Error: Unable to create directory /home/demockra/public_html/wp-content/uploads/2010/09. Is its parent directory writable by the server? Car Trouble? Let’s Bail

With the struggling auto industry predicting its own demise, there has been resistance by some Republicans on Capitol Hill to bail them out. And for those of us who haven’t been comatose the past eight years, we may have a knee-jerk reaction to disagree with anything Republican. So we may think bailing them out is a good idea. But let us not be so quick to judge a policy by its opposition.

“It’s insanity,” said Libertarian Party spokesperson Andrew Davis in a newsletter released Wednesday. “It’s insane that we keep going back to the taxpayers to bailout struggling corporations who, for lack of good management and sound business practices, have become unprofitable. Who in Congress is standing up for the taxpayers?”

When talks began a month ago about bailing out the struggling auto industry, I initially felt a little better about bailing them out than, say, bailing out the financial industry. In my mind, both the financial industry and the auto industry were greedy and stupid. All they wanted was more money, and they didn’t care about any negative repercussions of getting a lot of it.  However, also in my mind was the feeling that while the financial industry was mostly greedy with a good helping of stupid, the auto industry was mostly stupid with a good helping of greedy–and for some reason, I was more sympathetic to the mostly stupid.

Like many individuals, the auto industry had the mindset–sometimes referred to as path dependency–that if it has worked in the past, why wouldn’t it keep working? So, they kept building bigger cars that got fewer miles per gallon. Then, when gas prices skyrocketed, people started buying smaller, more fuel-efficient cars. This left American automakers–who had been building half-ton trucks and wide-load Hummers–with lots full of beasts they couldn’t sell.

Production went down, sales went down, and now they’re nigh unto hopeless. Some may want to blame the American people–who wanted these gas-guzzling mammoths, especially when gas was so cheap–and say that auto makers were going where the market was. Perhaps if things had stayed where they were–with gas prices and demand and such–they would have kept doing well. But when it comes down to it, automakers were being ignorant to the reality of the situation–that people would eventually want cars that ran on alternative fuels. A lack of long-term strategic thinking left the industry too vulnerable to sudden shocks in demand.

So what Detroit needs more than billions of dollars in bailout cash is some good leadership. As has been mentioned by others, the big three automakers need a complete restructuring–not an influx of money. All of the CEOs with their private jets and their fancy suits need to be standing in the unemployment line while new, fresh, smart leaders take the reigns to save the industry.

A government bailout–the very kind these aforementioned Republicans are resisting–doesn’t allow for that to happen and undermines the principles of the American free market economy. You see, the idea of capitalism and free market-ism is that the general population should run the economy. They decide what they want to buy and whom they want to buy it from. Those organizations that make mistakes, sell bad products, or poison their customer will soon be out of business; while those individuals who make bad choices with their money–or lack of money–will soon be begging on the streets.  Every so often, in order to grow in the long run, the market must flush out its waste water. People need to suffer the consequences of their bad decisions or they’ll never learn to do it differently the next time.

But bailouts turn the government into some sort of indulgent parent: “Oh you don’t have money for that? Here let Mom and Dad pay for it. Just promise to pay us back.” And as we all know, when someone has tons of bills to pay, the last people on the list to pay back are always the parents. Just like the $700 billion bailout of the financial industry, an auto industry bailout is not letting capitalism happen. When the government steps in instead of letting the greedy go bankrupt and the stupid go further into debt, that’s not capitalism.

There’s a natural ebb and flow of the economy (this time it’s, admittedly, a large ebb and/or flow). But let people learn from others’ mistakes. Let us be able to look back on this 20 years from now and realize what went wrong and the negative consequences of those actions. Without letting these companies fail, we will create moral hazard. In other words, there will be no incentive in the future to perform better , because, no worries, the government will just bail you out!

But even if the auto bailout does pass, let’s hope that’s the first step and not the last. Money doesn’t solve everything. The only way the money will do any good is if real, radical change takes place from top to bottom. There needs to be an industry-wide shakeup, and new leadership needs to step in, step up, or step out. There needs to be accountability.