Economic Lynchpins
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There are some economists and a lot of Republican senators who will argue that allowing a whole industry to fail is okay. It will be replaced by something else... or somewhere else.
From Cafe Hayek:
From Cafe Hayek:
Bankruptcy doesn't make assets -- such as factories, machines, contractual options to buy raw materials, workers' skills -- disappear. If markets still exist for products produced by these firms, Chapter 11 is the best way to discover this. Some workers might lose their jobs and some suppliers might lose their markets, but there would be no industry-wide collapse of the sort portrayed by the bailout's cheerleaders.
But what if refusal to bail out these firms results in their complete failure? Even then -- especially then -- the case for a bailout crashes. Really big firms such as GM, Ford and Chrysler are really big users of productive inputs, like rubber and steel. Almost all of these inputs have alternative uses and could be used by other firms or in other industries. [comment: in what countries and after how long?]
A government bailout of the Big Three keeps huge amounts of productive inputs in firms that can't use them efficiently. Forcing taxpayers to subsidize the continued employment of gargantuan quantities of raw materials, labor and capital goods in unproductive pursuits is a recipe for economic stagnation. The popular and politically convenient myth has matters backwards: The bigger the unprofitable firm, the more vital it is that it be allowed to fail.
Industries that are failing in one country can be replaced by those same industries in other countries or replaced by something else in the same country... that's the theory.
- Steel here replaced by steel there;
- textiles here replaced by textiles there;
- electronics here replaced by electronics there;
- automobiles here replaced by automobiles there;
- wealth here replaced by wealth there....
As with any system, the parts can be replaced. If you have an inefficient heart, get it replaced. If you have an inefficient kidney, get it replaced. If you have an inefficient brain, get an unemployment check.
In economic theory, there are no lynchpins to any system or economy. What fails gets replaced... and the greater good is served.Okay, but what happens when the "body" is okay, but there is no food because the agricultural system collapsed worldwide? Go into caloric bankruptcy? That's pretty much what is happening to the automobile industry. Normal credit channels have dried up because of the financial problems worldwide.
Other governments have recognized the need for emergency "food" for their industrial "bodies." Our theorists here insist that the body should starve... maybe the organs can be sold off later.Maybe there are no "critical" or "lynchpin" business endeavors ... industries... in our economy... or any economy.
If, for example, poppy production fails in Afghanistan, it will be replaced by poppies imported from someplace else... and the Afghanistan economy hummmmmmms along. What do you mean that the other grower might just take over the processed poppy market and leave the Afghans out in the cold?Likewise, we can simply ask for foreign credit on everything we use. Or perhaps like the wagon wheel and horsewhips, we can replace the auto industry with a new form of transportation... yet to be invented... progress, you know. After awhile, we can replace U.S. money with something else, too.
I'm sure there will soon be more efficient currencies than one backed by trillions of dollars of debt.I wonder if our economists can tell us how far into the future we can spend and manipulate without actually having to earn anything? I wonder if they can predict who will own America's debt... and tell us, like our wise Republican senators, how our nation must restructure?
Meanwhile, isn't it great that Wall Street and the banks got all of those billions without any sideshow before Congress... no justification or explanation needed... and didn't have to share it with anyone? They get to screw up the economy and industry has to explain why it didn't plan for the screw up!
The Republican Sens. Corker and Shelby would like to see laborers at the automobile firms and suppliers to the automobile firms bear the brunt of the financial institution screw-ups so that banks won't have to use some of that $700 billion to get the economy going again. Of course, Sens. Corker and Shelby have their own states and those foreign assembly plants to protect... factories owned by companies that receive a lot of support and subsidies from foreign governments, too.Maybe the domestic automotive industry isn't a lynchpin. Perhaps that is why it is getting a lynching in Congress.
Besides, lending to U.S. business is risky, you know?
Do you suppose the French and Chinese and Japanese and Germans are laughing at us now? Why not? It is laughable.Oh, just one other thought. You know the $25 billion that was revised to $34 billion and somehow reduced to $15 billion? Well, according to Nancy Pelosi, that amounts to 3, 4, and 2 months of U.S. spending in Iraq, respectively.
Hey, Republican senators, why is donating money so good in Iraq and lending money so bad in the U.S.?Sorry senators, but I say "America first" whether that is a parochial view or not... just like the French and Chinese and Japanese and Germans are saying about their countries and industries... so why aren't you?
ADDENDUM
[source]The US Treasury signalled it was ready to step in with funds intended to prop up the financial system to prevent the biggest industrial failure in US history.
“Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry,” the Treasury said.
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