Auto Bailout and Effective Policy

There are several theories that are proposed for the proposed bailout of General Motors and Ford. The first theory is that the bailout will protect the jobs of thousands of workers. If the two companies go into liquidation, the thousands of persons that are employed, those employed in ancillary industries and those employed by dealers will lose their employment. So to protect their employment the government is paying $25 billion of taxpayer's money.

The second argument is that car making is related to national defense and the existence of these facilities helps the defense effort of the US. So, the theory is that to protect the national defense abilities, these companies should be prevented from going into liquidation.

The third theory is that General Motors and Ford represent the true American industry and to keep the industry alive, it is necessary that these companies be bailed out.
Finally, if General Motors and Ford close down it will dent national pride and dignity so the government should bail out these companies.

If these theories are accepted by the US public then the expected role of the government will be to ensure a high level of employment. Ensuring that large scale unemployment does not take place; In addition, the role of the government and public administrators is to maintain the defense capabilities of the country. Moreover, the public may look forward to the public administrators for protecting national industries and national pride. The difficulty with these expectations is that this is a movement away from the principles of free economy. There is government intervention and this might actually be the first step towards government ownership of business and the public administrators being called in to manage industry.

The theories that you offer in your post reflect many of the viewpoints that I have heard regarding the bailout. As you stated, the final decision about what to do will be influenced by the public acceptance and approval for a specific role for government. Although legislators have solicited input from their constituents, the dilemma with this decision is that I suspect very few people truly understand the impact that making a decision one way or the other (or the countless options in between) will have on the economy. This is the challenge of democracy; how do decision-makers create effective policy that earns approval from a public that may not fully understand the situation or potential outcomes?