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The Craziness of the Auto Bailout

Tonight, the U.S. House of Representatives voted 237-170 to use taxpayers funds for a downpayment on a recovery program for the failing auto industry. Alabama’s US Senator Richard Shelby is leading the opposition to the bailout. Shelby declares that the total cost of the bailout will easily exceed $100 billion. The late Samuel Francis often quipped that the United States has two political parties: the Evil Party and the Stupid Party. Occasionally, you see a true bi-partisan effort and you can count on that bi-partisanship involving both evil and stupidity.
This bailout package was passed with pressure from the Democratic leadership in the House and the influence of the Bush White House. While Democrats supported the package by a 205-20 margin while Republicans actually opposed this corporate welfare program by a 150-32 margin. Among Alabama Congressmen, all Republicans (Bonner, Rogers, Aderholt, and Bachus) voted No except the retiring Terry Everett who was not present for the vote. Democrat Artur Davis voted No while retiring Democrat Bud Cramer voted Yes.
This vote is a clear-cut example of pragmatism winning over principle. The United States became the wealthiest nation in the history of humanity by freeing enterprise to take risks and make investments. But the bottom line is that investment is made by those who obtain capital. The reward of earnings comes from those who either work to provide a good or service, or those who invest in that good or service, so that another can work. Investment creates wealth, hence creates jobs.
When a government entity subsidizes failure, then that failing industry is rewarded for failure. That industry can continue to fail, and the advantage that industry gains by the subsidy gives a disadvantage to those who have produced successfully.
By this subsidy, we reward a poor job. Eventually, this action will drive up prices and drive down quality.
But the pragmatic approach is to offer the temporary band-aid of federal subsidy. This approach wins temporary cheers from the special interests connected to the automobile industry.
American economists need to consider why the US Big Three Automakers are not competing on the international market. Is our tax structure negative toward investment? Are regulations making productivity difficult? The answer to the auto dilemma is not more government subsidies, but less government involvement in the free market. Back in 1958, Robert Welch said that under free enterprise, you always have to hire more salesmen to sell off the surplus, but in socialism, you hire more bureaucrats to divide up the shortage. Now, we are talking about a Car Czar to regulate the use of the bailout funds. The free market is the best measure of that which will fail or succeed in our economy. Selective subsidy is propping up failure and penalizing success.
Readers of Musings from Maytown are urged to call the local offices of their respective US Senators and urge them to vote NO on this ridiculous bailout plan.

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