First, a disclaimer – I am not an economist. I am only a single American trying to figure out what is happening in this financial crisis and try to think about what the answers should be. As such, I don’t claim to have all the answers.
That said, I believe the more we bailout failing companies, the more we hurt the economy. I believe the wealth of our nation increases through a free market economy, where successful businesses tend to thrive, and poor businesses tend to fail. There are other factors, but over time, the marketplace tends to improve. The market becomes a tool by which the total wealth of society increases and the products available to society improve. I have an inherent distrust for any government intervention into the workings of the free market economy, unless it is to police fraud. A second possible legitimate interference is when a government, particularly in a global economy, enacts tariffs, tax incentives, or treaties that favor the businesses of its nation over that of others. This may even be necessary because other nations will do the same.
Bailouts interfere with the free market. It takes failed businesses and investment whom the natural processes of the market have selected for extinction, and artificially propped them up. Wall Street engaged in many bad business practices, most notably its industry wide practices of engaging in risky loans for a quick buck with a commission based incentive for loan agents to seal such bad deals (and predatory loans), and it also relied to heavily on the liquidity of others in the marketplace in order to finance those deals.
The auto industry too has engaged in bad business, a story which goes back a quarter century. Its errors have ranged from its dealings with unions to its market strategy to the vehicles themselves. Other such failures will follow, and if we don’t stop now, when will we? Amtrak will want more bailouts, and the airlines, and countless others.
Sometimes, a bad business must die for the good of the economy. If we do not let bad businesses die, then where does the incentive to succeed in business go? Where does the motivation that comes from fear of failure go? And what makes us think that an “investment”, if it can be called that, in such a failing enterprise will propel it to succeed and rise from the ashes of its current failure?These bailouts don’t come free. Every dime we put forth increases our taxes, or our debt, which in turn weakens the power of the American dollar and increases inflation, thereby decreasing the adjusted value of our wages. All government spending therefore, including bailouts, operates as a tax. The Wall Street bailout spent $5,000 for every taxpayer in the country. The auto bailout would be another $175 per tax paying person, on average.
What about Detroit? Mitt Romney says to let it die. Although I don’t think he meant it the way the media is spinning it, maybe the government could spend that money boosting up successful businesses and job creation opportunities in Detroit and other communities instead of pouring money into a known failed enterprise.
What about the loss of the American auto industry? Well, unlike other industries, autos are largely assembled in America due to the high costs of shipping whole vehicles across oceans, so these jobs are going to remain American. It will just be other companies making the autos.
Well, so ends the soliliquoy. I have an open mind on the subject, and would like to discuss other folks viewpoints. I really believe that until government starts balancing its budget and recognizing that its our citizens’ money they’re spending, the Congress will continue down this path of reckless financial irresponsibility. They have a moral duty to us all to get it right, and to get it correct now. Isn’t this what separates us from the Democrats on budget issues?