A Big 3 bailout won’t work

America’s economy is in recession. The world economy is in recession. Every family worries about the future, and politicians want to step forward and demonstrate that they are doing something about it. Sometimes, however, doing the wrong thing is far worse than doing nothing. Passing a $25 billion subsidy package for the Big Three auto manufacturers is without question the wrong thing – for taxpayers, for consumers and for our economy.

While the recession has created challenges in every sector of our economy, the range of problems within the Big Three is largely of their own making: aging plants, poor management choices, investments in models the public doesn’t want to buy and an uncompetitive structure of wages and benefits. In fact, these carmakers were posting record losses long before the current economic downturn. Why should the American taxpayer subsidize bad business decisions made by these particular firms?

Using government funds for such purposes is unfair to taxpayers – especially those working for businesses that are left out. Instead, the government’s role should be to create the best possible environment for investment, job creation and economic growth, and then to let businesses compete for customers on a level playing field.

Government subsidies for the auto manufacturers or any other business also create moral hazard – the significant risk that bad behavior and investments will only be encouraged in the future. We have seen the very real implications of moral hazard in the spectacular failures of Fannie Mae and Freddie Mac. For decades, these mortgage giants enjoyed the benefits of a government charter that implied a taxpayer guarantee for the bonds they issued. While a few members of Congress called for greater reform, oversight and regulation of these firms, most looked the other way. The rest is history.

Although the bankruptcy process carries its own difficulties, it is designed specifically to help companies address such structural and financial imbalances. A massive government intervention would only guarantee that these essential changes will be avoided temporarily, placing even greater long-term costs on the taxpayers.

Proponents of an auto company bailout point to the thousands of jobs at the Big Three. No one relishes the job losses that came with an economic recession, but jobs have already been lost in manufacturing, retail, financial services and construction. In fact, the three largest businesses in both the technology and financial service sectors employ far more workers than Ford, GM, and Chrysler combined. Special treatment for autoworkers above others is unfair and sets a bad precedent, the very same reason that direct government intervention for Bear Stearns and AIG was also unwise.

Other auto industry advocates justify intervention by pointing to recently passed legislation to bolster the financial markets. But action such as that economic recovery package should be undertaken with the greatest reluctance imaginable. At the time, the global markets for lending and credit were no longer functioning. Without access to basic credit for consumer and business activity, our economy simply cannot function.

During the past 100 years, Americans have created the strongest, most diverse and most robust economy in history. Our achievement has been built on a foundation of markets that are more free, open and transparent than any other in the world. Growth for the world’s freest economies during the past 20 years has dramatically outpaced those of their more heavily regulated rivals.

Free markets work, but because they allow for the greatest possible human interaction, they are subject to the weaknesses of the human condition. When individuals or businesses experience failure, it can instill anger, disappointment and frustration. These emotions, however, should never be allowed to overwhelm our belief in the power of individual freedom, entrepreneurship, and economic opportunity.

Republican John E. Sununu is New Hampshire’s junior U.S. senator.

Categories: Opinion