Why we should invest in GM, Ford and Chrysler

First, the United States Congress should pass and the president of the United States should sign a rescue package for General Motors, Ford and Chrysler, post-haste.

If this was the "Roaring '90s" or even the "Fabulous '50s," an operational cessation by General Motors (NYSE: GM), Ford (NYSE: F) and Chrysler, would hurt the U.S. economy. As investors know, however, we are not in the 1990s or the 1950s, but in a teetering economy, and an auto sector cessation would be devastating, driving the U.S. economy into a deeper and longer recession.

Second, the notion that only companies that "perform" in the free market should continue and that others, the underperformers, should fail, as an absolute rule, simply has not been the history of the United States economy. Moreover, dozens of companies receive billions of dollars in subsidies from the U.S. government, which is you, the taxpayer.

Need a few examples? Let's do what the late, great New York Governor Al Smith would do: Let's look at the record.


Pure capitalism? Not in the U.S.

Try sugar companies. A pure capitalist operation for pure sugar, right? Not even close. You, the taxpayer and citizen, pay a few cents extra per pound of sugar. Not much for you, but about $2 billion per year in federal subsidies for the U.S. sugar industry. Is that what you call a company or sector surviving on its own in the free market?

Second, the U.S. government pays tens of billions of dollars in agricultural subsidies annually. Likewise, is that a company or sector surviving on its own in the free market? Further, some ag companies are doing an enormous amount of harm, such as those who receive federal subsidies for corn-for-ethanol production, which -- in addition to not solving the nation's energy problem -- has driven up the price of food, displaced other crops, and probably resulted in environmental damage in certain zones. Nevertheless, your tax dollars are being spent so farmers can grow corn. And there are dozens of other farm / agriculture subsidies that run into the billions of dollars annually.

Third, there's no-bid / not-full-competition spending. Under the Bush administration, the amount of no-bid or not-full-competition contracts has risen to about $139 billion in 2007 from $66 billion in 2000, The Washington Post reported. Are no-bid or low-competition contracts consistent with a free market system in which full competition is required for price discovery? No they aren't, and the difference, some argue, is overpayment to these contractors, or a federal subsidy.

Fourth, there's the issue of big-ticket defense items. Many systems do not increase our security and are not vital for the defense of our nation. Rather, they exist primarily because constituencies in the Republican Party, and, to a lesser extent in the Democratic Party, have lobbied to get them funded. The result is a federal subsidy to these companies, and also a waste of taxpayer money.

Is that an example of a company or sector surviving on its own in the free market? The B-2 bomber, F-22 joint strike fighter, Virginia class submarine, and V-22 Osprey, are all examples of optional programs that represent hundreds of billions of dollars in corporate revenue subsidized by the federal government. Further, the U.S. Navy has 11 carrier groups -- ELEVEN -- when, in fact, the nation could probably get by with eight or seven. That's at least three carrier groups that shouldn't exist. The result? Ca-ching, Ca-ching rings the cash register of the companies involved that built these ships.

So the notion that the U.S. government does not subsidize corporations is a myth. Further, the notion that only companies that 'bear the rigors of free market competition' should survive is also not born out by historical practice (see the no-bid contracts above).

And given that the U.S. government -- through subsidies, no-bid contracts, and numerous, needless, big-ticket defense purchases -- is allocating hundreds of billions of dollars in taxpayer money to corporations, it should be able to find an additional $50-60 billion to help revitalize the nation's auto sector. To do anything less would be a public policy double standard of the very worst sort.

Financial Editor Joseph Lazzaro is writing a book on the U.S. presidency and the U.S. economy.
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