Bailing Out the Auto Industry: A Perspective

Thursday evening I posted on my Facebook profile the speech that Congressman Ron Paul gave on the House floor, opposing the auto industry bailout (the so-called “bridge loan”), along with the following comment:

“This speech on the auto bailout speaks for itself. Congressman Paul really puts it all into perspective. Were that there were more in Congress like him.”

It was not long before I received a response from one of my friends who lives in southeast Michigan, where I myself had lived for a long time until moving to Alabama in early 2007. She reminded me of the consequences facing many people in southeast Michigan, including herself and her co-workers, possibly losing their jobs and foreclosing on their homes, in addition to the already near-certainty of expecting a decrease in compensation for 2009. What does one say to this? I did my best to reply to as thoroughly and sensitively as possible, with the idea of helping her see things beyond all the emotional arguments that hold so much sway right now in that part of the country. It was also my hope to provide some perspective, so that she would see that this is much bigger than just southeast Michigan. Here is most of what I said in my response (note: occasional bracketed words are my improvements here upon what I wrote):

“While I understand the feeling you and many others have who are living right in the heartland of the auto industry in southeast Michigan (where, as you know, I lived for over 14 years until a couple of years ago), it’s important to see the big picture in all this. For one thing, there is an assumption that has been repeated over and over, that bankruptcy automatically means “the end” for GM and Chrysler, and that all the jobs will be lost and that’s the end of it. This is an emotional argument that does not take into account what bankruptcy actually is and how it works. Bankruptcy is an important regulatory tool that allows for necessary reorganization to take place so that companies can become solvent and profitable again. It involves the transferring of assets and resources to new or reorganized corporate entities that can better utilize them. The process of such reorganization can be painful, as there will always be the unavoidable layoff of some workers.

“But it does well to keep in mind that these periods of correction, especially when they are allowed to happen without the propping up or bailing out by government, are only temporary, as workers are [eventually] able to find new jobs and be retrained for new jobs if necessary. It is clear that the U.S. auto industry has been and is traveling down a path that is unsustainable. Many, many changes will have to be made in order to ensure a viable future for the U.S. auto industry. The Big Three have been so utterly resistant for years to making changes and responding to the changing needs of U.S. consumers, and this is all catching up now. All the bailouts or “bridge loans” are likely to do is keep putting off the inevitable, and propping up something that isn’t viable or sustainable. The same goes for the whole financial system, with the big banks and insurance companies.

“As one who believes in freedom and the creativity that flows from it as vastly preferable , the Big Three reorganized under the leadership of very creative, innovative individuals who develop things in new directions consumers are looking for, without the promptings of an “auto czar”. Nationalization of the Big Three is not the answer, for ultimately it would lead to a precipitous decline in the quality of vehicles on the market. Think, for example, of cars made in the Soviet Union back in the day: who would want them? They were reputedly worse than mediocre.

“We are a “can-do” people, as the late Senator Barry Goldwater said in his 1979 memoirs, With No Apologies. Some of the most creative minds started from virtually nothing to become the greatest inventors and industrialists of their time, among them people like Thomas Edison and Henry Ford, without any help from the government.That’s what I’m talking about when I speak of the spirit of freedom that made our country great. We can achieve this again as long as we have the determination [and as long as we can keep the government out of the way]. I believe the best way we can do it is to rekindle the spirit of liberty, and not give into feelings of despair in the difficulties of the current economic downturn. It shall soon pass, as long as we allow it to do so [emphasis added].

“Certainly my thoughts and prayers will be with all of my friends in Michigan in the months ahead. But I would remind all of us that we are in this together, for this crisis is much bigger than just one industry… [I]t’s important to bear in mind that what’s happening in Michigan is part of something that is so huge and effects the whole country, which is that the entire monetary system is near collapse. The auto bailout as such bothers me far less than the trillions of dollars poured into the hole in futile attempts to rescue all these huge banks and financial institutions (which includes what the Federal Reserve has been doing, not just the $850 billion bailout measure passed by Congress in October). All that money is being created out of thin air, backed by nothing at all (only by debt), and once in the economy long enough, it causes the devaluation of the dollar. We are really headed for some rough times, and everything Congress and the Federal Reserve are doing will only make it worse, because it’s more of the very thing that got us into this mess in the first place.

“My big concern about the approach that Congress and the powers-that-be are taking is that I think they are only going to make it last longer, rather like the Great Depression. I don’t think it will be quite the same as that, but I see the parallels. I am very concerned for our future, but I think it is so important that we not do the wrong thing, which requires decision making guided by logic rather than all the emotions being stirred up in the halls of Washington.”

I do sympathize the pain that my friend and probably many others of my friends in Michigan are feeling with all the uncertainties, and I hope that my comments, which were written not just to her, but to my many other Michigan friends who are likely to read them, will in some way be helpful. One thing that I think we, who believe in liberty, self-government and free markets, need to do is try to show people what the long-term consequences are of decisions that always seem to be made in the interests of the short-term. It’s that perspective that is especially so missing, and that is one reason I so greatly appreciate it every time Ron Paul appears on television or radio or makes a speech on the floor of the House. Central planning doesn’t work in the long run, whatever it might seem to do in the short run (think bubbles). Freedom does work in the long run, even though sometimes the rewards seem slow in coming. But I do wonder, did I say the right things to my friend? I am always open to suggestions on how to better deliver the message of freedom, opportunity, and self-government, and I welcome comments from my readers.


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