Economy Running On Empty

By James V.

I recently came across many articles strewn throughout the internet of the top three American car companies in financial trouble. GM, Ford and Chrysler executives went to Congress and requested a 25 billion dollar bailout in government loans. GM chairman and executive officer Rick Wagoner actually told Congress on Yahoo! that the United States economy would “face a catastrophic collapse” if they did not bail the companies out. Wagoner also stated that the government itself would lose billions upon billions of tax revenue dollars if the government decided not to bail them out and let them fail. As well as the huge economic loss, thousands of people would be laid off and the city of Detroit, Michigan, a city which economically relies on said companies, would be in a state of utter chaos. Given this ultimatum of epic proportions, the White House and Congress are trying to come to a swift compromise over the situation as soon as possible.

I personally think that this is one of the worst things that could have happened at this point in time. Not only did our government just implement a 700 billion dollar bailout into four major American companies just months ago, but now GM and all of the other major American automotive companies are asking for one of their own. It seems to me that Wagoner thinks that the bailout system is the only solution to their problems -- he may be right. It seems as if GM and the other car companies have dug themselves into a hole they cannot get out of and now they expect the American government to cop them out. I find this upcoming “trend” of bailouts to be utterly ridiculous. First of all, the fact that Wagoner essentially demanded money from the government with no sign of a “plan B” is foolish. GM told the AP sometime during mid year that they would have enough cash to sustain themselves until 2010. I think there has been a small miscalculation. For months, GM has been cutting jobs and selling assets in order to stay afloat but it seems as if nothing is working. I realize that nothing has been working for them over the past couple of months, but you would think that someone within the company would've had a contingency plan not involving the U.S government.

The fact that GM was not doing enough to help themselves before they hit rock bottom makes me wonder whether or not they deserve to fail or not. I suppose ethically, they absolutely do deserve to fail, however, with GM, Chrysler and Ford being the biggest American companies, can we as a nation allow them to fail? They are deeply engraved into the overall American company due to the fact that American economy has more to do with foreign imports than exports. In simpler terms, the majority of things that we make, others don't want. The fact that these car companies have been around for a century or close to it shows the staying power and relative success of these companies in America. If we were to actually allow GM to fail on the basis of laissez-faire economic policy (something we're obviously good at) then what would happen to our economy? Thousands of jobs lost around the nation for starters. Then, Americans would further rely on buying foreign cars which would take money out of circulation and into foreign markets, thus killing our economy even further.

The other side to this, however, is the fact of the U.S government creating money for the sake of bailouts thus causing inflation. Even if we did bailout GM and these other car companies, would it help our economy in the long run? The U.S dollar value would be in shambles and be worth comparatively nothing. Also, even with the bailout, who says that GM would naturally recover afterwards? What if the company fails again at selling vehicles and goes under again? Then the loans could not possibly be paid back and the money would disappear into thin air, making our debt worse. With the bailout, it would also make American economy seem weak if we have to bailout every company in need. That plus our dollar value decreasing might halt trading with foreign markets, thus making it officially a “catastrophic collapse” of our economy.

I am not an economist. I am not a professional. I don't watch the stock market every day and I don't read the financial section of my newspaper everyday; these are just my opinions. The general conclusion that I have made of this situation is that the American economy is certainly screwed whether it be short term or long term. American companies need to be regulated more frequently and more efficiently to better stop these types of disasters from happening. I know people that are hardcore laissez-faire will disagree with any form of government involvement or regulation. Now that we are in this situation and we run this type of government, however, then I think it is agreeable that at least that needs to be done. I personally don't know where I stand on this issue but I know America is sitting upon a double-edged sword. All I know is that it is time for these American companies to start being more financially responsible and spending their money on ways to improve the company as a whole before running and crying to be fed from the teat that is the American government.