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Tuesday, October 4, 2011

Socialized Debt and The U.S. Auto Industry

Socialized debt led to auto industry sales and increased hiring if Bloomberg's sales data for General motors is any indicator, and if The Tennessean's report that GM is hiring 600 more people in 2012 adds to that thought. This is not to say hiring a mere 600 people and increased sales of 20 percent is necessarily a large reward for such a large loan from the public.  Moreover, other non-bailout companies such as Boeing created an alternate factory in South Carolina to avoid Unions according to a report by CNBC; Boeing is also a large contractor for the government and therefore indirectly subsidized by taxpayers.


So a question that arises out of this data is how effective is taxpayer monetization of corporate debt? If the auto industry had not been bailed out and left to become insolvent would a new private auto industry be better, more profitable and hire more people? According to minute 24:35 of the above Presidential Speech to a Joint Session of Congress. "We should not and will not protect the auto industry from their own bad practices....but I believe the nation that invented the automobile should not walk away from it." Sounds like a no, but yes type of thing to say.

Since the auto industry was not left to fail in the United States one can only speculate as to what would happen if it did. The administration's stance seemed to be, private industry was not capable of taking over where old business models did not work, and that community sustaining corporations could not emerge out of a fractional auto industry of smaller competitors such as Tesla Motors, Inc.  Republicans certainly seemed to be against a $15 billion dollar auto industry bailout according to Human Events. Moreover, according to the Ivey Business Journal, the Japanese auto industry relaxed regulation and favored a free market approach to auto manufacturing after the financial crisis of 2008. 

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