On Government propping up dying Industries

I read this and I thought of the Austrlian government intervention to prop up the ding Auto industry in Australia. Same story – and rationale. What are we starving in this land – in this way of not supporting fledgling industry which needs crucial boost to grow? Is it the green technology industry?

Save the Rust Belt! – Megan McArdle

Should the government save these places too? Shall we support Eastman Kodak indefinitely, whether or not it can produce a product anyone wants to buy? And Xerox, and Carrier, and a thousand companies you’ve never heard of? Shall we make it illegal to make a better product than American corporations? Why not just ban new products that make old ones unprofitable?

To do that, we’ll have to take the money from other people, in other cities. Other businesses will not get the capital that we give to dying firms, so they won’t expand. Some other families, not yours, will lose their homes because their business failed, or have to move away from home in order to get jobs because their area is in the doldrums. Meanwhile, everyone in the country will be slightly worse off, because we’ve shifted limited economic resources towards products they demonstrably do not want.

I love western New York, which may be the most beautiful place on earth. I love the old cities, the Victorian shells that whisper of much happier days, and the broad, rolling hills, and the broad flat accents of the people who live on them. I love waterfalls softly falling downtown and the Buffalo City Hall. I love the place as you can only love somewhere that your family has been living for 200 years. I would save it if I could.

But I can’t save it. Pouring government money in has been tried . . . and tried, and tried, and tried. It props up the local construction business, or some company, for a few more years, and then slowly drains away. Western New York has been the lucky recipient of largesse from a generous federal government, a flush state government, and not a few self-made men with happy memories of a childhood there. And still, it dies.

Moreover, it wouldn’t be right to save it by destroying someone else’s business, killing someone else’s town. That’s the choice we are facing. At its heart, economics is not about money; it is about resources. Every dollar sent to Detroit buys a yard of steel, a reel of copper wire, an hour of labor that now cannot be consumed by a business that actually produces a profitable, desireable product. It’s not right to strangle those businesses in order to steal some air for the dying giants of an earlier day.

And while a financial intervention at least holds out the possibility of creating value for all of us, a bailout of Detroit is definitionally guaranteed to destroy value for the rest of us. Yes, the Big Three and their suppliers will be better off. But we will have taken a limited store of resources and spent them on something that the rest of us value less than the alternative uses for steel, copper, manpower, credit, and so forth.


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