This weekend I encountered one of the truly tragic crossroads of American history. After biking 20 miles to a classic car show outside Arlington, Virginia, I joined other sweat-stained locals to see motor enthusiasts line up their 1966 Ford Mustangs and 1939 Lincoln Zephyrs. There was even a 1909 Model T on display–in working order. Novices like myself peered inside the restored time machines, gazing at the craftsmanship from years gone by, and marveled that these 70 year-old cans still went pedal to the metal.
As I looked at the cars, it was tragic to think that the industry disappeared decades ago. Looking at a 1956 Studebaker Golden Hawk I regretted that the government didn't step in to bailout the automobile giant before it fell apart years ago. There were also many models from the late Packard Motor Car Company. Once the second largest auto firm, Packard was the wave of the future, until it went bankrupt.
If only Washington could have provided emergency funding to keep those firms afloat we could have saved so many jobs, and they would be producing cars today. We could have saved the car industry, if we'd followed the wisdom of those who said we'd never survive without them. Those who lost their jobs, never found new ones, creating such perennial unemployment. As it stands now, we hardly have vehicles to run on the road anymore.
As I walked away from the classic car show, to ride my bike back home, I deeply wished there were still cars around. How stupid for us to believe that the market should allow demand to dictate what was produced in society. We never should have trusted that small firms like Chevrolet could step up to provide America vehicles along with Ford and GM. We never should have trusted that foreign firms might innovate new ideas for more efficient safer vehicles. How naïve for us to believe that the market would just work itself out, providing better and better products to drive.
Right? How naïve? No.
In reality, I drove away from that car show, in marvel of modern technology–a Honda Accord Coupe. In reality, the car industry did not fall apart. In reality, competition has driven us (pun intended) to newer and greater vehicles. They may not all be coming from Detroit, but the industry is alive and well.
The dissolution of once great firms like Studebaker and Packard–as well as the unfortunately failed start-ups like Morris Minor and DeLorean–was part of the evolutionary process of making cars. We had to go through the growing pains of letting firms with poor business plans or bad products fail. And we may not be done with that process yet (warning to the Big Three).
Now apply this lesson to the "financial crisis" of today's debt markets. As banks fail we should remember that they made big risks and are reaping the consequences. The upside would have been huge, but the risk did not payout. The debt industry will work itself out, just as the automobile industry, technology firms, and grocery stores. There is still time to let Wachovia and Citigroup fail.