Economics Left and Right, and Government Bailouts of Auto Companies

The Economic Thinking on the Left and Right

On the left (most of the family?), economic thinking seems to be that prosperity comes from consumer spending so give consumers consumption with massive government spending and jobs programs. On the right (Dianne, others?) economic thinking is that prosperity comes from producers who increase their productivity with investment so at most give business tax breaks or investment incentives.

If you're on the left (as apparently is most of the family), then you probably think the auto companies difficulties threaten jobs, the consumer side. If you're on the right (Dianne, others?, and me if you include both the right and free marketeers) the auto companies represent a poor use of capital and poor productivity (at least partly due to management). Let them restructure under ch 11 or at most let them put together a plan and offer issue bonds, or instead have government (why?) make loans to them.

Heated rhetoric aside (it doesn't explain, it justifies political action), the economy won't collapse (it's far too bit resilient, advanced, and complex), and there will be no dire consequences if the government doesn't bail out auto companies; auto companies will downsize further, file ch 11 bankruptcy so they can restructure the company and union contracts, create a plan and offer bonds to get capital, sell off some assets to other companies, continue asking Congress for bailout (by threatening plant closure, massive layoffs, pay us no or pay us later) or all of the mentioned. The auto industry will continue to operate their factories, employ workers, and make cars.

Bailouts by the government make the problem worse by artificially delaying the natural adjustments that are required. Allowing capitol to constantly be reallocated from relatively unproductive to more productive uses makes the economy resilient and prosperous (jobs and wages as well as better, more plentiful products). Leaving government out of auto companies will not have dire consequences even for most workers. Except for unproductive jobs, if auto companies have to restructure, all if not most of the auto employees will continue with their jobs, factories will continue to produce cars perhaps under new ownership or management, and certainly GM, Ford, Chrysler cars will continue to be produced although their market share may continue to decline. It is what is supposed to happen when companies or even whole industries become unproductive.

The restructuring is "painful," but the longer it take to reallocate capitol and jobs, the more difficult and painful. Many, many businesses large and small downsize or even go out of business just as many, many businesses start-up and grow. Jobs move around, get better, prosperity increases. If government locks business and workers into wage contracts, worker benefits, worker rights, and special benefits for some companies, and all the other rules and regulations, the economy can't adjust, reallocate its resources, create more productive activities, conduct research to improve or get rid of less productive activities. We will wind up with the high unemployment of European nations, lack creativity, and their lower level of prosperity.

Criteria for My Position

1. From the moral dimension regarding bailouts, it is unjust for politicians to pick winners (Bear Sterns) and losers (Lehman Brothers, Goldman Sachs?) and even worse to do this by taking wealth away (forcibly by unnecessary government debt and taxation) from current and future citizens without their consent or gain.

2. From a scientific point of view, the idea that ("Congressional leaders are reviewing three separate survival plans from the automakers in preparation for hearings Thursday and Friday, as they weigh whether to call lawmakers back to Washington for a special session next week to vote on an auto bailout.") Congressional leaders are more knowledgeable than industry executives regarding restructuring a complex company or that they understand principles and findings of economics (do they give you a factual analysis of the situation as either a liquidity [the Great Depression} or a solvency problem {today's situation]?) is absurd and arrogant.

3. From a political economy point of view, American constitutional government gives Congress no expressed power of unlimited government such that it can give taxpayer money to private companies.

4. As to citizens and democracy, we have already voted and continue to vote; we decided GM products have less value for us than Toyotas (I cast my vote for a Toyota to replace my Dodge Caravan). If you want GM to survive, express your vote by buying a GM product.

5. And finally, as to economic systems which are extremely complex, they are dynamic, living systems that constantly adjust and construct in order to survive, and which do this in spite of burdens (taxations and regulations) and challenges (seizure of assets or statutory demands for certain products or standards) and distortions in their operations (tax breaks, quotas for subprime mortgages, environmental or carbon limitations) imposed by governments that effectively act as parasites, diseases, and disabilities on the system. First, do no harm so we should make sure the decision makers are omniscient before allowing government to create unintended consequences.

FDR's New Deal & the Great Depression

Interpretations of the Great Depression face the same ideologic dispute between those on the left (FDR saved the country and capitalism by Krugman (Nobel Prize in economics but now a leftist commentator), other leftist economists and many historians) and those on the right (the New Deal hampered recovery until after the war by Higgs [fascinating podcast based on his research], Schlaes [both recently in the news], other free market economists). FDR was no economist, and pursued neither Keynesian nor classical economics in his feckless actions but he was a brilliant orator (fireside chats and compelling speeches); he produced no consistent policy for either supply side (business) or for consumption (the common man), he tried many programs (alphabet soup of New Deal programs), made many serious mistakes (NRA), had little regard for the Constitution (packed the Supreme Court to get his constitutionally dubious programs through). So economists argue as to the effects of the New Deal on the economy, and one's position depends on how one decides what kind of data to look at (net investment or total investment, all jobs or non-government jobs, private GNP or total GNP including war production, length of recession or amount of growth occurring after the bottom until final recovery to pre-Depresssion levels after the war) or perhaps outright ideologic bias.


My Position

I side with Dianne regarding both the economics of bailouts and the New Deal's effect in prolonging the depression (to make it a Great, Double Depression from 1930, 1937, to 1944. I believe in protecting free economic activity by citizens (and every other kind of free activity by citizens) because of its essential and amazingly constructive, adaptive, creative powers (true of all living systems including biological, organizational, moral, cognitive, educational systems). And yes, a society of free human activity especially from the economic point of view also takes care of social problems very well without government interference.

To prevent freedom is to prevent the essence of life itself.

Dick