Posted by Andrew Davis on Libertarian Party blog
It should go without saying that the Libertarian Party is philosophically and pragmatically opposed to any sort of bailout to corporations, especially when they’ve been run as poorly as American auto manufactures. But what are the economists saying about the auto bailouts? I’ve compiled some snippets from various economists, and put them together here for your reading pleasure:
- Walter McManus, former economist for General Motors, at The Daily Beast:
The auto industry is the most analyzed industry in history. Economists and analysts inside the automakers, on Wall Street, in consulting firms and universities all follow the business. With all of those smart people, it seemed rational to expect a rational approach to the auto market. That hope, however, has been dashed by events over the last several years.
That’s why I am convinced that a bailout without conditions would be tragic for the Detroit “Big 3” and for America. Leaving the same smart people in charge would lead to more of the same dumb decisions years into the future.
- Daniel J. Mitchel, senior fellow at The Cato Institute, on Cato’s Blog:
A taxpayer bailout would be a terrible mistake. It would subsidize the shoddy management practices of the corporate bureaucrats at General Motors, Ford and Chrysler, and it would reward the intransigent union bosses who have made the UAW synonymous with inflexible and anti-competitive work rules.
Perhaps most important, though, is that a bailout would be bad for the long-term health of the American auto industry. It would discriminate against the 113,000 Americans who have highly-coveted jobs building cars for Nissan, BMW and other auto companies that happen to be headquartered in other nations.
These companies demonstrate that it is possible to build cars in America and make money. Putting them at a competitive disadvantage with handouts for the U.S.-headquartered companies would be highly unjust. …
A bailout of U.S.-headquartered auto companies also would be a mistake, as would bailouts of homeowners or any other constituency. If politicians genuinely want to help the economy, they should focus on reducing the burden of government, not increasing it.
- Mark J. Perry, professor of economics and finance at the University of Michigan, at his blog "CARPE DIEM":
The chart above shows average hourly compensation (additional data source here) for the Big Three ($73.20) and Toyota ($48.00), compared to average hourly compensation for Management and Professional Workers ($47.57), Manufacturing/Goods Producing ($31.59) and all workers ($28.48), data available here.
Should U.S. taxpayers really be providing billions of dollars to bailout companies (GM, Ford and Chrysler) that compensate their workers 52.5% more than the market (assuming Toyota wages and benefits are market), 54% more than management and professional workers, 132% more than the average manufacturing wage, and 157% more than the average compensation of all American workers?
Maybe the country would be better off in the long run if we let the Big Three fail, and in the process break the UAW labor monopoly, and then let Toyota, Honda and Volkswagen take over the U.S. auto industry, and restore realistic, competitive, market wages to the industry. It might be the best long-run solution.
- Matthew Slaughter, associate dean at Dartmouth’s Tuck School of Business, at the WSJ:
Will a U.S.-government bailout go ignored by policy makers abroad?
No. A bailout will likely entrench and expand protectionist practices across the globe, and thus erode the foreign sales and competitiveness of U.S. multinationals. And that would reduce these companies’ U.S. employment, R&D and related activities. That would be bad for America.
- Mitt Romney, former MA Governor and son of former American Motors Chief George Romney, at the NYT:
IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.
Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.
Perry, at CARPE DIEM, also has this graph up, which should provide quite a bit of insight into what a burden the United Auto Workers union is on the American auto industry:
21 responses so far ↓
1 Frank Stein // Nov 20, 2008 at 7:45 pm
Before we can even start to think about a bailout we should take a national five minute break to go outside and have a collective scream at these stupid bastards. For 40 years they have been losing market share without once changing their business model and now we are supposed to bail them out when push came to shove. Yrggghhh!
Okay so screaming over, the reasons for doing this are clear. We want American jobs for American workers.
I see Congress has asked the automakers for a plan. That’s like letting the fox into the chicken house and asking for restraint. Congress, get a clue, the way to do this is to give them the plan. It’s our money, so it’s our flippin’ plan. If the automakers accept the bailout it comes with the following conditions for management and labor.
We will appoint an overseer for each company. The overseers will have the authority to delete any management or worker positions without cause. They will have the authority to set the wage scales and salaries for all workers, labor and management. They will have the authority to fire any and all management without further compensation of any kind.
These powers will allow an overseer to streamline the business, alter the business model, pay according to market, and remove any and all blockades. One final requirement is that the overseers will have collocated offices and senior staff that work together to ensure that all three companies do well and produce a national auto industry that beats the pants off Japan Inc.
Anything less and we are simply contributing to bad business behavior.
http://open.salon.com/user_blog.php?uid=10888
2 Ross Levin // Nov 20, 2008 at 7:47 pm
Mitt Romney is against the bailout? Full steam ahead!
Plus, he uses a few paragraphs of his op-ed to disgustingly rail against unions.
3 Ross Levin // Nov 20, 2008 at 7:49 pm
Also - what about economists who favor the bailout?
4 Trent Hill // Nov 20, 2008 at 7:59 pm
“Plus, he uses a few paragraphs of his op-ed to disgustingly rail against unions.”
Good. Unions are violent thug-groups who want to be paid more than their productivity demands.
5 rdupuy // Nov 20, 2008 at 8:31 pm
watching the markets do their slow motion crash every day, I was wondering when it would get more attention…here, and for that matter everywhere.
I’m beginning to think we are headed into a depression.
As people struggle to get $8 an hour jobs (could happen soon)…we may not care too much about supporting $72/hour jobs.
I wonder if even the japanese jobs at $42/hr. won’t be around long.
6 paulie cannoli // Nov 20, 2008 at 9:03 pm
Before we can even start to think about a bailout we should take a national five minute break to go outside and have a collective scream at these stupid bastards. For 40 years they have been losing market share without once changing their business model and now we are supposed to bail them out when push came to shove.
Then come back and decide against the bailout.
7 Ross Levin // Nov 20, 2008 at 10:29 pm
8 Catholic Trotskyist // Nov 20, 2008 at 10:34 pm
Frank, good idea, but how will we know that the overseers aren’t corrupt?
Trent, the only problem with unions is that they are too slow in joining the Catholic Trotskyist Party. Being paid beyond your productivity is a good thing for the poor, bad for the rich. It has certainly helped the Catholic Trotskyist Party.
9 beyondgreen // Nov 20, 2008 at 10:45 pm
Electric cars would cost the equilalent of 60 cents a gallon to charge and drive. The electricity could be generated from solar or wind sources.Fossil fuels are finite. We are using oil at twice the rate we are discovering new oil. We need to get on about the business of becoming energy independent and using alternative sources of fuel. The high cost of gas this past year seriously damaged our economy and society. While we are doing the happy dance around the lower prices at the pumps OPEC is planning further production cuts to drive prices back up. We have the knowledge, we have the technology, what America lacks is a plan. Jeff Wilson has a new book out that is beyond awesome. The Manhattan Project of 2009 Energy Independence NOW. He walks you through every aspect of oil, what it is used for besides gas, our depletion of it. The worlds increased need ie 3rd world countries becoming more modernized and consuming more. He explains EVERY alternative energy source and what role they can play to replace oil. His research is backed up with hard data and even includes a time frame and proposed legislative agendas to wean America off oil. http://www.themanhattanprojectof2009.com
10 Ross Levin // Nov 20, 2008 at 10:48 pm
Shameless plug, blah blah blah, shameless plug, blah blah blah, go to my website.
11 paulie cannoli // Nov 20, 2008 at 11:18 pm
Also - what about economists who favor the bailout?
I don’t think the LP would be quoting those. You can in the comments here, if you want - I think they still have public comments closed on the LP website.
12 Ross Levin // Nov 20, 2008 at 11:21 pm
Oh, I didn’t realize this was from the LP blog. Here’s the Lt. Gov. of Michigan’s response to Romney (printed as a letter in the NY Times):
http://www.nytimes.com/2008/11/20/opinion/l20detroit.html?ref=opinion
Re “Let Detroit Go Bankrupt,†by Mitt Romney (Op-Ed, Nov. 19):
In Michigan today, unemployment reached a 16-year high as a direct result of the nation’s economic downturn. Mr. Romney’s suggestion that our economy would be best served by a Big Three bankruptcy is a breathtaking assertion of economic Darwinism made more shocking by his roots in Michigan, where hundreds of thousands of jobs rely on the auto industry.
The Center for Automotive Research reports that if one of the Big Three ceased operations in 2009, nearly 2.5 million jobs would be lost in the first year. Additionally, one year of bankruptcy would result in the loss of $125 billion in personal income, $17 billion in Social Security receipts and $20 billion in personal income taxes.
Nonetheless, bankruptcy advocates like Mr. Romney would pile these kinds of losses onto the shoulders of a nation already struggling under the weight of record mortgage foreclosures, a recessionary slowdown across economic sectors, a credit crunch and decreasing global demand for American products.
There are no human benefits to Mr. Romney’s you’re-on-your-own approach, only continued loss of jobs, homes and health care for millions of people.
A bankruptcy in the auto industry will cripple our economy and worsen the human toll of our current economic challenges.
Now is not the time for Mr. Romney or his supporters in Congress to advocate for experiments with intriguing financial techniques on some grand scale. It is time to work cooperatively on a solution that invests in security for American workers and in our technological strength.
John D. Cherry Jr.
Lieutenant Governor
Lansing, Mich., Nov. 19, 2008
13 Trent Hill // Nov 20, 2008 at 11:25 pm
“The Center for Automotive Research reports that if one of the Big Three ceased operations in 2009, nearly 2.5 million jobs would be lost in the first year.”
Translation: We need the rest of you to pay us to do less-than productive work for twice what a man in Japan will do it for. Not only that, we’re going to bitch about it, while the Japanese guy would be ecstatic to have a 2.5x raise. We just arent capable of doing anything better than checking motor-parts for defections.
Good lord. Take this opportunity to move out of Michigan, educate yourself, get a better job, or….quit your bitching and move to Japan to work on cars there.
14 Steven Druckenmiller // Nov 20, 2008 at 11:36 pm
Mr. Hill - in a free society, I would not be morally opposed to the formation of unions, but unions only really work in two situations:
1. Where the employer is pissing off (or pissing on) so much of the workforce that they can effectively shut down operations via a walkout or
2. In highly specialized fields. An I.T. “union” could effectively shut down a medium-sized firm.
15 VirtualGalt // Nov 21, 2008 at 11:57 am
I can remember as if it were only yesterday (but it’s not clearly)… being in introductory micro in college as the Chrysler bailout was being debated. (Yes, we’ve done it before.)
I took great pride in being the only person in the class against it. (Not that I deserve a prize nor was I looking for one.) I can remember saying, what about the jobs that won’t get created, the jobs we don’t see? The businesses that won’t have as much access to capital and won’t expand or won’t even get started?
Federal overseer? Why don’t we just go all the way and call him the Commissar of Production? Ugh.
The leftie sites are all up in arms about the $70-73/hr cost numbers that are out there. I guess they’re arguing that, no, it’s really only like $50 an hour so it’s not so bad. Really? Most of the people I know, produce pretty damn good products, products that people actually want, and don’t get anywheres near 50 bucks an hour for their efforts.
We have a great auto industry in this country. It just happens to be located in places like KY, TN, SC and AL, and not under the thumb of the UAW.
Let them go Chapter 11 and if nobody is willing to give them DIP financing, then maybe — Maybe — I could be persuaded to favor a guarantee with warrants. Only if they can produce a viable operating plan, at a realistic sales volume.
16 rdupuy // Nov 21, 2008 at 1:13 pm
The government did a bailout of Citigroup.
Problem is, Citigroup is still in danger of going out of business.
The fact is, for the money the government spent on Citigroup just last month, they could now buy 100% of Citigroup this month, and have cash left over.
The problem here, is that the issue is too large.
700 billion won’t fix the problem. It would take 3 trillion or so, and we don’t have that in savings. The only way to come up with 3 trillion is to, either take it from people who already don’t have it anymore, or to simply print it.
I was against the Chrysler bailout too.
Just to be peckish, I’m in favor of this bailout.
Why not be in favor of it? It’s simply a day dream anyway. Sounds good to be in favor of it.
I’m in favor of complete solvency for every man, woman, child, and corporation in America.
Now, back to reality… its very much a possiblity the dow will bottom out 3000, 2000, somewhere around there.
Many companies will be worth less than 10 percent of what they were last year. Most americans will have had their retirement savings wiped out. Home wealth will be missing. Jobless rate at 10% and growing.
Credit card companies will try to hang on by shooting interest rates through the roof…record bankruptcies.
Looks, if we delay the vote on the auto bailout till next year, it will be obvious its a moot point.
If we don’t, we blow another $25 billiion, but maybe thats a moot point as well.
17 VirtualGalt // Nov 21, 2008 at 1:25 pm
My guess is 4000 on the Dow in real terms. So I guess I’m not as pessimistic as you are.
The last downcycle (65-82) saw the Dow drop 70% peak to trough, in real terms. We’ve already seen 50% since Dec99.
Does anybody doubt that if they get this bailout, they’ll be back next fall looking for more? I saw somewhere that GM’s burn rate was $2 billion Per Month.
18 rdupuy // Nov 21, 2008 at 1:29 pm
well in the depression the Dow lost 90% from its high, although it didn’t happen, as I’m sure you know on the 2 crash days. The crash days were dramatic, but it played out much slower from top to bottom.
90% loss from the high of 14,000 would be 1,400.
The hope was that this time the government would take more dramatic action, learning lessons from the mistakes of the great depression era government.
However, the 700 billion bailout is obviously not going to do it…so what do we do now, pass a 2 trillion dollar bailout?
Or we let it go down, just like they did in the 1930’s….
I’m guessing the sucker is going down.
19 rdupuy // Nov 21, 2008 at 1:37 pm
OK, yes, more pessimistic view, by defition, but let me put my point another way.
Even if GM breaks the union. Even if they set their new average hourly wage at $20 per hour, less than 50 percent of the Japanese wage.
Even if the government takes over the burden of their retirement funding, even if health care is nationalized.
I still predict GM goes out of business. The reason: they sell cars.
Thats a bad business to be in, during a period of time when people are not buying many cars.
If not GM, then Chrysler, or Ford….and if you keep all 3 going some how, then there combined size will still be the same as if only 1 of them had survived from today’s sizes.
It’s just going to happen, because they sell cars, and the economy is busted.
20 VirtualGalt // Nov 21, 2008 at 2:46 pm
I’m sort of in the used car biz, which I am betting will be pretty good the next few years.
A business with a viable economic model can be resuscitated in 11. If future demand projected down down down… best to just face the music.
Which is of course why it won’t happen.
21 Trent Hill // Nov 21, 2008 at 4:15 pm
“Mr. Hill - in a free society, I would not be morally opposed to the formation of unions, but unions only really work in two situations:”
Voluntary unions. Not the force-initiating thugs we have now.
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