GM, the car maker that produces more cars than it can sell at a higher price than it sells them, clearly needs to go bankrupt. Ok, so it’s an American icon and gets bailed out.
But how about the little guys? The suppliers.
The treasury department is working on a plan to bail out the entire industry -- over 4,000 companies -- and prevent them from going bankrupt. Now there’s an idea.
The market for cars has shrunk and will go on shrinking as the baby boomers retire and commute on foot between their retirement homes and the Vietnam Veterans’ Club. They don’t need new cars every five years (not that anybody really does, but that’s not the point).
So Detroit has been making too many cars. By definition, the parts suppliers have been making too many parts. The whole industry has to rationalize down to the size of the market through mergers and bankruptcies.
But the thought of a company going bankrupt and people losing their jobs is so repugnant to us (and especially politicians) that we want to do something to help them.
But I’m not volunteering to pay for it, and fortunately I’m not a US tax payer, so the government can’t conscript me into paying for it either. I feel for the US tax payer.
What seems to be missing here is even a passing consideration that perhaps a wave of bankruptcies is EXACTLY what the industry needs.
When a manufacturer goes bankrupt, nothing actually disappears from the economy. The machines are still there, the skills are still there, and the reduced demand is still there.
If creditors liquidate the company, someone can buy half the machines, hire half the workforce, and create an efficient business model. Meanwhile, the other half of the machinery is recycled through selling it to someone else or melted down and turned into useful stuff. Similarly, the half of the workforce that’s no longer needed are available to other industries to do real work.
This is called “capitalism” and “free markets”.
Everything seems to indicate that the government wants to turn back the clock on production and hope demand returns.
It’s like a mousetrap producers in London. London has a mouse problem and mousetraps are in huge demand. Then one day Dick Wittington arrives back from Siam, let’s the cat out of the bag, which then eats half the mice, and demand for mousetraps drops by 50%.
Does the government step in and try to support the whole industry to prevent bankruptcies, even though it’s as clear as day that it’s now a bloated corpse?
What happened to governments sticking to governing? Oh… they got concerned with GDP…