Why the bailout of GM and Chrysler was bad.

Quite simply the Bush Administration did not solve anything. Instead they acting in a defensive way and decided to punt. They gave the automakers enough money for a couple of months and now the Obama Administration has to decide what to do. The simple fact is they should have let them go into bankruptcy. It would have been better for the country in the long run.

But what about all the auto workers and other people in the auto industry? Dramatic changes have to occur in the auto industry. The industry in the US has been very sick for many years. The recent events have just pushed them over the edge and are not a temporary state of affairs. If the problem were temporary or one-time, a bailout would have been a good plan. But the fundamental problem is the US auto industry has not been competitive for many years. How do you get people to change? Unfortunately the only way to get millions of people to change is a very dramatic action. It takes a bankruptcy to really force change on management and the blue collar workers. Without bankruptcy the management stays the same (note the President of GM is not resigning) and the auto workers are also not changing. More importantly while the culture of Detroit is under pressure, it will not change without bankruptcy. You have to change a culture that has produced such a string of lemon cars.

In the past few months it has become clear many people don’t understand the capitalist system. The simple fact is humans make mistakes. How do you get them to change and stop making the mistakes? The capitalist system forces people who do not provide a good product at a reasonable price into bankruptcy. The capitalist system is not touchy-feely, but brutally honest. If you don’t have the goods, you fail. Many people don’t like this feature of capitalism. But it is critical for an economy and a society to dump the process or products that don’t meet a need. The Soviet system was great at producing products, but many people did not want them! Just producing cars or any product without regard to style, cost and reliability has to be stopped. The capitalist system uses bankruptcy to FORCE changes. When a government steps in and limits change, they harm the economy and the future economic growth.