On the contrary, there's several ways to be very sure that doing nothing (in terms of government intervention) is better than doing something. No depressions prior to 1929 were considered “Great”; this fact is not to be overlooked. Sure, there were very severe depressions, but nothing that lasted as long or had such an impact as the Great Depression. This is precisely because every depression, prior to the great depression, government intervention was minimal (not nonexistent). More recently, in the 1990’s, Japan did the exact same thing we’re doing now and the term Zombie companies/banks was born because they propped up unsustainable companies/banks. These companies held Japan’s economy down for the past 18 years. Propping up poor or failing companies is not good for any economy, yet it’s exactly what we’re doing today.Originally Posted by BgMc31
A company’s failure in a free market generally means a few important things. Namely, that it has become uncompetitive in its particular industry, which would generally signal that another company [companies] is at it's heels willing to take over their market share. The transfer is from the incompetent to the competent under normal circumstances. Today, however, the government is trying to reverse that general law of free markets and by doing so is going to make a bad problem that much worse.
Most of economics can be summed up as studying how policies affect not one group, but several groups including those unseen. Suppose we do bailout the big three (again) and all those jobs are saved. What exactly did we save? What we saved were businesses that were too large to be managed efficiently instead of letting them shrink, be taken over, cease to exist or a combination of these. Now, companies like Toyota or any of the foreign car makers, who play by the rules, don't get help from the government and instead of reaping the benefits of a properly managed business, they get nothing. When in reality they should be acquiring mass amounts of new capital and labor from the failing companies, which would in turn make them that much stronger and be a huge asset to the economy as a whole.This would more than address the so called trickle down effect that will occur if the big three fail, although it would take time.
So we’ve established that they’ve saved jobs at the big three, but as a result potential labor was lost for Toyota and all the other successful car companies. Those are real jobs lost however unseen they may be. These are called opportunity costs. The amount of opportunity cost incurred is incalculable because if any of the three big auto industries were allowed to fail (allowing doesn’t meant they necessarily will fail) it would free up huge amounts of capital, labor, and opportunity. The opportunity might be for any of the other auto makers to snatch up the market share left behind by these big players. They could buy them out and expand business or just buy individual factories, equipment, or even ideas.
A more important question to ask is, if we did bailout these auto companies would we expect employment to remain the same or to inevitably decrease anyway? It would be ridiculous to think that there wouldn’t (couldn’t) be massive layoffs even after the big three received money. After all, unemployment rests heavily on labor costs. Therefore if they didn’t make drastic cuts in employment, they would be right back to where they started and would be asking for more money from congress. The taxpayer would essentially be subsidizing artificially high wage rates.
People are going to loose their jobs. That’s what happens in a recession/depression, but it’s only temporary. That is until Washington gets involved than unemployment will really get bad and will last until those policies are undone. The unemployment rate through the 1930-1940, during the peak of the New Deal averaged well over 15%. That means that most of Roosevelt’s actions continuously affected employment rates in negative way. All government can do is hold off the inevitable, yet at the same time make things much worse and not only in the industry that it's trying to save, but in many industries that would’ve otherwise been unharmed. So while the number may seem large when you first hear of the "devastating effects" that will occur if allow the big three to fail, the truth is the same amount if not more will loose their jobs if we do.
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