Blocking the Power of the Free Market

It now appears that General Motors might accept bankruptcy as a solution, after all. New CEO Fritz Henderson says, “If it’s required, that’s what we’ll do.” Oh, great. After giving GM and Chrysler $17.4 billion in taxpayer dollars with a likely promise of more, this is an unexpected and somewhat pleasing turn of events.

GM has not done a thing to deserve special treatment. Mr. Henderson admits and suggests that the company needs to restructure, but would prefer it to be done without the usual bankruptcy protection. If the Big Three made bad decisions, paid unions an unsustainable amount, and can’t compete with foreign automakers, then bankruptcy should be encouraged. Smarter, smaller, and more sustainable businesses would emerge in the long run, and have a much better chance at competing with Toyota and Honda.

With the auto bailouts and interventions, the government is greatly strengthening its regulatory power over the consumers. In 1980, roughly 75% of all automobiles bought in the U.S. were built by Detroit. Last year, Detroit’s share fell to 48%. Consumers saw how lackluster Detroit’s vehicles were and decided to purchase better models made primarily by Toyota and Honda. Why does the government not like these decisions?

An often forgotten fact is that Toyota uses more American parts in its vehicles than GM, Ford, or Chrysler. Many of the Big Three use approximately 65% or less American components in their vehicles, while Toyota has models that are made up of 90% American parts. Detroit is no longer the “American auto industry” that many politicians use as an excuse for bailouts. Not only do Toyota and Honda make better cars, they manage to make them with more American components than Detroit could dream of.

What end result is the government hoping for? Are they saying that consumers are wrong in their decisions, and should be buying vehicles from Detroit? Are they saying that despite Detroit’s products being more inefficient, unreliable, and expensive than American-made vehicles from Toyota and Honda, that they still deserve unearned taxpayer dollars?

It should be remembered that new vehicles are not necessity items. People have several automakers to choose from for buying a new vehicle, but there is also the used market that presents a less expensive option. Were Detroit forced to restructure under bankruptcy like any other business, it would not be a disaster. People might buy more American vehicles from Toyota and Honda, they might save more money by purchasing a used vehicle, and they might realize that there are much better options, in terms of pricing and reliability, than Detroit has been able to provide.

Politicians go on and on about saving American jobs, but if they force unproductive, unreliable, mismanaged companies to stay in existence, is that really going to provide long-term stability for workers? Bailouts in the 1980s evidently didn’t solve the problems then and they certainly won’t today.

Most disturbing is the lack of legal grounds of the federal government’s intrusion. Where in the Constitution does it give the government authority to allocate “emergency” funds to the private sector? Where in the Constitution does government have any authority to allocate any amount of funds to the private sector, individuals, or groups? Where in the Constitution does it give authority to the government to fire and replace a CEO of a private business?

The regulation made by consumers through supply and demand will far outlast a government intervention, program, or agency. Consumers clearly showed that they didn’t believe their dollars were best spent buying a vehicle made in Detroit. But because the government can’t resist coming to the rescue, their forcefully extracted taxpayer dollars are being used to give special treatment to corporations who manage to have greater lobbying power than smaller businesses.

It’s as simple as that. Consumers showed that Detroit, AIG, Bear Stearns, Freddie Mac, Fannie Mae, hundreds of banks, and much of the financial establishment were not doing business with the individual in mind. Yet the government will not allow the businesses that were overcome with greed and stupidity in high places to come crashing down as the market consistently urges. Instead, politicians somehow see logic in condemning all the various corporations while funneling billions and trillions of dollars to those same corporations.

Supply and demand, put in the hands of free individuals, is what a strong economy and society is built upon. Government cannot change the course of an economy for good by taxing some and giving to others, attempting to spend, borrow, and print the economy out of a recession, or by assuming that it knows the solutions to the problems of individuals and the economy. This statement from George Washington ought to serve as an example of the best government can be in these matters:

“Our commercial policy should hold an equal and impartial hand; neither seeking nor granting exclusive favors or preferences; consulting the natural course of things; diffusing and diversifying by gentle means the streams of commerce, but forcing nothing.”

Impartial Hand. Natural course of things. Forcing nothing. Does this resemble our government’s role in the economy today? Amazingly, some people think it does.

Washington, and many of the Founding Fathers, envisioned a government that largely stayed out of the affairs of the people and economy, and maintained a neutral balance. This neutrality and resistance to intervention is what strengthens the choices of the free men and women of this country; government intervention destroys that balance and ignores the long-term consequences of short-term actions.

The business of bailouts, intervention into private affairs of the economy, and special treatment for a select few do not come close to representing the impartial hand that Washington spoke about.

A truly impartial government, focused on providing equal justice for all individuals, gives greater ability for the laws of supply and demand to chisel at the risks, mistakes, successes, and opportunities created by a free people, economy, and society.

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