Why Fear the Rummage Sale?

I caught a glimpse of the Sunday morning talk shows. Topic of discussion: Obama ‘saving’ the US auto industry.

One person (I think Carly Fiorina) correctly pointed out that Ford stayed viable and gained strength without a government bailout. I might add that they have done so with some good ‘adult’ management (making tough choices) and by making stuff that people want.

Another person responded saying that the US auto industry wouldn’t exist if it weren’t for Obama. Yet another added that an auto industry collapse would have had far-reaching effects in the economy.

Both present an overly simplistic false choice: Either government bails out the auto industry or the industry disappears and takes a lot with it.

That’s not true. In our world, big businesses rarely go out of business completely. Their restructurings and bankruptcies are like exploding stars that give birth to new stars and planets.

Big hunks of the business would continue in some form or fashion. Other companies may buy the healthy operations or the workers might buy their divisions to form new companies.

My father worked for a company that was owned by a steel company that no longer exists. As the steel company was going out of business, the leaders of his division organized an employee purchase of his part of the company. That employee owned company is still around, nearly 30 years later, and much larger and stronger than it was then.

Or, new management may take over during bankruptcy and renegotiate the obligations that have become untenable and allow the business to continue with a more competitive cost structure.

Lots of things can happen.

The unhealthiest portions of the business may go away, but these were the parts that were holding the company back. And this is exactly what is supposed to happen. Without the barriers caused by the unhealthy parts, the healthy parts can thrive and grow to quickly offset the unhealthy part that died off.

This is not much different from what most of us do with our personal belongings. We buy nice shirts to look nice at work. Eventually, we get tired of it. How often do you throw away shirts?

When I’m done with my shirts, I give them to family members, sell in a garage sale or donate it to a thrift store so others can get use from them.

If I kept all the shirts that I stopped wearing, I’d have to rent storage lockers to store them and eventually the cost of renting those storage lockers would prohibit me from buying new shirts.

If I started talking about selling all my shirts in those storage lockers, my two good friends from the Sunday morning talk show would complain.

The first would say that without me renting storage lockers, the storage locker industry will suffer, so Obama needs to help save that industry.

The second would say that if the storage locker suffers, others will too, so Obama needs to help prevent the spread of collateral damage.

I ask, but what about all the companies that make shirts that will benefit now that I will have some proceeds from my shirt sales and saved storage locker fees to buy more? Maybe I’ll buy some pants, too. Might other rent the locker space that I vacate?

In the end, the ‘auto industry’ (or some evolved semblance of it) would survive. It may look different. But, what’s remaining might be healthier and better poised to grow.

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2 thoughts on “Why Fear the Rummage Sale?

  1. Saying that the auto industry would disappear if GM went bankrupt is like saying that your house would disappear if you default on your mortgage and file for bankruptcy.

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