Should taxpayers bail-out bad business practices by automakers?
A lot is at stake in the decision by Congress to either prop up the Big Three automakers with over $25 billion of tax-payer money despite their business mistakes, or allow the automakers to take the hit coming to them, which would allow them to endure some short-term pain in order to restore long-term viability. Daniel Mitchell, senior fellow at the Cato Institute, argues bailing out the Big Three would be akin to giving the alcoholic the key to a liquor cabinet.
A taxpayer bailout would be a terrible mistake. It would subsidize the shoddy management practices of the corporate bureaucrats at General Motors, Ford and Chrysler, and it would reward the intransigent union bosses who have made the synonymous with inflexible and anti-competitive work rules.
Perhaps most important, though, is that a bailout would be bad for the long-term health of the American auto industry. It would discriminate against the 113,000 Americans who have highly-coveted jobs building cars for Nissan, BMW and other auto companies that happen to be headquartered in other nations.
These companies demonstrate that it is possible to build cars in America and make money. Putting them at a competitive disadvantage with handouts for the U.S.-headquartered companies would be highly unjust.
Another problem with bailouts, Mitchell argues, is once one gets it, they all want it. This encourages more risky business behavior from industries if they know there is a good chance they will get saved by tax-payer’s money. First Wall Street, now auto-makers, who’s next?
The bailout would also be the most “perverse transfer from poor taxpayers to rich taxpayers.” It would essentially reward among the very richest Americans. United Auto Workers bosses make huge salaries and even the standard employees earn “an average total compensation including benefits of approximately $70 per hour.” Why should we take money from average income workers in American and give it to the highest earning Americans?
The government should not be in the business of giving unearned wealth to any group of citizens, but surely liberals and conservatives both can agree that politicians should not be taking money from middle class taxpayers and giving it to upper-middle class and rich taxpayers.
But what effects would of a large group of workers being laid off have on the economy? Would this negatively effect the current economic crisis and drive us further into a recession? In the short run this may be true, but we must also consider the long term and creating a strong economic foundation solid instead of creating unrepairable cracks as a bailout could easily do.
Mitchell ends with this:
America is on a dangerous path. The Wall Street bailout was a mistake. It transferred a huge amount of money from the productive sector of the economy to the government, and also exacerbated “moral hazard” by rewarding companies and executives who made dumb decisions. But this may be the tip of the iceberg. A bailout of U.S.-headquartered auto companies also would be a mistake, as would bailouts of homeowners or any other constituency. If politicians genuinely want to help the economy, they should focus on reducing the burden of government, not increasing it
Read the full column.