Posted by Joseph Y. Calhoun, III

Don Boudreaux, chairman of the GMU Department of Economics, takes on the myth that the Little Three automakers are too big to fail (via the WSJ):

The spectacle of corporate magnates from Detroit pleading to be on Uncle Sam’s dole is a sordid one. So why aren’t more Americans appalled? One reason is widespread misunderstanding — much of it sowed by these auto makers — about the size of their firms. The Big Three, we are told, are “too big to be allowed to fail.”

This myth begins with the idea that GM, Ford and Chrysler are so huge that if they go belly-up, the livelihoods of a disproportionately large number of workers and suppliers would be affected. At once, the market for their services and products would close. Therefore, the argument concludes, government must prevent any such failures.

Nonsense.

Bankruptcy doesn’t make assets — such as factories, machines, contractual options to buy raw materials, workers’ skills — disappear. If markets still exist for products produced by these firms, Chapter 11 is the best way to discover this. Some workers might lose their jobs and some suppliers might lose their markets, but there would be no industry-wide collapse of the sort portrayed by the bailout’s cheerleaders.

Boudreaux is right and the best option for the economy and for the Little Three is Chapter 11. That is the only way they will take the steps needed to ensure a viable US owned auto industry. Not that a US owned auto industry is really all that important. How many countries in the world have significant auto manufacturing industries?

If we bail out Detroit, it won’t end there:

If Washington gives no special subsidies to workers and suppliers outside of the auto industry, why treat GM, Ford and Chrysler differently? Are their workers or owners more worthy? Not at all. The jobs and good pay that they’ve enjoyed were made possible by the very economic openness that now requires significant restructuring of these three firms. Their shareholders, workers and suppliers have no moral or economic claim on special treatment from government.

It is precisely because the Big Three differ in no essential way from America’s other firms that bailing them out runs a real risk of cascading into a march on Washington by countless firms unable to see why they are less entitled to taxpayer funds.

GM, Ford and Chrysler are not special. They should be treated no different than any other industry. We let internet companies by the thousands fail and the online business world seems quite robust. It would be no different with the auto industry. If we subsidize failure, that’s what we will get.

And why exactly should Chrysler get anything from the taxpayer anyway? They are owned by a private company (Cerberus) which has cash it could invest in Chrysler. If Cerberus isn’t willing to invest more in Chrysler, why should the American taxpayer? Cerberus hired John Snow, the former Bush Treasury Secretary as the CEO of Chrysler and employs Dan Quayle and John Breaux, both former politicians. as lobbyists. This is nothing but crony capitalism and rent seeking. Cerberus bought Chrysler thinking they could make a quick buck. They loaded the company with debt and now they want taxpayers to bail them out of a bad investment. I say too bad. Cerberus took the risks and they should take the loss.