Autopia

Washington is prepped to bail out American automakers, so if you're an American, anticipatory congratulations on purchasing your new Ford or Chevy! (Just don't ask to borrow the keys).

Much can and will be said in the coming weeks about the propriety of an auto industry bailout, especially since the American electorate may have put its imprimatur on such a move this November. But is this progress?

The new administration swept into D.C. on grand promises to immanentize the eschaton. Apparently such abstractions translate to government speculation on shares of failing companies via tax increases and unsustainable borrowing. Ignore the obvious slippery slope for a moment (why not subsidize everything that provides a marginal benefit to our economy), and ask yourself what a bailout will accomplish in the long term.

An influx of free capital, unattached to voting shareholdership, is simply license for auto executives to continue business as usual. Short-sighted, quarter-by-quarter management has informed bad production decisions for years. In the meantime, Americans have turned more and more to foreign-made vehicles for their transportation needs. Combined with a misplaced commitment to gas-guzzling pick-up trucks, a lethargic strategy for producing alternative-fueled vehicles, and corner-cutting in the worst possible ways (drive a Chevy Cobalt and you'll get my drift), the American auto industry has dug it's own grave. But instead of allowing it to die or pull itself up by producing a better car, our representatives are on the verge of vetoing the aggregate of our private choices by writing a big check for the purpose of obtaining a stake in these "toxic corporations."

Will the Yukon become the Yugo? The scary truth is that it could, especially in light of the history that shows how subsidy-seeking political entrepreneurship leads to innovation-stifling monopoly. It's common knowledge that in 1807 Robert Fulton ushered in a new era of transportation in America with the first successful run of his steamship up the Hudson. What most Americans don't know, however, is that the state of New York subsidized Fulton's steamship business by enacting a thirty-year monopoly. It wasn't until 1824 that the Supreme Court struck down the monopoly in the famous case of Gibbons v. Ogden, leading to vast improvements in steamship technology, quadrupling steamship traffic (and consumer choice) within two years, and decreasing fares. By 1830 Fulton was bankrupt, but Cornelius Vanderbilt's line, finally allowed to compete, made a $40,000 profit while carrying passengers up and down the river for free.

If this lesson teaches us anything about the outlook for the American auto industry after a bailout (which is really a state-enacted monopoly in disguise because it drains much-needed capital from the general economy and locks it into companies that cannot compete), we should expect an outcome more similar to Fulton's than Vanderbilt's, regardless of how much money we spend to prevent it.