Big 3 Bail-out thoughts

By Fester:

In normal times, I would not support a massive bail-out of GM.  However these are not normal economic times as we have entered a liquidity trap.  Unusual and massive interventions are warranted to prevent a Japanification of the US economy.  Salvaging the remains of GM, Ford and Chrysler is most likely justifiable as the alternatives are worse.  It is not desirable, but it is justifiable.

Publius at Obsidian Wings argues that the spin-off and inverse multiplier effects will be massive:

  There are effectively millions of people who could be out of work if Detroit goes down (and bankruptcy doesn’t provide the potential benefits here it normally would). That sort of massive job wipeout would – in addition to literally decimating large regions of our country – trigger massive economic dislocation.

I don’t care how cool the free market seems in the abstract – these are real problems involving real non-sparrow people. And these very real problems would cascade throughout the country. They can’t simply be ignored because the market fairy (“as if guided by an invisible hand” – puke, vomit) will come and fix everything.

Bloomberg reports that the cost of inaction will be more expensive than any intervention:

General Motors Corp., seeking a federal bailout as its cash dwindles, would cost the government $200 billion should the biggest U.S. automaker be forced to liquidate, a forecasting firm estimated.

A GM collapse would mean ``more aid to specific states like Michigan, Ohio, and Indiana, and more money into unemployment and extended benefits,'' Nariman Behravesh, chief economist at IHS Global Insight Inc. in Lexington, Massachusetts, said today in an interview.

If either $25 billion or $50 billion in government loans and bridge financing that effectively acts as debt during re-organization is needed to keep the entire Mid-western industrial economy functioning with its millions of direct jobs and tens of millions indirect jobs dependent on it, then that is worth it.  Remember, each car plant that closes down will destroy three or four times as many secondary jobs as direct jobs.

We do not need to see another three or four million people laid off at once.  We do not need to see regions embark upon a land-talent-opportunity death spiral similar to that which happened in Western Pennsylvania when the steel industry collapsed in the early 80s.  We'll be facing enough problems in the next couple of years that paying a bit to avoid another massive problem is a very good idea. 

Comments

[Tim Beaulier]

I believe our country would be better off if instead of bailing out businesses, the people received the money. I believe that if the people of this great nation, 18 years and older were given $500,000.00 each that the economy would be stimulated. If the people have to pay the bill, the people should have an opportunity to direct, invest, and spend the money.