Thursday, November 13, 2008
The problem with bailouts
Bailouts are a bad idea. There are lots of reasons.
Here's just one: When the government tries to prop up failing businesses it always come with strings, and those strings make it even harder for the company to succeed.
Case in point:
Thomas Friedman wrote in his New York Times column about what he thinks the government should demand in exchange for the bailout of General Motors. He says that GM must:
"... demonstrate a plan for transforming every vehicle in its fleet to a hybrid-electric engine with flex-fuel capability, so its entire fleet can also run on next generation cellulosic ethanol."
This is such a bad idea. Who knows when and if hybrid/flex fuel/cellulosic ethanol is truly going the be the "next generation" model for automobiles? Friedman certainly doesn't know, nor does the federal government.
Yet he wants this mandated as a condition of the bailout? What if they are wrong? Then GM will fail again, or more likely, taxpayers will just have to subsidize the production of these supposedly next generation cars forever.
Better to let it fail. The company is failing because of its medical and pension liabilities, not so much because its cars are bad. Let someone else put their own capital at risk buying the assets and making cars that aren't weighed down by a corporate cost structure that makes it uncompetitive.