Big Three Means Big Trouble

Season’s greetings

I must say the business world needs these greetings at the least now-a-days. The one thing that has been bugging me recently is the potential Big Three Auto Industry Bailout. I oppose any government intervention in which the government gives money to the private sector, but in terms of Financial Institution’s problems recently, I understand why this was a necessary step. However, when the auto industry showed up in DC with their hands out looking for money it seems like a much different scenario.

The lending practices of commercial banking are essential to any entrepreneurial society. They are what keep the wheels turning. The auto industry on the other hand does not. Maybe the auto industry keeps Detriot’s wheels turning, or maybe their reach is somewhat larger, but we cannot just throw money at a problem that is not going to go away simply because times will be a little tougher if we don’t. People screwed up, times are tough. This cannot be ignored, and we cannot give charity to the rich any more. As Gary Becker points out in his blog(see Link below), the auto industry is straddled with union wage contracts due to its prosperous years in the 80’s and 90’s. These contracts are killing profit margins and more importantly, killing any chance for the industry to pour their capital into much needed research and development.

This is by far what is necessary for the industry; research and development. In Europe the average miles per gallon is close to 40. I would be surprised to hear that the United States’ is close to 20. This is what American’s are looking for now. The big three got fat and happy making SUV’s for the American nation that guzzled gas and completely ignored the energy crisis that was clearly foreseeable. Americans have fallen prey to this cycle manipulated by OPAC for far too long. In the 80’s there was a huge rise in research for solar cells because of the rising fuel prices, but once prices dropped American’s immediately forgot therise, they did so again in the 90’s and here we are experiencing the same thing in 2008. If the auto industry chose to not recognize how much they are affected by the volatility of fuel prices they are the sole people at fault. Companies like Honda and Toyota that primarily acknowledged these trends by making more fuel efficient cars deserve to profit when these other companies fall. For years Honda and Toyota have been opening plants in the United States and providing American people with jobs as well, if the entire auto industry is failing, maybe we should bail them out, too?

In my eyes our government intervention boils down to capitalism vesus socialism. If you were to ask anyone walking down the street I would like to bet that they assume we are a capital economy. However, the real answer is we have not been a capitalist economy since the great depression. These unprecedented moves we are making now may further push our economy into the socialist category. Instead of being the capitalist economy with socialistic tendencies that we have been for years, I would argue that this bailout makes us a socialist economy with capitalistic tendencies, if we are not there already. Maybe I am young and ignorant, maybe I am naïve? Maybe I am old enough to be able to make an insightful argument, none the less this is a topic that will be debated for years.

Here is a link to Greg Mankiw’s blog that provides further analysis, as well as links to Gary Becker’s argument and Jeff Sach’s argument:
http://gregmankiw.blogspot.com/search?q=auto+bailout


Have a great holiday,

Matt

Welcome

Okay, so here is the deal.

I'm a college freshman and some of the recent business headlines have got me worried. I will try and find an interesting discussion topic weekly and would love to hear some debate.

next update soon!

Matthew James