People are pissed off, and for good reason. The economy is in the tank. And from the person-on-the-street perspective, the government’s only response has been to give unimaginable amounts of money to banks with little or no strings attached. So it’s not too surprising that when American automakers came calling for a $25 billion taste of federal bailout sugar, folks are not all that eager to oblige.
But let’s consider some of the reasons being floated out there for letting the Detroit Big Three go down the drain. There are of course, many things to be said about the poor management, the over-dependence on SUVs, etc. Managerial arrogance? Oh yes. All true. But let’s get real folks. We’re going to let GM collapse because Rick Wagoner flew to DC on a corporate jet? Does anyone think for a moment that if the financial industry was based in, say, Peoria, that its leaders would fly commercial airlines to Washington?
Let me be clear. I hate corporate jets. I live in the flight path of the Santa Monica Municipal Airport, which means that corporate jets, landing gear deployed, rumble my house every day. But are we’re going to throw 100,000+ people out of work because their managers are arrogant and tone deaf?
Let’s be very clear about the logic behind these arguments: market fundamentalism. True, it’s cloaked in populist outrage. But the underlying argument for letting these companies go is that the market is always right and we need to “sweep out the deadwood.” Guess what? The “deadwood” are real people with mortgages, families, and hopes for a pleasant retirement.
There will be (continued) restructuring of the Big Three if they survive. Chrysler? Likely to merge. GM? Better get smaller. But is it really wise to let them collapse right now? If they do, we’ll go from a severe recession to an outright depression. Whatever you think of the ultimate fate of these companies, it is more fiscally sound to move them through this crisis. If they collapse in 2 years, when the overall economy is more stable, so be it. We will have saved money by helping them limp to their ultimate demise. Let them fail now, and we’re on the hook for much larger costs (pensions, unemployment, lost tax revenue, etc.).
[Brief reality check: you may read that UAW benefits are the reason the Big Three are going down. May I suggest this article that points out that hourly workers at the Big Three are making more or less the same as non-union workers. (Agreed, this is not a great advertisement for unionism).]
Finally, in my opinion the mainstream media, especially TV, has no clue what they’re talking about. I find some industry blogs more thought provoking. The Truth About Cars is generally favorable to letting GM fail, althought I detect a little note of fear as the notion become more like reality. The AutoExtremist supports a bailout, and along with others argues that Chapter 11 bankruptcy won’t work for the auto giants. Among the economist-bloggers Dean Baker debunks the bull, and Paul Krugman redeems himself after a shameless winter and spring of Hillary promotion.