Tuesday, November 11, 2008

My First* Critical Post of Obama: Econ 101

Now that that is out of the way...

Already, we hear the ascendant Obama talking about bailing out Detroit--by extending federal money to U.S. automakers. This does not benefit America--this only benefits some Americans whose livelihoods depend on the auto industry. This, of course, is already at the cost of the taxpayers to support apparently flawed business models which, in the long run, will cost American consumers of our automakers even more money.

Econ 101: Diffuse costs and concentrated benefits.

If the economy is really headed into the tank, if you'll pardon the expression, there will be no shortage of people with their hands out asking for government help. Those companies who get federal assistance will be better off than those who don't, thereby providing a perverse incentive to fail--or, at the very least, lessening the fear of failure--in order to receive an advantage over more successful competitors. This distorts the market and hurts consumers across the board as better products are priced-out by inferior subsidized goods, thus further damaging the economy by punishing good businesses.

I feel bad that Detroit is suffering. American manufacturing has been taking a hit for awhile now, and the trend doesn't seem to be lessening. Whether you blame unions, corporate taxes, globalization, or the explosion of the information age--or some combination of them-- the manufacturing sector is in deep trouble, perhaps fatally in some cases. This, however, is no reason to throw more money at bad industry.

We all suffer if we continue to reward bad businesses. The U.S. will fall further behind the world in production and innovation as we struggle to save old corporate dinosaurs instead of paving the way for new and better companies.

If anything, such a wrong-headed policy indicates "We fear change."

*post election

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