I’ve been very disappointed that the Obama camp is supposedly pushing the administration toward a bailout for the U.S. automotive companies. What’s next, a bailout of the newspaper industry? The two are very similar: they’ve seen what’s coming for the better part of two decades, and couldn’t adjust. Toyota has taken under the Big 3; Google, Monster, and Craigslist have demolished newspaper franchises. The only notable “innovations” of note to come out of either U.S. industry in the last generation have been the minivan and the SUV on the automotive side and…..well, not so much as even that on the newspaper side. Nobody bailed out the buggy whip makers at the turn of the 20th century. Nobody should bail out the most hapless of the buggy makers in the first decade of the 21st.
Conversely, there was, shall we say, plenty of innovation in the financial sector, where “innovation” and “using more of other people’s money to do the same things we used to do with our own” are usually roughly synonomous. Unlike in the markets for physical goods, the demand for unregulated financial products produced a set of interdependencies which could neither be anticipated nor measured in the context of lassez faire uber alles as an operating philosophy (my apologies to both my French and German friends).
The cry by the automakers and Midwest politicians that over a million jobs would be lost if they went under isnonsense. Total employment in the airline industry, including their suppliers is also about one millionworkers and virtually every airline went through bankruptcy – but is still operating. They were able to renegotiate contracts, cut down on expenses, and many analysts now claim, if fuel prices do not jump dramatically, that airlines may become profitable. The difference between the auto industry and the financials is important: Financials tanked because they made stupid investments with their capital – the demand for financial services was strong. The automakers are in trouble because too few want to buy their primary product. Furthermore, with hundreds of billions of bonds outstanding, when Lehman went under all hell broke lose. In contrast, GM and Ford’s stock is almost zero and their bonds are pennies on the dollar or less. If they declared bankruptcy, the capital markets would yawn.