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...
What will President-elect Barack Obama tell these other firms when they come begging? If he says no, he'll be seen as having played favorites with three firms that deserved no such special treatment. If he says yes, he gives private industry a blank check drawn on the American economy. To imagine that firms will not draw on that account too often, too greedily, and without real justification is a dangerous fantasy.
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