The Stimulus Argument
Josh Marshall says: “Whatever we think of the long-term or even the medium-term fate of the US auto industry, it’s hard to think of many other stiff accelerants to the downturn than one of more of the big automakers going bankrupt any time in the next year.”
To me, this is by far the most persuasive case for a bailout for the car companies. If they were facing bankruptcy amidst a period of okay economic growth, I’d be strongly inclined to spend $38 billion on direct assistance to the state of Michigan and to displaced workers, feeling the best thing for the economy would be to liquidate firms that need liquidating and help people find work elsewhere. But at the moment, no matter what you did nobody could find new jobs elsewhere. Under the circumstances, giving money to GM to keep producing cars makes a certain amount of sense just as make-work. Ideally, it’d be better to employ all those people in infrastructure projects instead but the quantity of useful “ready to go” infrastructure projects is actually smaller than the volume of stimulus being contemplated, so that can’t be done on the necessary time frame.
That said, it’s important to keep in mind that there’s a tension between bailing out GM as a jobs program and bailing out GM as part of an alleged restructuring program that leads the firm to profitability. The plan GM submitted to the congress, for example, calls for both steep cuts to its workforce and for substantial union givebacks. Reduced production of vehicles is presumably part of that picture (to match reduced demand) which, in turn, means lower orders for suppliers. That’s business. But it’s not stimulus. The logic of stimulus is that we should be making the cars whether or not they can be sold at a profit just for the sake of keeping people employed.
32 Responses to “The Stimulus Argument”
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December 4th, 2008 at 4:55 pm
Just what other manufacturing jobs would the newly-laid-off auto workers get? We’ve hollowed out this country’s manufacturing base so badly that there aren’t (comparatively) a lot of those left.
December 4th, 2008 at 5:02 pm
Dittos to post #1. We’ve been saying this for weeks. Toyota’s sales are down too. But hey, don’t listen to the peanut gallery Matt. I am about ready to give up here…
December 4th, 2008 at 5:08 pm
Link,
Good point – there isn’t anything left here in good ole USA, is there?
Payroll Tax holiday!! Payroll Tax Holiday!!
December 4th, 2008 at 5:13 pm
The factories getting shut down now are mostly those making truck-based SUVs. That’s a good thing even in this economy given the negative externalities they impose on the public.
December 4th, 2008 at 5:15 pm
The logic of the bail-out is to restructure GM as a company capable of profit, and therefore, jobs. A make-work program without restructuring simply pushes off the inevitable shrinkage (by whatever means) of GM/Ford/Chrysler.
Don’t confuse this with short term stimulus.
December 4th, 2008 at 5:16 pm
Matt,
Are you sure about this:
Is this actually the case or CW? Don’t local communities have “Needs” assessments that are more extensive than the “Cost feasible” ones they actually do? If so, wouldn’t funding those already planned needs be larger than what we think?
-g
December 4th, 2008 at 5:17 pm
The problem is that the GM plan sucks. I’m really upset, because I totally agree with Yglesias about the effects on the economy, but unless we bet that there will be a huge turnaround by April 2009 (which would be awesome for everyone) then what’s the point of delaying the inevitable. What a bunch of wankers.
http://theamericanscene.com/2008/12/04/gms-magical-thinking
is as good a summary as I’ve seen – I figure that might be from a biased perspective, but still, reading it (there’s a link) will lead you to the same conclusions…
The Ford plan is good, but then again it’s arguable whether Ford really needs a bailout or not, past the “green” loan guarantees… Ford seems to be mostly concerned with perceptions of their health & supplier issues, etc. if other members of the Big 3 go down?
I don’t even know if Chrysler submitted a plan, but it would be inherently bad because their only reasonable plan is to sell Jeep and then liquidate the rest.
December 4th, 2008 at 5:24 pm
Linkmeister (#2): I don’t think there’s any assumption that the new jobs would necessarily be in manufacturing.
In addition, Matt (and a few others here) don’t think that manufacturing has been hollowed out, so he won’t understand your statement.
Back when Matt posted on the size of the manufacturing base, we were arguing in terms of dollar value and size relative to the GDP as a whole. Unfortunately, it didn’t occur to any of us to argue in terms employment, probably the most relevant statistic to job seekers.
December 4th, 2008 at 5:38 pm
Why don’t the carmakers just sell all the extra cars to the government through a dutch auction, kind of like the the original TARP? Then the government can give them out as prizes to all students who get into college next year.
December 4th, 2008 at 6:20 pm
Well, if we can just get the word out about how Obama’s bail out will make it so that the big three are not allowed to build pickups or SUVs so you have to get yours now! We might convince enough republican to buy high profit cars thus avoiding the need for a bailout. Fairness doctrine, Guns, and Pickups are his top three targets, I’m sure of it.
December 4th, 2008 at 7:09 pm
Re: Ideally, it’d be better to employ all those people in infrastructure projects instead
Which wouldn’t work. People aren’t cogs in a machine, you can’t just unplug them in one hole and stick them in another. Auto workers are, well, auto workers. They are probably employable in other manufacturing jobs ditto for the white collar workrs, who could do other white collar work of their sort), but they aren’t construction workers or ditch diggers.
If we’re going to reemploy these people somewhere else then it needs to be in jobs they know how to do, albeit not in the same industry. But tool-and-dye makers should be making tools and dyes, programmers should be programming and so forth.
December 4th, 2008 at 9:10 pm
With gas at $1.85 a gallon, Obama should bail out GM by lifting all the CAFE and other environmental restrictions and telling Americans to go buy Hummers, Escalades, and other high profit cars.
December 4th, 2008 at 9:53 pm
Obama should help American auto companies by placing huge fees on vehicles that get too good of fuel economy and are too clean and also are ‘uppity’.
December 5th, 2008 at 2:08 am
A side point, but it’s public employment, or public works, or work relief if you want to be archaic about it. Not make-work.
If I hear that term being used, I’m going to fly to D.C and make you watch every slide of a WPA project that I own, Yglesias.
December 5th, 2008 at 7:40 am
yglesias knows little about work
December 5th, 2008 at 8:32 am
As Paul Krugman noted yesterday, the U.S. economy is losing jobs at the rate of about 450,000-500,000 jobs a month. Let General Motors collapse – which it most certainly will by the end of December without a bridge loan – and job losses will accelerate with sickening speed.
In a matter of weeks, tens of thousands of workers at GM, parts suppliers, auto dealerships, and other businesses that rely on GM and its employees for a substantial part of their revenue – from ad agencies to local retailers, restaurants, etc. – will go from being taxpayers to the unemployment rolls. The impact on the already strained budgets of state and local governments will be severe; in many communities – Detroit for sure, but others as well – the already frayed social safety net will snap. The recession will deepen dramatically – and the recovery will be slower. The cost of inaction will be far greater than $38 billion – or even Dr. Mark Zandi’s projection of $75-125 billion (as Zandi himself pointed out).
By all means, government aid to the Detroit 3 automakers should have tough conditions, but as GAO’s Dodaro noted at the Senate Banking hearings, we know how to make this work, we’ve done it before.
December 5th, 2008 at 8:52 am
It has been suggested by others that the best stimulus package is for the government to offer rebates to consumers who buy new automobiles manufactured in America. The money would still flow from the government to the automaker but there would be incentive to keep production going. Yes this brings up questions of how big a rebate and for what kind of auto but this is the discussion that should be happening.
December 5th, 2008 at 11:23 am
$34 billion could buy new cars for 1 million American families. Let’s hold a lottery. Of course, I wouldn’t even want a free car if it’s from Detroit, but that’s just me.
December 5th, 2008 at 3:43 pm
What if the US gave GM and Chrysler and Ford a 70 year contract to supply all vehicles for the Federal government, payable up front? It would have little initial costs to the 2.5, but would give them instant capital. It would also pay them for producing stuff. The Gov could put in guarantees that would place them at the front of any repayment as a senior ‘creditor’ since they’re owed vehicles.
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