Defenestrating Thoughts from the Bivouac

As the nation is closely watching the big $700B bailout fiasco, Congress is very quietly bailing out the US automakers:

[Ford, GM, and Chrysler] receive up to $25 billion in low-interest loans to help them develop technologies and retool factories to meet new standards for cleaner, more fuel efficient cars.

…

The secretive deliberations … seemed to ensure that the spending measure would have a low profile.

The US automakers get a $25 billion loan??? On top of that, the low interest rate and high inflation mean that the automakers will pay back fewer real dollars then we are lending them!

In other words, we’re giving them 10 loafs of bread now, and in a few years, they will give us 8 loafs of bread back. Would you agree to that? No? Too bad, Congress agreed on your behalf.

The reason that a lot of people dislike government spending is that government spending is a misallocation of capital.

Simply put, if left to their own devices, would people (e.g. the market) give money to Ford, GM, and Chrysler in return for less money later? I would guess no. And why? It’s stupid. I have better uses for that money.

But the government does it anyway.

There are two reasons for this. (Well three, if you count the fact that our politicians have been bribed, I mean, lobbied for this.)

First is the simple fact that people are less careful with someone else’s money. If Congress was using their own money, would they have lent it out?

Second is the that people are not smarter than the market. People cannot allocate capital as efficiently. This is why all those Communist states keep failing. Central planners, no matter how smart, cannot possibly make decisions better or faster than the market.

You know how corn based ethanol turned out to be a bad idea? The government didn’t get the memo; they are still subsidizing it.

Another indication that this is misallocation of capital is the fact that the market would not do this. Ford, GM, and Chrysler couldn’t get a loan with these terms on the open market. Why? No one felt it was in their best interest to do so.

A simple way to say “misallocation of capital” is “waste of money”.

Now, undoubtedly people will say that this is necessary to keep American institutions and American jobs safe.

And that is completely wrong.

First of all, American jobs? I drive a Japanese car and it was built in Tennessee by Americans. And I’m pretty sure it has at least as many parts made in America as the “American” cars.

Second, bad companies need to fail. This makes room for good companies that will fill the void. And the fewer barriers to entry the government throws in the way, the faster newer companies will show up. And those companies will make better products, sell more cars, and, as a result, employ more people.

Why do Ford, Chrysler, and GM need help? These are bad companies. They make stupid decisions — agreeing to untenable labor contracts, betting the business model on pickup trucks and large SUVs as gas prices are skyrocketing, and not improving the quality of cars, to name a few.

As a result, they keep needing to be bailed out.

It’s better for the country if bad companies are allowed to fail. If a country bails companies out indefinitely, the country is basically nationalizing industries. At that point, the country itself is guaranteed to fail; it will in aggregate be spending more money than it is making. Just like all the communist nations that keep failing.

Is it any wonder that Congress passed this bill as quietly as possible?