Bankruptcy is Best Solution for US Auto Companies

Argues Nobel economist Gary Becker:

One should not confuse the politics of the situation with what is the better economic outcome for consumers, and what is the effect of bankruptcy of the big three automakers on overall American employment and unemployment.

Bankruptcy would strengthen rather than weaken the competitive position of the American automakers, especially when combined with government debtor-in-possessor financing. The bankruptcy proceedings would likely break the union contracts and reduce their pay to levels comparable to those received by American employees of foreign car manufacturers. They would also break the contracts for health payments and pension obligations, which have been significant factors in causing their financial distress. Bankruptcy would also help the companies restructure their debt so that interest payments are much lower. I do not know whether even after all this, the Big Three can compete effectively in the long-run market for cars--almost surely Chrysler cannot--but bankruptcy combined with management changes, especially at GM, would give them their best chance.

This is certainly true compared to the alternative proposed by the Democrats, which includes the preposterous idea to create an auto "czar" who would oversee the industry. Since when does the American approach to market structure include czars and congressional management of an industry? Such an approach is just an encouragement to the development of a chronically sick patient (American auto producers) who never gets better, and continues to rely on taxpayer support.