Should we save the auto industry?

Should we save the auto industry? The question in the news is couched in economic terms – as it should be: Should taxpayers bail out the auto industry, and if so, what conditions and safeguards should be built into the financial arrangements?

But the issue must be resolved quickly, because there is a strategic component that could be more important in the long run than the economics.

The US has some essential industries and some that are not so essential, from a strategic point of view. If our sources of goods were cut off – if we were at war, for example, we could probably get by if we had no lawn furniture industry or cookware industry. Computers, trucks and autos, airplanes, energy, food, and some other items are harder to do without in a wartime situation.

It wouldn't even matter if the Saudis or the Chinese own the auto factories. But unless the factories and the supply lines are in the US, we could be in a difficult place if we find ourselves in a protracted military or even political confrontation.

Economists (counting me among them) talk a lot about competitive advantage. It makes everyone richer when counties live by the rules of economics 101. I'd encourage it; let's buy our lawn furniture from China, our sport shirts from the Philippines, and our high-heeled shoes from Brazil. Let them buy their technology, airplanes, and even corn from us.

In addition, when everyone is dependent on everyone else, reasonable people don't fight each other. But we all know that reason doesn't rule much of the world.

What are the economic questions that must be resolved regarding the potential recipients of taxpayer largesse?

1. Do they even need the bail-out?

2. What will they do with the money?

   • Buy technology? Retool?

   • Re-design marketing?

   • Stop making and selling big cars, even though Americans want to buy them (as long as gas prices are down)?

   • Will taxpayers have access to the boardroom and the corporate financial statements?

3. How will be ensure that the taxpayers will be paid back? How will they be paid back?

   • Will we get some of future profits?

   • Will there be some improvement in national infrastructure?

   • Will the companies take on some of our future obligations?

   
   
   • Will taxpayers own part of the business?

4. What will they do to make sure that all employees -- low to high – share in both the sacrifices required and the dedication necessary to solve the problem?

   • The unions have already said they are unwilling to negotiate

   • Members of upper management are still paying themselves unconscionable salaries and bonuses.

So let's resolve the sticky issues of economics, including fairness and equity, and get on with making sure that we have a viable strategic industrial base in the US.