Chrysler has shut down production for a month, while Ford and GM have cut back substantially. Some people feel that this is a disaster – and that it indicates we need government intervention, and fast!
But I’m confused. Car inventories are at record high levels, and demand for cars is very poor – as a result, doesn’t it make sense to reduce the number of cars we produce? Why should the government intervene to get industry to keep producing something people don’t want – I am very confused about this.
If anything, the decision to cut back production tells me that these firms are reacting sensibly to a drop in demand – why would we want to spoil their reaction to market signals?