Don't Look Now

I’m with Philip Greenspun on the question of whether to bail out the auto industry:

The government has already done everything that it needs to in order to help G.M. […] Chapter 11 was designed specifically so that employees can keep their jobs, albeit possibly at lower salaries, while shareholders and creditors suffer and/or are wiped out.

For me, it’s not a question of what G.M. “deserve[s],” as Greenspun puts it. The banks surely didn’t “deserve” anything; bailing them out made sense in terms of avoiding economic calamity worse than whatever we’re going to face anyway.

The point about G.M. is that Chapter 11 bankruptcy will probably suit the company and the economy better in the long term than will a bailout. The point is that the U.S. auto industry has to change in order to be more competitive at home, and that keeping G.M. afloat at a tiny fraction of last-year’s market cap will not restore value or even necessarily position the company to rebuild in the near future. The point is that this American powerhouse has already failed, and that a bailout now will not retroactively prevent that failure, any more than a bankruptcy proceeding could.

What a bailout will do is protect some employees from hardship and, in doing so, help an entire region see its way through financial crisis. However, this admirable goal would be more effectively served with economic aid programs targeting those without jobs (and not just in Dearborn).

You can’t force a company like G.M. to reinvent itself with a bailout, but you can spend that same money on the creation of new jobs whose output benefits the entire country—jobs that renovate our infrastructure and reduce our dependence on foreign, exhaustible sources of energy.

To put it another way, the fifty billion dollars’ worth of auto industry loans that we might see in the coming months represents a third of the budget of Obama’s ten-year energy plan. Where will the money be better spent?