Should We Bailout US Automakers?

I came out in support of government action in the financial markets. I did not like some of the details of the recovery package, but in principle I believed that functioning capital markets are vital to our economy and that allowing them to fail would adversely affect everybody, much as allowing someone's house to go up in flames would negatively affect their immediate neighbors. Furthermore, I did not and do not assign total blame for this financial crisis to private mismanagement in the financial sector. Quite to the contrary, I believe the government through inappropriate types of regulation and through its political meddling in the mortgage market gave incentives to companies to lend in a reckless manner.

On the other hand, the automakers can claim no such thing. The US government has not compelled GM, Ford, and Chrysler to produce products that Americans do not buy, or to load themselves up with obligations to both current workers and retirees that they cannot afford. I am therefore firmly against any bailout for automakers. Furthermore, I find the notion of GM, Ford, and Chrysler submitting business plans for Congress to analyze (and to supposedly affirm the viability of the automakers) absurd. The only true test of success of a business plan is how the business survives in the marketplace.

Harvard economist Ed Glaesar discusses this issue at more length here.