Politics and Policy

There has been talk over the past week about the government giving varying degrees of help to the American Auto Industry. I am going to watch this debate closely as I think it is an early test for the Obama Presidency in 2009. President Elect Obama said during the campaign that he would end tax breaks to American Corporations that ship American jobs overseas. President Elect Obama has also advocated “help” for the American Auto Industry. There are varying degrees of suggested “help” , from pumping money into the auto credit market to flat out giving money to the big 3.

Few corporations have exported more jobs than the “American” Auto Industry and President Elect Obama knows it. Now he seems to be advocating not only allowing the industry to keep the tax breaks they already have, but actually giving them more money and aid, with restrictions. We have all heard politicians talk about belt tightening and responsibility during the election, but less than two weeks later, we are back to the same old rhetoric we’ve heard for the last twenty years.

Policy makers are considering a further bailout of the auto industry, and I agree. Look, I can’t imagine the economic impact of a completely defunct General Motors or Chrysler Corporation, but I don’t think any of us understand the root of the economic problems our nation faces. Ultimately the auto industry is in trouble because they can’t sell cars. Granted, auto makers have mismanaged the financial advantage they’ve enjoyed through complacency and a firm belief that they could always make up small financial losses in the next quarter, but the current crisis ultimately comes down to cash flow. Few people are buying cars not only because they can’t get the financing, but because they can’t afford them. The interest rates are too high and the credit market is extremely tight. Congress wants easy credit for automobiles so that consumers will buy them, which generates cash flow for the automakers. Simple right? Wrong.

Does anyone remember why we are in this mess in the first place? Easy financing for home loans which enticed consumers to buy homes they could not afford. When inflation went up, folks couldn’t afford their mortgages because they were paying more for the things we all need, fuel and food. If Congress artificially creates another easy credit market for automobiles to entice consumers to buy a new car when they can’t even pay their mortgage, we will be right back in the situation we are now.

I hope Congress allows General Motors to go bankrupt and allows Chrysler to go bankrupt and then aids in financing during the reorganization period. The plan has worked before and I think it is the only responsible thing to do now. I also hope that President Elect Obama does not turn a vague political promise into a poor policy choice. Despite your earlier position, go ahead and give them the aid, but wait for the inevitable bankruptcy to do it.

Trialdawg.