This morning Nancy Pelosi was on CNN saying that in terms of the U.S. automakers “…it is clear that bankruptcy is not an option.” The same newscast aired a story about a school district asking for a huge bailout. Their reasoning was if Wall Street and the auto makers could get help, why not them?
I have no strong feelings about whether or not to bailout Ford, Chrysler and GM. Two have been clients in the past and I know that each employs many good people. The question of bankruptcy is never about good people; it is about viability.
The problem as I see it is that almost everyone has come to believe that Congress doesn’t think that bankruptcy is an option for anyone. After all, we’ve been interfering with market forces and bailing out entire industries for years. Do you think the deplorable and unprofitable state of the U.S. airline industry might have something to do with market forces being circumvented by our government?
It sounds blasphemous, but companies and industries that cannot operate profitably should be allowed to fail. Otherwise we subsidize unprofitable performance and directly penalize those competitors who have a workable business model.
I don’t have a right to be a speaker or an author or an economist or anything else that I can’t pursue profitably. As a small businessperson I don’t think in terms of subsidies and bailouts; I think in terms of hard work and profitability. If I can’t operate profitably, why wouldn’t a change of careers be the best course of action?
Of course if Congress had to be profitable, they’d be out of business too.
Mark, you are spot on. If government had to live by the rules of capitalism and prosperity we would no doubt be better off. What I find most interesting is how in some cases the government talks about big companies as the enemy (e.g. ‘big oil’) and in other cases as if they are the saving grace of the company (e.g. big auto). Makes you wonder who’s talking to Congress that we are not seeing. -Michael
I agree with Michael that you are spot on. If this were happening in any other country, we’d be scolding that country’s government for propping up inefficient enterprises and not letting the market do its job.
With the auto industry, there is the additional issue that their resistance to higher fuel standards over the years is a large factor in our dependence on foreign oil. I really balk at the idea of providing assistance to companies who have arguably worked against our country’s long term energy interests.
A bankruptcy would be extremely painful for the country in terms of ripple effects, but I think a bailout only puts off the day of pain and doesn’t eliminate it. We should take our medicine now while we’re still the world’s largest economy. If we wait for the right time, it will never come.