Tuesday, December 02, 2008

Auto Bailouts

Today is the day that the big three automakers present their pitch for bailout money. If I were a gambler I would bet they get it. However, I came across something interesting at HybridCarBlog that Tesla is also looking for $400 million.

Now the slippery slope argument is beginning to materialize. Who wouldn't want to fund electric cars? The other guys are getting money to retool. Now everybody, in every industry, will start asking for money. All these regulations and handouts are distorting what products could succeed. While the absence of regulation is not always a good thing, excess regulation is probably worse. One argument that is out there is if goods were priced to account for all their costs environmentally sound products would prevail. Regulations and tax laws have distorted what is profitable and market prices. Now we are racing to subsidize anything and everything with one example being corn-based ethanol.

With the auto bailouts we risk distorting what our transportation mix will be in the future. For example, if one or two of the big three automakers go bankrupt and cannot return then automotive capacity will be removed from the market. If that is the case public transit may fill the transportation void and then they won't need anymore taxpayer subsidies. By letting things progress without political interference we may see positive developments. I realize that is a long shot but we should at least be examining what could happen.

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