Monday, April 6, 2009

The reality is that world trade would suffer far greater damage from the global economic fallout of a Big Three bankruptcy.

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Conservative animus toward trade unions is also once again on display. Another conservative accusation is that a bailout would infringe free-trade rules. But it is these rules that have fostered the trade deficits that have destabilised and undermined the American economy. The reality is that world trade would suffer far greater damage from the global economic fallout of a Big Three bankruptcy. Lastly, conservatives have trotted out the old moral hazard story in order to argue that a bailout would turn American manufacturing into a permanent beggar of government funds. In fact, business has always lobbied Congress for favours and tax breaks, and the Lehman Brothers experience proved the foolishness of confusing parables about moral hazard with crisis management.

There are undoubtedly colossal problems in Detroit, and the bosses of the Big Three automakers could never be convicted of an excess of imagination. Economic policy has also contributed to their current condition as trade agreements and an over-valued dollar promoted auto imports, and incoherent energy and environmental policy stifled innovation. All of this must be fixed at the earliest. But sacrificing the Big Three automakers will accomplish nothing, while risking a tragic economic depression.


Thomas Palley

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Source : IIPM Editorial, 2008
An Initiative of IIPM, Malay Chaudhuri and Arindam Chaudhuri (Renowned Management Guru and Economist).


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