Monday, November 17, 2008

Can You Spare $25 Billion?

At coffee Sunday we discussed the so called “bailout” of the once “Big Three” auto makers. Many were against the “bailout.” The government should not be in the business of bailing out businesses that can not make it, period. That all sounds nice, but if we take a look at recent history, does that make sense or good economic policy. What do I mean? Let me explain where I am coming from, but before I do, let me say I drive a BMW and I have bought and owned only foreign made cars. While that is my choice, it is not a reason for or against an economic policy that includes loans, which I think is a better word than bailout, to the three American auto makers.

Let me take you back a few years to the period of the Cold War. Japan was just getting herself back on her feet and given her place in the world geographically, the United States was eager for the Japanese Government to move in the direction of democracy and capitalism. An opportunity was made for the Japanese auto makers to sell their cars in the United States. At the beginning, their cars were not that popular, but with time the Americans were won over to the nice smaller cars that sold at a competitive price. Given the world’s political stage at that time, it was in our interest for Japan to be successful and for their economy to thrive. In Europe, with the Soviets on the eastern border of Europe, the United States was again interested in seeing Germany, her infant democracy and her economy be successful as well. As a result of our policies concerning the Soviet Union, it was in our interest that Germany and Japan not just survive, but that their economies do well. Democracy and the capitalist system were on the line. If Japan and Germany failed, we would fail too. The policy of containment of communism had been waged on the battlefield in Korea, but also on the economic battlefields in Germany and Japan.

The trade policies of the United States made it easy for the products from Japan and Germany to enter the United States and compete with American made products. After the Second World War, it was the United States that became the economic engine for the world.

The problem as I see it, was that after Japan and Germany and several other of our trading partners became competitive, we did not require that the playing field be level. Furthermore, Japan’s government has helped her industries (steel) when they have needed a hand. If the rest of the world would make it as easy for us to export our cars as we make it as easy for them to export their cars, I would say we could make a fair comparison of the virtues of the so called “bailout”.

That said, and given the numbers of jobs involved, I come down on the side of a loan to the three American auto makers, if they are willing to make some changes to improve their competitive position in the industry. We may not be able to change every trade agreement that involves our exporting of American made cars, but knowing that this problem exists and the history of what got us to where we are today, I think the so called bailout should be approved. The last thing we, as a nation, need now is to have our auto industry file for bankruptcy. The extra problems that this move would entail, is not worth the trouble it will cause the economic recovery. Along with a loan, the government in Washington needs to get our autos and trucks on a level playing field for trading purposes around the world. I would bet that if our trucks were permitted to compete, the so called bailout would work.

Stay tuned.


LceeL said...

Just playing Devil's Advocate here for a minute ... but if the Big Three were allowed to go through bankruptcy, would they not come out the other side re-organized - and would the union contracts (so much a burden on the auto industry) not need to be re-negotiated, given that the re-organized companies would, essentially, be NEW companies? I can't help but feel that the union contracts have done nothing but help bury the auto industry in this country.

moneythoughts said...

You seem to place most the fault with the unions. What about management? What kind of leadership have provided? Bankruptcy might work out well; however, given the present economic crisis, it just seems like adding one more crisis to the pile. I guess we will see which way the government goes.

LceeL said...

Don't get me wrong - I don't have anything against the idea of 'unions' - just 'Industry Wide' unions. If you work for Ford, then you should belong to a union of workers that work for Ford. The automakers compete with each other - but the workers don't? I don't understand that. It takes price competition out of the process.