Featured Articles

House Approves $25 Billion Automotive Industry Bailout Loan – Economists, Germans Both Upset

Posted in auto industry, Chrysler, Ford, GM, Newsworthy, Politics by Vito Rispo | September 26th, 2008 | 1 Response |

“Government is the great fiction through which everyone endeavors to live at the expense of everyone else.”
-Frédéric Bastiat

The House of Representatives recently approved $25 billion in loans for the Detroit Three, and the Energy Department is now developing rules and regulations to govern how the loans will be handed out. So the big Detroit Three were on the verge of collapse. What can they do if they’ve spent more than they have and they can’t pay their bills? Appeal to the government apparently. Or they could have filed for bankruptcy and let the market work it out like with Lehman Brothers. No, instead they stick the taxpayer with the bill and socialize the system

There is this fallacy that it’s the government swooping in and magically fixing the problem, but that’s not what happening. Someone else always has to pay the price, either directly via taxes or indirectly via inflation from the creation of money. This idea that there are no victims, that’s a fallacy.

Another problem here is the Moral Hazard. The problem with the Detroit Three came largely from poor executive leadership decisions over the last two decades. When you bail out a company that is failing because they made bad decisions, you’re playing into what is called the Moral Hazard, where companies think that they can engage in risky, poor management in the hopes that they can get large returns, and not have to deal with any negative effects, since the government will bail them out and they won’t go bankrupt. Economists understand this, the masses don’t.

Well, the American masses don’t, apparently the Germans understand it quite well. Heads of the German auto industry lashed out at Congress today for meddling in the free market.

“We are opponents of subsidy contests,” said Matthias Wissmann, head of the VDA automotive industry association, at the IAA truck show in Hanover. “If the U.S. car industry does not resolve its structural problems, then all the subsidies in the world won’t help.”

“That results in a distortion of competition…In the manufacturing industry, one should leave things to the free market,” said Anton Weinmann, CEO of German heavy truck-maker MAN Commercial Vehicles, at the IAA truck show.


Our Best Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

One Response

  1. This sort of thing really didn’t help the British auto industry now, did it? When the British government shored up British Leyland, the problems never went away – antiquated factories, poor product resultant from workers who didn’t care about quality anymore, as did their forebears.

    Then too, look at how monies the British government spent on putting an auto company named DeLorean in Ireland, ended up.

    But true enough is also the fact that, 29 years ago, with the onset of another American election year, Congress voted to back bank loans to the former Chrysler Corporation; which became the New Chrysler Corporation to distance itself from the likes of the Plymouth Volare and Dodge Aspen (a poorly made car, before the name returned on a more recent SUV).

    So let’s hope – since our money is literally on it – that this latest bit of government largesse beats the odds. Surely there was at least one person in the House of Representatives we can guess voted “No,” without even checking the tallies: Congressman Ron Paul (R-Texas).