Analogies
To be clear, when I compared arguments for bailing out the auto industry to arguments I feel for before the invasion of Iraq, I’m not saying that the consequences of bailing out the car industry would be as catastrophic as the consequences of invading Iraq. I’m saying there’s a certain structural similarity in the arguments I’m hearing. Specifically, I’m hearing a lot of progressives say things like “WE MUST BAIL OUT DETROIT!!!!!! (but it’s important to do it with these conditions)” rather than things like “WE MUST NOT BAIL THESE COMPANIES OUT UNLESS THEY MEET THESE CONDITIONS.” But if you want to actually get these conditions, you need to position yourself as much more skeptical of the overall merits of this idea. Once we accept the notion that letting these firms go bankrupt is unacceptable, then we guarantee that no conditions will actually be met.
Meanwhile, it’s hardly as if current (and possibly soon-to-be-former) employees of General Motors and their suppliers are the only people hurting at the moment. Circuit City declared bankruptcy and is laying people off. Citigroup is laying off thousands of people. The City of Detroit is full of poor people who aren’t lucky enough to have jobs at the “big three.” And whether or not you buy the idea that the US car companies have gotten religion on making more fuel efficient cars, the fact remains that at the very moment this debate is playing out the car companies are fighting in the policy domain for a badly flawed Dingell-Boucher climate change proposal. Progressives shouldn’t be eager to hand taxpayer money over to companies that are going to use the funds to try to block key progressive policy initiatives.
23 Responses to “Analogies”
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November 17th, 2008 at 11:38 am
Paul Samuelson favors a bailout, with conditions:
FROM: http://biz.yahoo.com/ap/081116/meltdown_auto_suppliers.html
Excerpts:
First, auto companies’ existing creditors need to write down their debts…..
Second, labor costs need to be cut…..The bailout should be more than union welfare…
Finally, automakers need a consistent energy policy. Congress demands that companies produce more fuel-efficient vehicles (35 miles per gallon by 2020, up from 25mpg now). But politicians also want low gas prices. These goals are contradictory…. Congress should mandate higher gas prices. Gasoline taxes could be raised gradually (say a penny a month for four years, possibly offset by other tax cuts)….
The reason for imposing tough conditions on the auto industry is not only to improve the odds of success, but also—by the sacrifices required—to make the process sufficiently unpleasant so that countless other companies and unions won’t demand similar handouts….
My prediction: Reid & Pelosi won’t have the courage to confront the UAW or enact higher gas taxes.
November 17th, 2008 at 11:40 am
Matt,
I think you are mischaracterizing things. There is going to be a GM bailout one way or another. If GM makes it to 2009 there is already a bailout that passed Congress and signed by Bush into law. If they don’t make it to 2009, then the government will have to assume payments on millions of pension funds. The third option is that GM gets a loan by the government so that they make it to 2009 and get that grant money. Why do corn growers get handouts but auto workers don’t?
November 17th, 2008 at 12:13 pm
Even if the Detroit 3 deserve everything that would be coming to them under Chapter 7, there is the small matter that this is too big a chunk of the American economy to hand over to our fair-weather friends overseas for a song. Chapter 11 with guaranteed government credit seems to be the way to go: it preserves GM and Ford as entities (Chrysler, sadly, seems to need to go away), but at a scale that is realistic for current conditions, and should allow for the dead wood to be bundled up and carted away at the same time.
November 17th, 2008 at 12:44 pm
I’ve changed my position on bailing out GM — I’m now in favor of it. Not because I think GM should be bailed out, on the merits, but because the current proposal is to take money from Paulson’s $350B “slush fund” to do it. I’d rather spend the money on GM than give it away to Paulson’s friends in banking for the purposes of further consolidating our financial system. Bailing out GM is the lesser of two evils. For that matter, I favor taking money out of the Paulson TARP slush fund for almost any other purpose as well.
November 17th, 2008 at 12:57 pm
Except that we really, actually, do need to bail them out because letting them go bust would be really, really bad. I’m not shouting down conditions, but right now, on this blog, I find I’m having to waste all my time explaining why dropping 3 million people out of work might be bad for the economy– instead of talking about what conditions will be reasonable to impose in exchange for this funding.
November 17th, 2008 at 1:15 pm
Progressives shouldn’t be eager to hand taxpayer money over to companies that are going to use the funds to try to block key progressive policy initiatives.
Like I keep saying: BUY the Big Three.
Once we own them, we can extract whatever conditions we want in return for keeping them afloat. And they won’t be able to lobby against bad stuff.
November 17th, 2008 at 1:25 pm
Pay for the bailout with an increase in the gas tax.
November 17th, 2008 at 2:27 pm
“Pay for the bailout with an increase in the gas tax.”
The best idea I’ve heard, by far.
November 19th, 2008 at 2:08 pm
Funding any bailout with a gas tax increase is a great idea. DCreader is right…there will be a bailout in some form or another, so the key is to make sure it forces the car companies, and the UAW, into a structure that actually makes economics sense.
Read more here.
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April 10th, 2009 at 11:31 am
An interesting view of the automotive industry. Where do you see the future of the industry, will it ever recover or will there be major casulties?
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