Why are we so mean to the car companies (and nice to the banks)?

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Imagine there was this industry–Industry A–that had been flying high for years. It benefited from major regulatory shifts, and changes in the tax code. Its employees were the highest paid of any industry. Then it landed in a crisis entirely of its own making. It had been manufacturing defective products and selling them around the world. Buying them all back would have bankrupted the industry, so it asked Congress for help. Industry A got $700 billion, to be administered by a Treasury Secretary who was the former CEO of one of the industry’s leading firms. He soon began handing out the money at generous terms, with very few restrictions.

Imagine there was this other industry–Industry B–that had been struggling for a while. Some of its problems were of its own making, but government policies played a significant role in its decline. Its employees, while still paid better than their peers in similar industries, had given up perks and pay, and their ranks had been decimated. Then Industry B landed in a crisis that was mostly the making of Industry A. It asked Congress for $25 billion to tide it over. Members of Congress criticized its leaders sharply, and told them not to come back until they had a detailed plan for how they would spend the money and how they would pay it back.

Seems kinda unfair, huh? Yet, as plukasiak has been pointing out again and again in the comments, I’ve generally defended the bailout of Industry A–finance–while being critical of Industry B–automakers. Same with just about everybody else in the business media.

There’s one valid reason why we’ve done so: Banks are different. Their health affects every sector of the economy, and there’s now widespread, if not universal, agreement among economists that a breakdown of financial intermediation–a.k.a. banking–was the main cause of the Great Depression. Also, banks are susceptible to panics in a way that other corporations are not. If everybody gets freaked out enough, they can fail even if they are profitable. That’s why we have a long history of government involvement in and regulation of the financial industry. None of these special conditions holds for automakers, so their aid requests should be held to a different standard.

Still, I wonder if there aren’t also some other factors at work in the relatively hostile reaction to the Detroit Three. Most Americans simply no longer identify with the domestic auto industry (or with the states of Michigan and Ohio). To the Southerners who now make up the core constituency of the Republican Party, it’s a bunch of coddled, unionized workers trying to get handouts that the South’s auto industry (Toyota, Hyundai, Nissan, Mercedes, BMW …) doesn’t need. To the coastal urbanites and suburbanites who now make up the core constituency of the Democratic Party, it’s an industry that makes crappy big cars and fights against higher fuel efficiency standards. And to the business press it’s the worst thing of all: a trio of companies that are neither exciting nor financially successful.

Are those good reasons to deny Detroit aid? No, probably not. But they do explain why Detroit needs to come up with better reasoning of its own if it hopes to get any help from Washington.