per hour. Further, the big three have huge "legacy" costs of pensions and health care of their retirees. A bailout wouldn't do anything to change this. Hence there isn't much reason to think that a bailout would be one-time-only.
So should we just let them fail? No. There are steps that the government can take to help the big three. More particularly, it can undo the harm it is causing them.
For one thing, it should immediately repeal Corporate Average Fuel Economy (CAFE) standards, or at least repeal the increase in recently passed. These standards not only kill thousands of motorists, but they also hurt the big three relative to the Japanese automakers. This is because for some time the big three's advantage has been in larger vehicles, especially trucks, SUVs, and vans. But these are exactly the vehicles that are penalized by CAFE standards, which help the smaller cars that are the forte of Japanese automakers.
The government has also empowered the labor unions that are bleeding the big three dry. They extorted unrealistic wages and retirement benefit guarantees. They could get away with it during the good times, but now the bills are coming due. Congress should repeal the law that prohibits competition amongst unions.
The bill being discussed in Congress would make the situation even worse. It would create a 'car czar' to dictate to the big three. More government mandates aren't going to create better cars. The bill would also push more 'green cars'. These are fantasies that only work in the minds of congressmen.
Bailouts only lead to more bailouts. Subsidizing failure only leads to more of it. The big three should be helped, but the plan Congress is discussing won't help in the long run. If undoing the harm the government causes isn't enough, then the big three need to reorganize.
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