Utilitarianism & Bailing Out the Big Three

As the world economy continues to stagger about, the American government is considering whether to bail out the big three American automakers (Ford, GM and Chrysler). Like many business, they are running low on cash and are apparently in danger of bankruptcy or outright failure. While this is of great economic and political concern, this discussion also raises philosophic concerns as well.

From a moral standpoint, the question is whether the state should help out the Big Three on moral grounds. As usual, the easiest way to argue for this is to use a utilitarian approach. Making the case is simple enough: estimate the harms done to Americans (or the world if you want to expand the scope of the relevant beings) by not helping out the Big Three and the benefits that will come from helping them out.

The best estimate at this point are that 2 million Americans depend on the Big Three for their health insurance and that 1.4 to 1.7 million jobs would be lost if they failed. While the Big Three make vehicles, they also buy parts, purchase advertising and so on and these tie the companies into the overall American economy. If this figures are accurate, then many people would be harmed if these companies failed. Assuming that the proposed $25 billion (US) bailout would prevent them from failing, then serious harms would presumably be avoided. If the harms prevented are worth at least $25 billion, then a bailout would seem to be the right thing to do.

Of course, there are also other factors to consider. Laying aside the practical concerns about whether the bailout would save the day or not (after all, the Big Three could still fail even with all that extra cash), there is also the obvious concern that the money could be better spent elsewhere. In utilitarian terms, the question is whether there are other ways to use the money that would create greater utility than bailing out the Big Three. In terms of pure numbers, if spending $25 billion elsewhere could help more people, then that is what should probably be done instead. Of course, political spending tends to be decided more by lobbying power than by what would add the most to the general good.

Another concern is to look beyond the more immediate consequences to the long term consequences. After all, the harms generated by bailing out the Big Three must also be considered. One consequence well worth considering is that such a bailout will encourage large companies to engage in more risky behavior. After all, their leadership might reason, if they are “too big or too important to fail”, then Uncle Sam will be there with a bag of cash if they start failing. As such, that anticipated rescue cash will become part of their planning, thus leading them to take more risks. But, even the United States cannot keep dumping taxpayer money into failing companies and this could lead to yet another economic disaster (or a continuation of the existing one).

Moving away from utilitarian concerns, there is also the other moral question: do the Big Three have a moral right to such a bailout? After all, many experts have argued that they are in such dire straits because of leadership failings and poor decision making. If this is true, then it would seem they have no right to expect cash from the state. After all, while the state is supposed to protect the citizens from enemies, the state does not seem to have an obligation to protect citizens from their own bad choices. After all, if I started a business trying to sell books many people did not want to read, then I should hardly expect a check from Uncle Sam when my business fails.

  1. I was really hoping for a Big 3 bail out post.

    It seems to me that inherently there is nothing immoral about letting a company fail. Yes, lots of people will lose jobs, but they can get new ones in newer industries like green tech or something, go back to school, etc.

    But more importantly, I think there is a rather large charade going on here. The Big 3 are failing, not precisely because of the credit crunch, but because their products are inferior, and they haven’t listened to the american consumer.

    Toyota has successfully dominated the american auto market, with Camrys and Priuses, because we want good mileage and comforts. Whereas the Big 3 continued to ignore the moving trend towards fuel efficiency by scrapping MPG improvements and waiting to develop hybrid cars almost 5 years after the introduction of the Prius.

    The charade is that they were successful companies before the credit crisis. Sales had been dwindling for a long time. They were failing corporations already. To give them bailouts to help their workers is to only keep up the charade that their work is meaningful. Employment for employment sake, churning our products that nobody would buy.

    Think about how the credit crisis is really bringing the downfall of the big 3. They can’t borrow money to pay for salaries and materials because banks arn’t lending. Now borrowing money in the higher echelons of business is quite normal, but usually there are cash reserves for dramatic times such as these. The Big 3 all lack these cash reserves because in the past few years they have burned through them because of poor sales, not because of problems the result of the economy. Without the cash reserves, and without the bank loans, they can’t operate, and they fail.

    So if we bail them out, what happens? They are able to pay for their operating costs, retool and make better cars? Why weren’t they making better cars when their cars were failing to sell? Are they even in touch with the reality of the american consumer that because of the economic downturn nobody will be buying cars, the least of which from a company that potentially may not exist in the next couple of years, thus replacement parts would be next to impossible to get?

    Worse yet, when the Big 3 CEOs stand before Congress and are questioned about how much money they need, and why, they can’t explain why they need the amount of money they are requesting. Like Socrates in the Apology, they are treating frivolously very serious matters here.

    Sorry Barack, I disagree with you on this one. We let them fail.

  2. And let the UAW fail along with them, please.

  3. Risk: the only thing that’s real… No Risk–Not Real!

    In this over-insured world of ours, money is not real, it’s an idea or fantasy. It’s more of a concept really. Risk, not too scary because of the insurance factor. “If I fail.. as the author points out here, I’ll be bailed out.”

    And that, ladies & gentleman, is why the top 1% are already as rich as the bottom 90 effin’ % in measure of personal wealth. The rich DON’T FUCKING PAY TAXES. Is this irony? No, it’s thievery.

    Let ’em burn! OR better yet, MAKE them do something useful like finally putting their asses behind making better vehicles that don’t kill everything including arabs.

    we have many alternatives to the carbon-chuggers but the 1% wouldn’t have us know that. Oil–now that’s real and that’s what we’ll fight over until that last vein squirts blood. And then what?

  4. Don’t GIVE them the money… Nationalize the companies and get the state to make cheap cars that run on renewable energy sources, or even better… public transport. Don’t let those who have bled the world dry take one last suck!

  5. Patricia Vreeland

    There is one positive aspect to a bailout of the Big 3 — the government will now have significant leverage to requires changes to the auto industry. Such demands of government could include a change in leadership, fuel efficient cars, etc. Consequently, we could avoid the job losses and its rippling effect throughout the economy, and bring about a more environmental-friendly product.

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