Thursday, November 13, 2008

Let GM go Bankrupt, Part II


From Megan McArdle's site, one commenter,Will Allen, has nailed it:

One of the irritating features of discussions regarding this topic is how often protectionists describe the Chrysler bailout of nearly thirty years ago as being a "success", because the money was paid back with interest. The reality is that Chryler's failure [would have been] the best way to spur GM and Ford to fundamentally change their business model, and for the UAW's remaining membership to understand why the existing relationship with management was not viable in the long term.

Moral hazard.  Two years ago, Fortune magazine's Carol Loomis did an explicit point-by-point take down of GM that portrays a company that just doesn't get it.  So this is not some news flash that GM has had poor quality and outrageus labor cost for a long long time.  

On a related item, I have been having an email discussion with friends about this topic and the issue of "creative destruction" was broached.  The operative word is "destruction."  Government assistance is the opposite of destruction.  To truly allow an industry to experience the ravages of the free market, there will be be losers: people and businesses will literally need to go away so that lower cost, higher efficiency and more creative players can take their place, and that takes pain.

Whether the government comes in to subsidize farmers or auto workers or mortgagees or bankers, the free market is being compromised and the outcome is that the economy is left with less efficiencies and higher priced commodities, houses, consumer products or labor or whatever.

Creative destruction has not been allowed to occur in my lifetime, and if it had then maybe we would not be in the straits we are currently in.

2 comments:

Anonymous said...

"Creative destruction has not been allowed to occur in my lifetime, and if it had then maybe we would not be in the straits we are currently in."

The only possible exceptions I can think of are the steel industry, the tech sector, and airlines.

Tony said...

I actually was referring to the creative destruction within the auto industry, and I hearken back to the time when we had 20 different domestic car makers selling one-tenth the number of cars.

I doubt Studebacker, Packard and Tucker "expected" a handout from the govt. They went away or were bought out and yet we all survived and technology advanced.