Monday, November 17, 2008

General Wesley Clark's bailout argument is fallacious

General Wesley Clark makes a sweet-sounding, but fallacious, argument in favor of bailing out Detroit automakers:
AMERICA’S automobile industry is in desperate trouble. Financial instability, the credit squeeze and closed capital markets are hurting domestic automakers, while decades of competition from foreign producers have eroded market share and consumer loyalty. Some economists question the wisdom of Washington’s intervening to help the Big Three, arguing that the automakers should pay the price for their own mistakes or that the market will correct itself. But we must act: aiding the American automobile industry is not only an economic imperative, but also a national security imperative.

When President Dwight Eisenhower observed that America’s greatest strength wasn’t its military, but its economy, he must have had companies like General Motors and Ford in mind. Sitting atop a vast pyramid of tool makers, steel producers, fabricators and component manufacturers, these companies not only produced the tanks and trucks that helped win World War II, but also lent their technology to aircraft and ship manufacturing. The United States truly became the arsenal of democracy.

During the 1950s, advances in aviation, missiles, satellites and electronics made Detroit seem a little old-fashioned in dealing with the threat of the Soviet Union. The Army’s requests for new trucks and other basic transportation usually came out a loser in budget battles against missile technology and new modifications for the latest supersonic jet fighter. Not only were airplanes far sexier but they also counted as part of our military “tooth,” while much of the land forces’ needs were “tail.” And in those days, “more teeth, less tail” had become a key concept in military spending.

But in 1991, the Persian Gulf war demonstrated the awesome utility of American land power, and the Humvee (and its civilian version, the Hummer) became a star. Likewise, the ubiquitous homemade bombs of the current Iraq insurgency have led to the development of innovative armor-protected wheeled vehicles for American forces, as well as improvements in our fleets of Humvees, tanks, armored fighting vehicles, trucks and cargo carriers.

In a little more than a year, the Army has procured and fielded in Iraq more than a thousand so-called mine-resistant ambush-protected vehicles. The lives of hundreds of soldiers and marines have been saved, and their tasks made more achievable, by the efforts of the American automotive industry. And unlike in World War II, America didn’t have to divert much civilian capacity to meet these military needs. Without a vigorous automotive sector, those needs could not have been quickly met.

More challenges lie ahead for our military, and to meet them we need a strong industrial base.
Bankruptcy does not mean ceasing operations. Chapter 11 bankruptcy is designed to help companies streamline operations and become profitable again. GM, Ford, and Chrysler want bailout money so they can avoid bankruptcy.

If any one of the Big Three did cease operations it would reduce competition, thus increasing revenues for the remaining two.

Furthermore, General Wesley Clark doesn't seem to realize that there are plenty of automobile manufacturing plants in the United States owned by companies like Toyota, Nissan, Kia, Volkswagen, BMW, etc. If all of the Big Three go under, foreign automakers will gain larger market share and that will require them to build more automobile plants in the Mississippi River Valley.

Finally, Japan buys their air force tanker aircraft from the United States (Boeing). Why can't we buy military automobiles from Japan and our NATO allies?

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