You are invited to read the latest commentary from the Free Enterprise Foundation. It will make you think!

We are Americans!

“We have every right to dream heroic dreams…to believe in ourselves…in our capacity to perform great deeds, to believe that together with god’s help we can and will resolve the problems which now confront us…. And after all, why shouldn’t we believe that? We are Americans!” Ronald Reagan, first inaugural address.

Another year has come to a close. This one has come not with a rush, but a gasp and a sputter, unsure even whether it wished to make it to the finish line. As we begin the year, we are looking at a host of problems unprecedented in their severity and undreamed of in my prior “Resolution Columns.” In prior years I have reviewed the wonders of Pandora’s Box; in another our resolutions for the new year as I catalogued a number of what now appear to be challenges of inferior importance. We have considered the meaning of leadership and the gift of hope. In one I lectured on the challenge presented by seven trillion dollars in National Debt and argued that even Alexander Hamilton would be appalled.

Gosh, if I had only known! Here we are just a few years and four more trillion dollars later with no end in sight and a new Congress talking of adding another trillion in operating deficit for the year ahead. President Reagan’s reminder of the strong alloy of our national character is singularly appropriate to the days ahead, but I doubt if he intended that we put action in gear before engaging our brains.

We have witnessed at the year’s end Republicans in Congress insist that any bailout of the auto industry be spent under sound business principles to restructure the industry to be competitive with the much lower labor rates in our Southern states, only to have a Republican president seemingly turn his back on those principles. What is this world being ushered in with the New Year? We have all been raised to respect the futility of putting good money after bad. What is it Einstein said was the definition of insanity; to repeat the same mistake and expect a different result? And yet we persist in our profligate madness.

Chrysler and General Motors are well on their way to joining a number of our largest financial organizations in being “U.S. owned” in a whole different sense of the term than we ever considered. Big auto is important to our economy not just for its manufacturing muscle but for the interlocked supply, sales and finance organizations which are a core element in many communities. Its bailout however rests on the false assumption that an orderly bankruptcy will taint its product and lead inevitably to liquidation.

When any number of airlines or department stores went into Chapter 11, did we decide their planes were unsafe to fly or their clothes unfit to wear? No, it is the imposed order of the Bankruptcy Court and the power of its edicts that should give confidence to suppliers to keep parts rolling. The very importance of the supply and sales chain of the auto industry to so many communities’ requires bankruptcy protections to be sought. There is a huge vested interest in working to solve Big Auto’s inherent weaknesses, but to avoid Einstein’s well reasoned outcome, the rescue needs to assure that it is for an industry cured of its chronic competitive weakness.

Good as our vehicles are becoming, we cannot hope that any rescue will be more than money down the drain so long as it costs several thousand dollars more in labor cost to produce Big Auto’s vehicles than those produced abroad or by their competitors in our Southern states. After considering the attempt at the end of the last Congress to come to an effective solution, it seems clear that it was doomed from the start. Politicians going through their paces; lobbyists, lawyers and business executives all hoping that if enough people said the “Pig” wasn’t a “Pig”, Congress would go along and pour good money after bad.

While I have sympathy for the Union’s desire to stave off until 2011 any renegotiation of their contract, we don’t have that much time. Our economy won’t wait, and the public will demand a real solution this time. To provide that assurance, at least Chrysler and GM need to be cleansed through bankruptcy of those obligations that will doom any lesser attempt to more pain and failure. To GM’s credit, TARP money or no, I think they are coming to that same conclusion and have hired bankruptcy counsel to help them evaluate that alternative. Suppliers should be heartened by that. With GM as debtor in possession of an on-going business with Court supervision, bankruptcy will give them the environment that will permit a binding agreement and even handed parceling out of the pain that the union says it wants.

Already existing mechanisms provide the best solution for the auto industry, but the chill galloping up my spine is the pattern of collectivist, statist solutions that are the first and only approaches we are selecting for an array of pressing societal challenges. Though not socialist in a technical sense, we are mindlessly being led down the path of state socialism, and I recall the last time that was tried, it didn’t work out very well for anyone. Who has ever encountered anything big government could run well? They still haven’t been successful in hiring and organizing the staff contemplated under the TARP legislation. Why should we believe that an auto czar, a financial sector czar or any czar whose success is not both rewarded and measured by the bottom line will be anything other than a hindrance?

I am getting flashbacks. I know this scene. We have read about this before as the “moochers,” and “exploiters”, preaching the common good, created a collectivist nightmare in Atlas Shrugged. Will I have to ask in six month’s time “Who is John Galt?” This certainly is the deepest and worst economic adjustment we have faced in my lifetime. We can and will work our way out of this but made in Washington solutions will only lead us deeper into the forest where the wolves dwell, not to the sunshine beyond.

Copyright © 2009 by Robert E. Freer, Jr. All rights reserved

About the author: Robert E. Freer, Jr. is President of The Free Enterprise Foundation. He is a Visiting Professor, at The Citadel and elected in 2005 to be their first John S. Grinalds Leader in Residence. A regular contributor to the Mercury, He can be reached by E-mail at The Citadel . Copies of his earlier columns can be found The Free Enterprise Foundation.

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