Friday, November 14, 2008

Not that hard a call 

Granting immortality to Detroit�s Big Three does not enhance creative destruction. It retards it. It crosses a line, a bright line. It is not about saving a system; there will still be cars made and sold in America. It is about saving politically powerful corporations. A Detroit bailout would set a precedent for every single politically connected corporation in America. There already is a long line of lobbyists bidding for federal money. If Detroit gets money, then everyone would have a case. After all, are the employees of Circuit City or the newspaper industry inferior to the employees of Chrysler?

This is an excruciatingly hard call. A case could be made for keeping the Big Three afloat as a jobs program until the economy gets better and then letting them go bankrupt. But the most persuasive experts argue that bankruptcy is the least horrible option. Airline, steel and retail companies have gone through bankruptcy proceedings and adjusted. It would be a less politically tainted process. Government could use that $50 billion � and more � to help the workers who are going to be displaced no matter what.

But the larger principle is over the nature of America�s political system. Is this country going to slide into progressive corporatism, a merger of corporate and federal power that will inevitably stifle competition, empower corporate and federal bureaucrats and protect entrenched interests? Or is the U.S. going to stick with its historic model: Helping workers weather the storms of a dynamic economy, but preserving the dynamism that is the core of the country�s success.
David Brooks this morning. Some years ago Russ Roberts wrote about outsourcing and competition in the IT sector from India. Imagine this was about cars and autoworkers rather than software and information-technology jobs:
But suppose Indians decided to work for free and give away the software, the ultimate competitive threat. If outsourcing work to low-wage Indians is bad {or allowing cars to be built in low-wage Tennessee by a Japanese firm vs. high-wage Detroit by an American one --kb} surely free software from zero-wage Indians is even worse.

Free software would be hard for the U.S. workers in the software industry to compete with. But it would be a boon for America -- plenty of U.S. outfits would expand. Having free software would let a lot of new companies come into existence that couldn't have been profitable before. Programs at no cost would mean lower prices across the board. That would liberate resources to do new things all over the economy. Many of those out-of-work American programmers would find new jobs. The same effect occurs when the software is merely cheaper, rather than free.

The hardship that results from economic change always tempts politicians to limit individuals' freedom to buy what they want and businesses to hire whom they desire. Such political restraints will make life more secure -- but poorer and less dynamic. Ultimately, it will have no effect on the number of jobs in the U.S. but only make the ones that survive pay less.