The Homa Files

Excerpted from IBD, “Pulling Plug On GM Would Help Both Auto Industry And Michigan”,  John Tamny,  November 11, 2008

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Ludwig Von Mises once wrote that the entrepreneur who fails to use his capital to the “best possible satisfaction of consumers” is “relegated to a place in which his ineptitude no longer hurts people’s well-being.”

General Motors … is the living embodiment of managerial ineptitude, and to ensure that it no longer fails its customers while harming the well-being of Americans more broadly, it’s essential to let the firm die.

GM’s continued existence under weak management has served as a capital repellant such that capital and jobs will continue to flee the state if GM is saved with the money of others.

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Businesses rarely fail due to a lack of money. Instead, poorly run businesses find it hard to raise money in the capital markets. Government money allows the architects of bad decisions to continue making mistakes that cause a company to be capital-deficient to begin with. Capital is correctly searching for better opportunities.

Paradoxical as it sounds, GM’s bankruptcy would be a boost for Michigan’s economy and the U.S. auto sector generally.

Far from vanishing, many of GM’s assets would be quickly purchased by competent foreign automakers eager to expand their capacity in what is the world’s largest auto market. The list of well-run car companies, from Toyota to Nissan to Porsche, is long.

So while the cries of certain Armageddon would be ear splitting in the event of a GM failure, the U.S. auto sector would actually emerge much healthier thanks to a change in ownership that would be the certain result of GM going under.

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In the end, the state of Michigan and the U.S. automobile sector are struggling not due to back luck, but precisely because they cling to a company that investors no longer value.

So rather than waste precious capital in the naive hope of propping up that which investors don’t value, it’s essential to let GM fail.

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Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=311297941730996

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This entry was posted on November 13, 2008 at 7:00 am and is filed under Autos - Travel, Government & Politics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.