BrianGarst.com

The primary benefit of a free market system is that it rewards companies that are capable of meeting our needs and demands, while punishing those that do not.  Economist Joseph Schumpeter famously referred to this process as “creative destruction.”

The collapse of General Motors and Chrysler is evidence of the process in action.   As Greg Mankiw recently noted on his blog, the 2009 Consumer Report ranked Chrysler dead last, recommending zero percent of tested cars for purchase.  General Motors came in next to last, with 17% recommended.  At the top was Honda with a score of 95%.

Standing in the way of this capitalist process was the administration’s of both George W. Bush and Barack Obama. Obama in particular has gone above and beyond in his counterproductive effort to prevent GM and Chrysler from facing the consequences of producing shoddy products. He opened the corporate welfare spigot in a flawed effort to save the floundering companies, but to no avail. Like the grim reaper, bankruptcy knows when the time has come for a business to be put to rest, either to be reborn again as a new company (even if it’s under the same name), or for good.

Democrats who pushed for passage of corporate welfare bills to prop up the automakers portrayed bankruptcy as an unacceptable course.  Gov. Rendell flat out called it “a disaster to put them in Chapter 11.” Obama seemed to share this aversion to bankruptcy when he asserted a need to “figure out ways to put the pressure on the automakers the way a bankruptcy court would.  Demand accountability, demand serious change, but do so in a way allows them to keep the factory doors open.” Yet despite the efforts of Obama, the GM and Chrysler of yesterday that ranked at the bottom of the 2009 Consumer Report will finally be laid to rest. Having eventually realized that the best way to “put pressure on the automakers the way a bankruptcy court would” is to let an actual bankruptcy court do it, Obama should now get out of the way and let the free market make the ultimate decision on the survival of their new incarnations as well.

Barack Obama Chrysler corporate welfare General Motors George W. Bush