Detroit Makes a Comeback: Was I Wrong?

I have been critical of government intervention in markets in the past. Among other things (like saying that bank bailouts were wrong, a call which has since been taken up by everyone from the Tea Party to Occupy Wall St.), I have written that bailouts of the auto industry were inefficient and against the principles of free market capitalism. At the time, I was just one voice in a majority of 67%. However, in a recent Reuters article, it was noted that:

"Executives arriving this week for the Detroit auto show find a U.S. car market that has morphed from meltdown three years ago to a safe haven as concerns grow about the stability of other big economies, from Europe to China...Analysts and executives expect 2012 U.S. auto sales to grow 4 percent to 9 percent, the third consecutive annual gain. The only reason automakers are not more bullish is the risk that the sovereign debt crisis in Europe may trigger a broader slowdown...All three U.S. automakers took market share in the United States for the first time in 23 years..."

And from the Behind the Wheel blog:

"Walk around the Detroit Auto Show and one thing stands out: America's automakers are coming on strong when it comes to cars...Gone are the days when Detroit's cars lagged the sedans you saw from overseas...Bottom line: Detroit has closed the gap (on most levels) with its foreign competitors when it comes to cars."

So was I, and also the majority, wrong about the auto bailouts? An industry, and many jobs, were saved. What was long a point of American prestige was protected and has even been revitalized. Even if the American taxpayer was a big loser on the deal, the bailouts still cost less than the stimulus packages, with an arguably bigger positive impact. By almost all measures, it would appear that the auto bailouts were one of President Obama's best conceived and best executed moves, and they are certain to be noted as 'decisive and pragmatic efforts to save American jobs' when the Team Obama campaign bus makes its way to Michigan and Ohio later this year.

Of course this doesn't answer whether my premise was wrong; bailouts are certainly no more capitalistic today than they were three years ago. And I suppose we can't be entirely sure of what would have happened in an alternative universe, i.e. if there had been inaction on the part of the federal government, if creative destruction were allowed to run its course. Maybe unemployment would have skyrocketed. Maybe losing the auto industry would have been catastrophic. Alternatively, maybe not spending that taxpayer money would have allowed it to be spent even more productively. We just don't know.

What we do know is that the bailout was successful. And, assuming that a thriving manufacturing sector is good for America, that is a positive. I suppose one could say that my analysis of the situation under a free market approach was right, but that I was wrong about whether or not it would have a good impact regardless of whether bailouts are capitalist in nature. I guess in the end analysis, I still stand opposed to bailouts, especially when taxpayers are put on the hook. But practically, this has to be seen as a 'job well done' by the President.


  1. Anonymous16/1/12 13:02

    Maybe Detroit is no longer apt shorthand for the Big Three. After all, while American car companies are on the rebound, Detroit itself is continuing a spiral into urban decay--one which arguably cannot really get worse, having hit bottom years ago.

    Sadly, the leaner, more profitable car-makers are not going to rebuild Detroit, and perhaps what is good for the American auto industry is no longer good for the Motor City.

  2. Excellent point Dear Reader.

    I suppose that it would have been nice if the rising tide of the rebound in auto manufacturing lifted the SS Detroit along with it. It might also have helped to justify the money American taxpayers spent on bailouts if the recovery of Detroit was part of the package.

    However, it is also possible that things wouldn't have happened the way they did if Detroit itself were the focus of the recovery. After all, much of the intellectual capital that drove the industry left years ago. Additionally, the unions that Detroit has also served as shorthand for created an almost untenable situation.

    In any case, old habits die hard, and much like I continue to refer to the financial system as 'Wall St.', I suspect that I, and others, will continue with this nomenclature for the auto industry.