Adam Smith and Keynes, Essay Example

In today’s difficult economic times, it is necessary to establish an understanding of the options that are available to companies who can no longer compete in the marketplace. Companies such as General Motors have had their fair share of heartaches in response to this crisis, and have had no viable choice but to file for bankruptcy, which is a more common option for companies to recover and/or restructure (Sanger et.al). The company’s bankruptcy and restructuring efforts do not come without a significant price, as they are forced to lay off workers, close factories, while also requiring U.S. taxpayers to foot some of the bill through a massive bailout campaign (Sanger et.al). Although some of these concepts may be effective over the long term, they could also detrimentally impact taxpayers through increased tax rates and budget cuts in other areas.

Adam Smith’s arguments regarding capitalist economics remain relevant in the 21^st Century, even though they were written over two centuries ago. Smith’s beliefs regarding taxation and other key economic principles are reflected in many of the decisions being made in the United States today, including those being made by General Motors. However, Smith’s arguments do not necessarily agree with how GM and the federal government have taken taxpayer dollars in order to bail out the auto industry from further turmoil (Constitutional Rights Foundation). In this context, Smith was not an advocate of using tax dollars for purposes that were not acceptable by societal standards, and because companies could not recover from economic conditions on their own (Constitutional Rights Foundation). As a result, Smith would not have approved the GM bailout in terms of the strategy that was selected to accommodate this process.

For John Maynard Keynes, the nature of current economic conditions is not at all surprising, but how companies handle these challenges is left to doubt and much concern (New York Times). Therefore, the choice to file bankruptcy is not necessarily a surprise, but the choice of the federal government to intervene through a complex bailout mechanism is questionable, because it does not necessarily reflect the most optimum use of available resources (New York Times). In Keyne’s estimation, “Investors do not process new information efficiently because they don’t know which information is relevant. Conventional behavior easily turns into herd behavior. Financial markets are punctuated by alternating currents of euphoria and panic” (New York Times). Therefore, it is necessary to perhaps take a step back before making the decision to use taxpayer dollars without any real evidence that the outcomes will be successful in the desired manner (New York Times).

Finally, in addressing the challenges of the GM crisis and the auto industry bailout, it is evident that there has been some degree of success with these options, but that the government’s benefit remains to be seen (Welch). Therefore, the ability of General Motors to recover from the economic crisis is one concept, but the ability of the federal government to overcome its massive debt load, resulting from many actions that include the auto industry bailout, is entirely another. The article’s discussion of General Motors and the auto industry as a whole is influential in shaping the manner in which the federal government approaches all industries that face economic challenges in the coming months and years, as these actions may ultimately influence how much money remains in the taxpayer’s pocket.

References

Constitutional Rights Foundation, 2010. “Free markets and antitrust law.” 2 November 2010: http://www.crf-usa.org/bill-of-rights-in-action/bria-23-1-a-adam-smith-and-the-wealth-of-nations.html

New York Times, 2010. “Joyn Maynard Keynes.” 2 November 2010: http://topics.nytimes.com/topics/reference/timestopics/people/k/john_maynard_keynes/index.html

Sanger, David E., Zeleny, Jeff, and Vlasic, Bill, 2009. “G.M. to seek bankruptcy and a new start.” 2 November 2010: http://www.nytimes.com/2009/06/01/business/01auto.html?_r=2&hp

Welch, David, 2010. “Doing the math on Obama’s Detroit bailout.” 2 November 2010: http://www.businessweek.com/autos/autobeat/archives/2010/08/doing_the_math_on_obamas_detroit_bailout.html