Classic socialism in action.
Socialism is characterized by ignoring the free marketplace and empowering intellectual planners to control the economy with a cocoon of regulations and directives. In Europe (and today in China) economically moribund companies are designated national champions and kept alive at taxpayer expense, even when they can't compete in the free market without government subsidies.
This flows from socialist governments' belief that full employment can be maintained only by massive deficit spending. J. M. Keynes, the economics guru of the the New Deal era, opined that it would be suitable government policy to hire men to dig holes one day, fill them up the next day, then re-dig them and refill them ad infinitum.
By contrast, in a free marketplace economy, consumers, not government planners, are the final arbiters of which products and which companies survive and prosper. Despite the endlessly repeated liberal-progressive-socialist dogma, no corporation is able to trick consumers, let alone to force them, to buy its products by use of advertising.
If that were possible, GM, Ford, and Chrysler would not be in trouble. They would simply increase their advertising budgets and compel consumers to buy their vehicles.
The simple fact is that automakers' rearguard efforts to offset labor-union-inflated production costs have been unsuccessful. Their production economies, coupled with the anti-company antagonism and shoddy workmanship, even deliberate sabotage, by their unionized workers, have resulted in over-priced products of inferior quality. Consumers have recognized this and turned their preferences to the products of foreign manufacturers manufactured in the United States by non-unionized, reasonably priced labor.
Bailing Detroit automakers out of their financial dilemma, as well as Federal support of unions' monopolistic extortions, thus are classic socialistic management of the economy. A bailout will not cure the problem. It will only exacerbate matters and make ultimate resolution more expensive and disastrous for all concerned.
Everyone has to regret the distress that will befall the thousands of workers and suppliers in the auto industry and related companies if the Big Three go under financially. Remember, however, the root cause of this distress is President Franklin Roosevelt's New Deal Wagner Act that enabled communistic and socialistic unions to hamstring the auto industry.
Note also that the incoming Obama administration has signaled its support for measures that will tighten the unions' python grip on American industry. Labor unions expect a payoff for their having massively supported, as usual, the Democrat/Socialist Party with campaign contributions and get-out-the-vote free labor.
Then, as Lenin famously asked, what is to be done? The solution is this case, however, is not a radical turn to socialism.
However painful, the cleanest and most effective approach is to allow the Big three to file for bankruptcy. That might open the road to washing out all the crippling union contracts, creating new and economically viable corporations that could re-employ many of their former employees at competitive labor rates.
Stockholders, of course, would likely lose their investment in the bankruptcy workout. But that too is the nature of a free-market economy. Investors take a risk in expectation of a profit. They can't always be successful, particularly when impending doom has been on the horizon as long as has the Big Three situation.
Were the bankruptcy courts to approve such a settlement, the restructured, slimmed-down corporations emerging from bankruptcy would have a far better chance to survive against foreign competition. And their domestic suppliers would be in a sounder position, no longer squeezed by wafer-thin, cram-down prices and attenuated payment schedules.
Free Market 101
Rule#1:If a business provides a product or service which the purchasing populous does not want, it should either provide another product or service or cease operation in favor of it’s employee’s becoming reemployed with a company that provides a product or service which is desired by the populous.
Rule#2: Any artificial influence which supports the continuance of a business that fails Rule#1 does a disservice by continuing to provide a product or service the populous does not want, and only delays the inevitable outcome of Rule#1.
Add to this that to support Rule #2, the governing body of the populous is forcing the populous to provide funds to a business that provides a product or service the populous does not want. Also, doing so by taking their tax dollars to support any failing business has 2 major flaws:
1. The governing body is, by design and law, required to enforce the will of the people, which have already stated that they no longer wish the business to continue by spending their collective purchasing monies else ware.
2. The collected taxes are, by law, to be spent on governing bodies to protect their individual and collective rights as mediator in arbitration and confinement, and from foreign threats in the form of a military.
It is unfortunate that people believe that any number of individual economic hardships warrant interference with free market events such as this, but doing so only exasperates the problem before, during, and after the unavoidable and eminent business failure.
Bah Humbug! You sound like Barney Frank and his friends with all your clichés about lazy workers, incompetent management and lousy cars. The only thing you didn’t mention was the private airplane. How about a reasoned piece showing why we should become oil independent and auto dependent. Yes, the wages and benefits are too high and we can be against a bailout but why should we save AIG and let the Big Three go under?
Ivan, there is no good reason to have bailed out AIG, however being stupid and continuing to be stupid are two different things. The collapse of AIG and the automakers does not guarantee that they go away rather it allows a chance to retarget their products, significantly reduce costs, improve quality, change business practices, and get rid of dead wood (particularly at the top since the golden parachutes are not protected in a bankruptcy). Those that survive the process often become stronger witness Chrysler’s journey into bankruptcy and exit from the process. Unfortunately Chrysler forgot all they learned.
Rescuing the big 3 without the improvement steps mentioned in my notes above will simply prove the comments by AreYouKiddingMe to be an absolute instead of a theory.
Mickey
I’m not advocating a bail out! I simply want people to stop bashing the Detroit auto companies. Speaking and writing about them in a positive way would go a long way toward keeping this vital industry in America. The Chrysler loan helped them come out of a bad situation, but it was Lee Iacocca with his $1 per year salary, that spoke positively and brought the company back from the brink.
Ivan, I think we are on the same wave length. Automakers did build what we wanted…witness my SUV. Market changed both in terms of ability to pay for the vehicle and ability to pay to drive it leaving those with a very high mix of both expensive and expensive to drive vehicles in the product line hung out to dry. Changing the mix is both expensive and time consuming guaranteeing that the pain is long term rather than a short pain followed by recovery.
Mickey
Yes, I think we agree. I own a Buick and a Dodge truck. Back in 94, I put a production line into Ford to build the 5.4 V-8 and 6.8L V-10. I can’t imagine they are building many V-10′s now. People were buying them like crazy back them.
That reminds me also of what Chrysler did with the 3.9 V-6. They had a line for making the old 318 V-8. Rather than build a new line they simply ran the V-6 down the V-8 line and then cut off the first two cylinders. It was not a perfect solution but it worked in that case. It is quite easy to downsize an engine a little bit by reducing the size of the cylinder or making the stroke on the crankshaft a little less, but major changes take time. Giving the auto companies a 5 year reprieve on CAFE would help some and cost very little.
I believe in economic darwinism. Let the fittest survive.
Not intending to bash automakers, but how healthy can a business be where they are bankrupt after only two or three months? It’s poor planning to not have cash reserves and a contingency paln for lean times.
I ad the same opinion when national airlines started going under a couple of years ago. Seems to me that part of proper management includes these kinds of things.
Also, it seems ironic to me that automakers are being criticized by senators and congressmen who are themselves presiding over this wasteful, bloated, fraud-ridden federal government.
Is it poor planning, or the sick-making confiscatory taxation schemes that leave companies with no wherewithal to ride out lean times? The tax system is immoral and bankrupting us all. Get rid of tax already.
MM
When you think about economic Darwinism please understand that there are living things in this world that have been created by man for man. These entities, such as cows and sheep, would never survive in a world without an extensive human support system that has been around for thousands of years. Autos are somewhat similar. In only 100 years, autos had become ubiquitous and cheap gas made the “commute” a common theme for comedic monologues. The superhighways built in the 50’s changed the way we think about far away places. Just 10 years ago the question changed from “What kind of a car do you have?” to “What kind of SUV do you have?”. Then all of a sudden $4 gas! Now, it’s as if the whole country has converted to Hinduism, cows are scared, and you say “Let the cattle ranchers and meat packers go broke!”
“Is it poor planning, or the sick-making confiscatory taxation schemes that leave companies with no wherewithal to ride out lean times?” The answer is yes. “The tax system is immoral and bankrupting us all. Get rid of tax already.” Agreed.
MM
Agreed!
I once met a fellow through a Townhall meetup and he complained about corporate wellfare. I asked if he meant tax breaks and he said “Yes. Why should corporations get tax breaks when they relocate?” I explained to him that a corporation is just a human invention of the mind and as such can not actualy pay taxes. It is the people who pay and in the case of corporate taxes it is the customers, employees, and stock holders who pay. Guess what? This so called conservative didn’t want to talk anymore:>) Something tells me he voted for Obama.
Hi all
I’m loving the show going on in DC. We had the Auto Execs there a few weeks ago asking for $25B and all our elected reps could talk about was private airplanes. So this time the AEs drove from Detroit in hybrid flex-fuel cars and asked for $34B. ROTFLMAO! The only thing they missed was wearing white cowboy hats to the hearings! Maybe when the Feds chough up the money then they will start talking about the value and quality of mother, apple pie and Chevrolet?