Trying to Predict the Economy
Dan Yorke had an economic back-and-forth with Richard from Tiverton, just before 5:00, that points to a consideration of which we ought all be in awe: The economic big picture is just too complicated to predict or guide (hence the genius of the free market). Dan argued that ancillary industries to the Big Three would suffer the consequences of an industry failure. Richard argued that surviving auto manufacturers (whether domestic or foreign) would pick up the demand slack. Dan pointed out that there would be a lag time while suppliers ramp up production. The exchange shouldn’t stop there.
As the remaining manufacturers come up short in meeting demand, they would be willing to pay more for parts (etc.), which would make up some of the lag gap for the suppliers, which would be able to charge more for the same number of units. On the finished side, as the supply of cars constricts, the prices would go up, which would open a little bit of cushion for restructuring companies.
Similarly, as workers lose their jobs, surviving and restructuring companies would find labor costs going down. The manufacturers and suppliers would be able to hire more people to make the products that they’d be producing for a smaller pool of manufacturers. Of course, increasing prices would also begin to suppress demand, but my point is that it would be folly to declare a particular outcome, and it is conceit to attempt to tweak and control the industry from the governmental tower.
By contrast, I’d suggest that the political-cultural big picture is a bit easier to predict: The effect of asserting government interest in and practice of sustaining particular companies or industries would be deleterious to innovation and would encourage deeper and deeper unwise meddling in the marketplace, ultimately putting our entire economy in the too-big-to-fail category, but with nobody left to bail it out. Putting emphasis back on the people whose lives actually depend on their own actions, we shouldn’t lose sight of the fact that a large dump of unemployed Americans into the marketplace would create an army of workers who must find some way to earn a living and would, therefore, have huge motivation for innovation and the creation of wholly new industries or industrial practices.
Let the car companies go down. No good can come of the process of propping them up, while the process of surviving — of thriving — can renew America for the new century if the government will let it happen.