by Giuseppe Timpone

Created on: December 02, 2008

Why the next US President Barack Obama should not save the national car industry
The worst thing the elected President of US could do is taking American people's money and giving it to this one or that one industry. I notice one risk, that is consequence of this crisis: the idea of a big government, selecting the markets, worth of being saved from a crack, and even worse, the idea that markets aren't able to bring the economy to stability and equilibrium of full employment, which is opposite to the historical evidence of the US economy.

Flexibility, free market and real market competition are the golden rules of the American lesson. Helping the car industry, putting into it billions of dollars, would mean the end of the fair competition and would break the free market.
One could argue that in the past weeks the US government saved the American banks, which risked (and could still risk) to default. Yes, unfortunately, it happened! But, one explanation has to be clear, first of all. There's an enormous difference between a defaulted bank, and a car company risking the same. The difference lies in the fact that, if a bank defaults, the credit financing the entire economy (firms, families) would be reduced, causing a great damage to the system; not only: the greatest danger for a country, when a bank defaults, is panic. If I deposited my money at one bank, and another bank (not mine) is defaulting or still defaulted, I frighten that the crisis could expand and involve the bank, where I have my savings, and all of a sudden, millions of savers would run to their respective banks, causing the death of the country bank system, and consequently the crack of an entire economy. It's just for this reason, that no government could afford to let a bank default; it's not a question of political preference, but of good sense.
Car industry is fortunately a different case; of course, it is bad, if a car company defaults, for its social and economic consequences (unemployment, less competitiveness of the national sector in this field, etc.), but no doubt that this wouldn't imply a risk for the whole US economy.
One could say that helping the car sector would avoid all the negative consequences of a possible default. Three aspects should be considered for this. First, where will the Congress find the money for this operation? Is it sustainable, after taking 700 billions of dollars for the bank and financial system, for the US budget to find more funds to save the national industry? Of course, the next government would easily find money, by rising tax rates to the American families, otherwise it would be very hard to implement the plan, by deficit spending; it wouldn't be more possible for the high level of the US deficit. Moreover, it would result discriminatory and discretional to save some companies, and not others. Other sectors of the economy could claim for the government intervention, to be helped, according to the logic "Who's the next?". Second, would it be a positive sign for industry, in particular for managers and sharers, to know that, in any case, the government would intervene, in order to avoid one company to default? This principle directly brings to irresponsibility, as for managers, as for the share owners, because the implicit meaning of this plan sounds more or less like that: "Anything you do, we will help you in case of difficulties".
Third, would the USA be still a point of reference for free market, in the world? Or would this plan provoke a protectionist temptation, in all the other industrialized economies, as a consequence of it?
As one can see, there are not few reasons to think it would be wise to let the market work, without any alteration of its rules.

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