Wednesday, November 19, 2008

Don't save the automakers

I was going to write a blog entry about why we shouldn't bail out the U.S. automakers, who, like everyone else, it seems, are in financial trouble. The Economist saved me an hour or two, though, since they wrote up the argument against the bailout—and they did a better job than I would have, anyway.

5 comments:

jacob said...

Yeah, if you keep in mind that the government's money is really ours, then ask yourself this question:

Would you, personally, choose to bail out Ford, especially if it meant that your neighbor would keep his job? If so, then feel free to go out and buy a Ford.

Here is another question: How much are the automakers suffering because of increased government regulation over the last several years? Have the increased safety and emissions regulations brought them to their knees? Why is no one saying that it could be governments fault in the first place?

Bruce said...

Good comments, Jacob. Sometimes people forget that the government == us.

Safety and emissions standards probably have negatively contributed to automakers' bottom lines, but they're certainly worth it. The function that we (the world) are trying to optimize isn't automakers' profits. What's the point of cars if they kill us and ruin the earth?

This graph, which compares automakers' labor costs, provides an interesting datapoint. (Thanks to Josh for pointing it out to me.)

Bruce said...

Oh—one other thing I was going to mention: the problem with bailing out automakers is that it allocates capital inefficiently. The reason the (U.S.) automakers are failing is because they're not using capital efficiently. Why should we, the people, choose to give more money to people who haven't used their existing capital effectively?

I See Badgers said...

I agree. I was also against the bailout for the "financial district".

I think that the govt. has put them in a tight spot, BUT there are a lot of other factors just as important ie) unions...unions...poor upper management and marketing.

Jonathan said...

I'm not sold on either argument. What about the hundreds of thousands who are employed by these companies? I don't think a blank check should be handed over, but maybe if conditions were set. It is obvious that the American auto industry needs some real work. They don't make good cars. I wonder which approach will cause the most change. Give them money on conditions that they make specific changes or let them fail and hope that they really make changes that will be good for everyone rather than a quick fix to get money flowing. I don't know...