Tuesday, December 2, 2008

In Response To: Automakers Bailout

Recently, the NYTimes.com underwent some online changes and ended up redoing, among other things, the comments area for their blog section. While there are many improvements, one of the worst changes has been the "paging" of the comments. Now, there are pages of comments, and each page shows only 25 comments. Certain Freakonomics posts, can have more than 100 comments, and the contest entries can have even more. Naturally, paging these comments, particularly in the absence of a search function, makes reading and finding comments much more cumbersome. Fortunately, I already have a good system for cataloging my responses: my own blog.

So expect to see some (or many) responses to either Krugman or to a Freakonomics article copied over to the blog. Hopefully, this will let my readers (if any) know that I’m still thinking about stuff and it will allow for me to keep all my ideas at least a little centralized. First up on the new system: my response (copied below, of course) to the issue of US automakers seeking $25 billion from our government in the form of a bailout. The original Freakonomics post is here.

How evil or "un-American" would I be if I said either remove all the hamstrings set by the US government on our carmakers or let them go out of business? I wish people understood the real culprits behind the failing domestic automakers: government intervention in an otherwise healthy market and government-supported, inflated labor costs; in other words, production requirements and restrictions in fields like MPG and higher-than-market-value union wages/benefits/pensions.

Hopefully everyone reading this blog knows a thing or two about comparative advantage. US automakers and the respective production facilities have such an advantage (even with their bloated labor costs), and it happens to be large, powerful, admittedly gas guzzling vehicles. Naturally demand has, in that past couple of years or so (before the recession started), started to shift toward smaller, more gas-efficient commercial vehicles, but that does not mean we still do not have our production advantages. Yet when the government sees we are importing a lot of small cars from other countries who specialize more efficiently in small car production than we can in the US, our politicians who seem to not understand comparative advantage (or many other economic principles) barge in and mandate our auto companies to make smaller cars with MPG requirements. This mandate forces our automakers to make cars our factories are not built to make in order to compete with foreign car companies who pay much less for labor to the point that even after shipping the cars across the Pacific Ocean they can afford to slap on lower prices. What a recipe for disaster for US automakers!

A bailout for the auto companies here is, as I've said before, like morphine to someone who has lost a limb: a short term solution that offers absolutely no long term security (maybe the person says if they felt a little less pain they could bleed less). We need to either remove some of these government restrictions, returning to a more free automobilie market, nationalize these companies (which I am against), or we need to let the companies go out of business since, in their current, regulated form, they cannot compete. Making taxpayers fund a failing business is a terrible idea.

My bottom line: US politicians (and I wish taxpayers) need to start trying to understand the real reasons behind economic problems or they need to get the heck out of office. In my opinion.

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