I just cannot wrap my head around the idea of an auto industry buyout.  The “logic” behind it seems to be that if GM, Ford, and Chrysler fail, people will lose jobs.  Thus, the US government should pony up to pay these American automakers so that people don’t lose their jobs.

The obvious assumption here is that jobs are per se good.  The truth is, they are not.  Therefore, the only principle reason I can see behind an auto bailout – to keep people employed – stands on shaky ground.

This can best be explained with an example.  Assume that 1,000 people are very talented at making spoons, and this is what they do for a living.  Next, assume that a robot is invented that can make all the spoons these people can make for 1/1000th the price and twice the quality.  Should the United States government prevent the robot from coming into existence to “preserve jobs?”  Or should the government subsidize spoon-makers to keep these people employed even though they are effectively doing nothing good for society?

I hope that your answer to the above two questions is no.  We live in a world of progress.  Sometimes, certain employment becomes obsolete.  Although it is truly unfortunate that some people will lose their jobs because their jobs are unworthy of continuance, that is just the way capitalism works.  If people in the US don’t like that, perhaps we should give up on capitalism.

Like this example, the US auto industry is hideously inefficient and produces an inferior quality product as compared to foreign automakers.  Foreign automakers have much larger profit margins, and have been willing to adapt to consumer demand to sell fuel efficient cars.  US automakers have been poorly managed, have buried themselves in union obligations, and have refused to adapt to consumer demand.  Fuel efficiency is the biggest indicator.  People have repeatedly made it clear that they want more fuel efficient cars by their purchases in the market over the past five years or so.  Yet American automakers have not provided cars that are nearly as fuel efficient as foreign automakers; instead, they have run a lot of commercials claiming that ~20 miles per gallon is fuel efficient for a mid-sized sedan, or low 30s is fuel efficient for a small car.  [And let's not forget about how American automakers consistently rank behind foreign automakers in reliability rankings...]

The whole idea of an auto bailout totally perverts the idea of comparative advantage.  The US does not have a comparative advantage in producing cars.  The USA should be focusing its economy on things that it is good at producing, rather than trying to preserve the US auto industry for old time’s sake or because we want to preserve an certain number of worthless jobs.

P.S. Why are we thinking about bailing out all three automakers?  Why not just one?  If we let two fail, there will be less market competition, and automakers will do better in general?

P.P.S. Look at this amusing graphic about the bailout.

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