In the News - GM and Other Bailouts

Amelia's presentation today dealt with the (further) bailout of U.S. auto companies such as GM. The U.S. auto industry is in bad shape, hemorrhaging jobs and money in what the article Amelia discussed calls a "downwaard spiral." But since 1 in 10 jobs in the U.S. is part of the auto industry, the loss of any of the major automakers in the U.S. would have a major impact on the economy. The phrase "too big to fail" definitely applies to this feild, just as it applies to the banking industry.

Do these failures and the catastrophic effects they can have on our economy mean that we should be encouraging more small businesses? By doing so, we would lose the economy of scale that huge companies depend on, which brings consumers lower prices based on the efficiencies of being so big. But failures in such large companies mean that people can mismange these companies without fear that their company will be allowed to go bankrupt.

On the radio today, I even heard that some investors in China are saying that the U.S. should provide direct aid to Chinese businesses that have been hit by the now global recession. Since China owns so much of our debt, you might say that stabilizing the market is already helping them. But we may be approaching an era where people want the U.S., not so much as the global police force, but as the global relief organization. Perhaps saving the U.S. economy is the best thing we can do for all countries.