Saving Detroit means saving it from bankruptcy. As we have seen with the airlines, bankruptcy can allow operations to continue while helping to shed fatally unsupportable obligations. For Detroit, this means release from ruinous wage deals with their astronomical benefits (the hourly cost of a Big Three worker: $73; of an American worker for Toyota: $48), massive pension obligations and unworkable work rules such as “job banks,” a euphemism for paying vast numbers of employees not to work.
The point of the Democratic bailout is to protect the unions by preventing this kind of restructuring. Which will guarantee the continued failure of these companies, but now they will burn tens of billions of taxpayer dollars. It’s the ultimate in lemon socialism.
Charles Krauthammer effectively argues the point of the proposed $25 billion auto bailout: Big Labor asking for Dems to pay the piper for decades of support.
But conservatives should remind the public that bankruptcy has a point too — promoting the common good by punishing the misuse of scarce resources.
Economics is, after all, by definition: “the study of the use of scarce resources which have alternative uses.”
In nations of millions of consumers, each person a scarce resource that has alternative uses by their own being, no one government, agency, committee or group can make better decisions than those individuals can make for themselves. This is why a central-planning nation such as the former Soviet Union, with as many or more resources than any other nation on the planet, could fall into the ash heap of history while its capitalist counterparts grew at exponential rates.
As economist Thomas Sowell once penned, “A society in which only members of a hereditary aristocracy, a military junta, or a ruling party can make major decisions is a society that has thrown away much of the knowledge, insights, and talents of most of its people.”
Bankruptcy, adds Sowell, “shuts down the entire enterprise that is failing to come up to the standards of its competitors [e.g., Toyota, Nissan, whom need no bailout] or is producing a product that has been superseded by some other product.” Before bankruptcy occurs a company is forced to take actions including wholesale reassessments of priorities, spending, policies, personnel, including even the replacement by stockholders of a company’s chief executives and management teams.
A federal bailout, in other words, artificially prevents companies from making themselves take the difficult steps necessary to become more efficient and profitable.
Why should Detroit, and the expensive Big Labor unions running it, change their ways to become more profitable and efficient like its competitors if the government is simply going to bail them out with hand over hand of money every time they get into fiscal trouble?
The answer is, of course, they never will.
And thus, instead of this inefficiency punishing those responsible (Big Labor, the inept sectors of a single industry) it punishes the taxpaying consumers — all of them.