Our Other Option

Within the next few weeks Americans may witness the demise of two of the three prolific American auto manufacturers, General Motors and Chrysler. Our market may be based on free market principles, where the dying are left to die and the strong go on to survive, but if this country were two lose either, or in an armegeddon like prophecy both, a true downward spiral would be upon us. More than just a name and a legacy will be lost, and in another place and time that alone would bring with it grief, but in these abysmal times it will be the job losses and loss in gross domestic product that would bring with it not only grief but a fatal dose of hunger and extreme poverty. And so, with the respective clocks ticking on both companies the government has come to a crossroades, to write a check or let them declare bankruptcy.

The first option is the better short term fix, but it faces a host of questions. For instance, this would be the second major bailout in a span of months, not only would this set a precident it would be an entirely new principle. Only once has the government ever gone so far into the unknown in all of U.S. history and the boat they were in was the Tennesse Valley Authority.
However that boat was slightly different than the bail out currently proposed. The T.V.A. was owned and controled only by the government, not to mention that it was successfully solf off into the free market. By granting this bailout the government would set the country down a long road, where bailouts would be granted to all those who could make a sufficient case, or get legislatures elected. If we the people were to buy stock in a company, who would represent the government in the stock holder's meetings and what if the government was unable to gets its way in these meetings? If matters couldn't be controlled civilly, a trait uncommon for humans when in such economic distress, would the government roll tanks into the streets to force the other stock holder's hands? It is the fact that we have no answers, and no historical refernce to seek the answers to these questions that makes this choice so dangerous.

In response to the previous solution, and imminent possibility, fiscal conservative Larry Kudlow has proposed an alternate plan: cut taxes, and allow the companies to file bankruptcy and rebuild themselves. The second proposal has both pros, bankruptcy can be studied throughout history, which means there is surely an archetype of a successful bankruptcy claim, and cons, such as minimal short term improvements and little to no guarauntee that after the bankruptcies either company will be as strong or even still there. But, beware the supply side policies of the first provision. The tax cuts coupled with the extremely low interest rates being imposed by the Federal Reserve Board will add money to the economy, effectively increasing demand by increasing American income. This will increase the value of goods, which is at the moment good, but if the extra money were left in the economy too long we would see pricing bubbles, reminicent of those witnessed before the current debacle, and run the risk of the those bubbles bursting again.

Through weighing both of these options I believe that Kudlow has proposed a better plan. This plan is historically based, solid economic theory, that will encourage long term growth and stabilization of the economy. However, the last statement will only be true if upon stabilization of the market, monetary policy be changed to take money out of the market and ensure such drastic price bubbles may not form.



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