Financial bailout vs Auto-maker charity

Bailing out "Wall Street" was not a choice. It prevented the systemic breakdown of the global economy, which anybody in their right mind would agree is a worthwhile cause. It was not a handout to "well-heeled moneymen", it is an investment in the future of capitalism across the globe.

While it may not be immediately apparent, every large corporation in the world relies on credit. All manufacturers need factories, retailers need inventory, and newspapers need paper to print on. Where else would they get the capital to invest in such raw materials if not for their ability to borrow money periodically? The most common answer is the credit market -- a market which, prior to the bail out, was nearly nonexistent. Enabling companies to borrow for the sake of investment in these much needed capital goods was the spirit of the banking bail out, and everyone on earth is a beneficiary.

On the prospect of an automotive bailout, we are considering essentially donating taxpayer money to a small group of long unprofitable manufacturers, namely the American automotive industry. The major reason why these manufacturers are unprofitable is due to the contracts in place with the United Auto Worker union (UAW). In those contracts, there are clauses that make it nearly impossible for the companies that employ UAW workers to relocate, downsize, or otherwise reduce the amount of money they are paying their employees. These contracts make the American companies far less competetive than other car makers, like Toyota and Honda, by almost doubling the cost of labor per vehicle.

If we let these companies go bankrupt, then perhaps the union will realize they must reconcile with reality and grant concessions to their employers. On the other hand, if we allow our government to give hand outs to companies that are not profitable, then we are only prolonging the inevitable bankruptcy. We must allow these companies to go bankrupt so that more efficient organizations can take their place, like Toyota or Honda.

The idea that we can use a government handout as "leverage" to get the car industry to make cars we want is short-sighted. Car companies want to make the cars we want (fuel-efficient or otherwise) because we pay them good money to do so. American car companies haven't been giving us what we want because they can't make them without losing money. Therefore, they need to be restructured in order to be capable of giving us the cars we need for the same price their competitors are. Bankruptcy is one way of enabling a restructuring. That's not just sustainable economics, that's common sense.

As for the notion that the inability of GM and its ilk to give us the cars we demand is not the "workers' fault", thereby justifying a bailout, is also illogical. The workers' representatives have placed unreasonable demands on their employers, and now they are realizing that their compensation does not exist in a vacuum. There is a tangible effect on the sustainability of their employment by demanding the lavish benefits and pay they continually extract from their begrudging benefactors.