Professor Douglas Baird of the University of Chicago Law School has some sober words of advice for GM. The entire interview is worth listening to, but the bottom line is simple: GM can’t pay its bills, and it is making a product no one wants. So, a bailout just puts off the inevitable. Oh, and there’s no guarantee that bankruptcy will help, either. As Baird puts it, if a restaurant makes bad food, bankruptcy won’t help it recover.
At least with bankruptcy, however, taxpayers dollars aren’t at stake. Moreover, unlike the vision portrayed by allies of the car companies, bankruptcy won’t mean that GM stops operating–only that its shareholders get wiped out, its creditors “get a haircut,” and that new management likely will be brought in. (Remember United Airlines?)
There is little doubt that neither management (which doesn’t want to get booted) nor the UAW (which wants to keep its rich benefit and wage structure) likes the bankruptcy option. And both groups have a lot of political muscle. On the other side are the taxpayers, businesses who have just as much claim to public dollars (and a better track record), and people warning against the never-ending parade of petitioners an open-ended bailout policy will invite.
It will be an interesting test for the President-Elect. Can he stand up to Big Labor? Does he see through the emotional cant (“The auto industry is the backbone of our economy!”)? Can he perceive the systemic danger of perpetual government rescues? Stay tuned . . .
