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by Free Market Duck

Idaho Statesman prints insightful Reader’s View by young economist, “Don’t fall for the Big 3’s doomsday predictions – they’re unlikely”
by
 Garrett Coman - (Dec 17, 2008)

Boise, ID – Yo, girl friends, pull up the floor boards, sit your butt down, and pour yourself another hot cup of Rocket Java.  Once in a blue moon The Idaho Statesman prints a free market opinion on their Op Ed page.  Note, however, that it is not their opinion but the opinion of one of their young readers.  The following insightful article is by Boisean Garrett Coman, soon-to-be-full-fledged (and hopefully classical free market) economist, who will graduate from Pepperdine University in May 2009.  You go, Garrett!

   “Nancy Pelosi has said that she is willing to tap into the $700 billion financial market bailout fund to make sure the Big Three do not go into bankruptcy.  This is against public opinion and against the best interest of the American citizens and long-term viability of the Big Three.

   General Motors’ corporate Web site states that three things will happen if the U.S. government doesn’t bail out automakers.  First, nearly 3 million jobs would be lost in the first year alone – with another 2.5 million to follow over the next two years.  Next, the cost to local, state and federal governments could reach $156.4 billion over three years in lost taxes and unemployment and health care assistance.  Last, domestic automobile production – even by international automakers – would more than likely fall to zero due to supplier bankruptcies.

   In all actuality, not one of these three events is likely to happen.  GM’s estimates are fundamentally flawed.  The estimates are based on the Big Three ceasing production of cars.  This will not happen; domestic auto production will never fall to zero.  The investments in skilled labor, manufacturing plants and distribution networks are far too valuable to let the industry disappear.  One of two things will happen:  either the Big Three will declare bankruptcy and reorganize, or foreign automakers will start producing more cars in America.  Both of these scenarios mean work for suppliers, high employment and tax revenues for the government (while the Big Three are losing money, they aren’t paying any income tax).

   The question that Americans should be focusing on is:  What is the best way for the Big Three to return to profitability?  Not what is the easiest plan or the fastest plan, but the best plan for long-term profitability.  The answer is Chapter 11 bankruptcy, and here are several reasons:

·       Contracts with the United Auto Workers union put the Big Three at a competitive disadvantage.  Health care alone costs domestic producers $1,200 per car sold, while Toyota pays only $216.  The average worker at Japanese-owned plants in America makes $80,000 per year, while those working at domestic-owned plants make $130,000, with seven weeks of vacation.  There is no way that the Big Three can be competitive without being able to pay competitive wages, and the concessions the UAW has made are not enough.

·       The Big Three cannot produce cars that Americans are willing to purchase for “Toyota money.”  American cars must be steeply discounted as compared to foreign autos because they are not perceived as having the same value.  [FM Duck Note:  The key words “perceived” and “value” – whether author Garrett Coman consciously knows it or not, and I suspect he does -- embody extremely important concepts in Nobel Laureate F.A. Hayek’s Subjective Theory of Price Formation derived from both individual rights and free market precursor concepts (Garrett is one smart cookie for his young age).]  The reason that the Big Three don’t produce competitively designed and produced [sic] cars is not because of a lack of talent in American engineers.  Bad management of the Big Three’s resources is the culprit; they are not able to create a business environment where innovation and personal responsibility rule, such as at Toyota.  (Think government bureaucracy.)

·       Finally, the Big Three must get out of debt (they may be close to insolvency), which calls for going through bankruptcy.  Chapter 11 can get the Big Three out of debt, realize the market value [FM Duck Note:  he means the “free market” value, important, important, not the government’s fake value] of the companies, get them out of their union contracts, find new management that will realize the resources and talent in the companies and give the Big Three a fresh start.

   Bankruptcy is what the Big Three need – not a bailout that will let them limp along for another few years, bleeding taxpayer money on uncompetitive high wages and inefficient business models while delivering below-par cars to the American consumers supporting them.”

   The above Op Ed by young economist Garrett Coman embodies the difference between Keynesian economic “stimulus” interventions by a state collectivist government (socialism, fascism, communism) operating on a Fascist Business Model, vs. free market capitalism.  In the former, “economic stimuli” are nothing but massive counterfeiting of a nation’s Pulp Fiction paper money and credit, while in the latter, the people freely choose their own medium of economic exchange, usually a 100% gold standard, and solve their economic problems in a free market, a free market whose axiomatic primaries include the inalienable rights of Man obtained at birth from Nature, not from the government.  (And let’s set the record straight right now:  the current market meltdown is not the result of a free market but rather the result of continual state intervention into what should have been a free market.  The U.S. has not been operating in a true free market since Congress illegally created our nefarious central bank, the Federal Reserve, in 1913 and since we went off the gold standard in 1971.)

   The NY Times and Idaho Statesman’s incessant calls for “smart, big, creative, practical, and risky economic stimuli” by the government – targeted monetary inflation -- to save everybody from what the major news media, politicians, and current crop of Keynesian bankers perceive as some mysterious economic virus from Mars, simply flies in the face of common sense logic and rationality.

   But – in contrast to young Garrett Coman’s excellent Reader’s View -- the Piece de Liberal Resistance (advice) from the Idaho Statesman’s Sunday Op Ed page urged a rapid identification of “smart stimuli” -- whatever “smart” might mean in the subjective catallactics (Science of Exchange) of a market, but “stimuli” means billions of dollars from the federal government to the State of Idaho – and that Gov. Butch Otter should incur NO “TIME FOR THINKING SMALL” or “FOR THINKING IDEOLOGICALLY.”

   In other words, the Statesman editors want Gov. Otter to turn his brain off and not use any rational reasons (such as Libertarian free market ideology) for taking action and making important economic decisions for the State of Idaho.  And while he’s not thinking rationally, say the editors, he should irrationally think “big” – as in billions of dollars in federal welfare, not just millions.  As usual, the left liberals assume their disconnected thought globs are automatically correct and don’t rest upon fallacious economic sophisms – whether they are consciously aware of it or not.  Therefore, they presume, why worry about free market vs. socialist ideology as the basis for socio-political-economic decisions since, from their point of view, there is no connection between philosophy and action.  Which is the same as saying there is no relationship between Cause and Effect.

   Buzz, wrong.  Nothing could be further from the truth.

   Now, more than ever – as young economist Garrett Coman expressed in his excellent Op Ed piece above – is the time for U.S. leaders to think both philosophically (free market) and empirically (current and historical data) about what future type of nation we want for our children:  (Door # 1) a free market economy based upon mutually-agreed upon individual rights and freedoms to “exchange” (not “receive” from Da Gumment), or (Door # 2) a socialist dictatorship with government Car Czars micro-managing our markets, Keynesian bankers injecting trillions of dollars of Pulp Fiction “stimuli” into the economy, and politicians continually beating us to death from Washington until morale improves. – FM Duck

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