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Nov. 19, 2008 The doomsayers have long been prattling on that refusing a multi-billion dollar bailout to General Motors would send the American economy into a tailspin not seen since the Great Depression. This is likely true. I have resigned myself to that fact and so should you. Be under no illusions: Times will get tougher before they get better. But could this whole situation have been avoided? I believe so. Let me show you why. Since at least the 1980s and possibly as early as the 1970s, the American automotive industry has been losing ground to foreign competition. The response of the American government, bending to ill-informed populist will, has been year after year of subsidy to the auto industry. Taxpayers prop up a GM health plan for union workers that the company cannot support on its own. Taxpayers prop up cars that cannot compete through tacit acceptance of tariffs that make better cars more expensive. Taxpayers prop up a company with a rusty and shaky business plan instead of demanding the company reform its business model, sell off troubled assets, consolidate, and post performance. Taxpayers prop up a company that is no longer competitive because Americans are afraid of "what comes next." But America's industrial supremacy was built on the back of these companies! Populist politicians and Union leaders shout. This is true, but this is also the past. Keeping alive through artificial means when they can no longer compete is as pointless and costly as keeping a brain-dead relative alive for years when all hope of recovery is gone. But there is a key difference: We are paying for life support for GM when the hope of recovery is still alive and well. Why do we do this? Nostalgia. No one wants to see our automotive industry shrink. Gosh, we made awesome cars with fins in the 50s, and everyone knows the song Pink Cadillac. Therein lies the problem: When is the last time an American auto-maker produced anything genre-defining? When is the last time a consumer was persuaded to purchase an American brand over a foreign competitor? Our nostalgia for preserving GM at all costs has led to a coddling of the company that has stifled innovation and competitiveness. After all, why compete when someone will cushion your failures? Why work hard when the bottom line will be there anyway, thanks to American taxpayers? It now seems GM will be denied its bailout by Congressional Democrats, in a rare show of libertarian spine. This may well lead to a collapse. It did not have to be this way. Had government from the beginning denied bailouts that softened the competitiveness of GM, the company may well have adapted and remained successful - even if that means breaking away from the "old ways" and nostalgia for how things once were. Now, babied and bloated from government subsidy, any attempt to deny GM the drug of subsidy it has used for so long to sustain its addiction will result in the death of the patient. The fall could have been so much less painful had we adopted this policy from the start.
American taxpayers let GM dig its own grave through their unwillingness to elect politicians who do not believe in the permanent bailout philosophy. Now we stand to suffer for our nostalgia. The pain will be intense, but it is necessary to correct artificially strong markets. Whatever happens to GM, much harm will come to the American taxpayer. The only redeeming hope in this morass is that, from the wreckage, other automotive manufacturers - and future automotive manufacturers - will learn from the mistakes of GM and focus more effort on competition than on the reckless pursuit of endless subsidizing of failure.
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