The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Supporting auto industry now saves wealth

12/05/2008

Yesterday, the highly-regarded economist of Economy.com, Mark Zandi, testified before the Senate Banking Committee that a bankruptcy of the Big Three car makers would be a catastrophe for the wider economy, as well as the stock market. Upon questioning, he thought the $34 billion in loans being requested would be insufficient in the long run, and that they would return in another year or so for more funding. The senator referred to this as “kicking the can down the road.”

Zandi is right! It would be a catastrophe. However, that doesn’t mean we shouldn’t let the car makers take bankruptcy later. So far, economists have estimated $12 trillion of wealth has been destroyed. Is it worth $34 billion now to prevent more trillions of wealth destruction? Absolutely!! There is a time to euthanize the car makers, but it is not now. In a year, our economy will have a much better chance of weathering their bankruptcies.

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