Monday, June 1, 2009

Why?

It seems doubtful that taxpayers will ever get the $60B back they have spent on the UAW (and GM). There has got to be a higher purpose, but what? The answer to the bailout question.

It cannot be to preserve GM jobs, because the US Treasury has signaled GM must slim to get the cash. ... Plans call for laying off another 18,000 U.S. workers by the end of 2010.

The purpose cannot be to create a new, lean, debt-free company that might one day turn a profit. That is what the private sector is supposed to achieve on its own and what a reorganization under bankruptcy would do.

Nor is the purpose of the bail-out to create a new generation of fuel-efficient cars. Congress has already given auto makers money to do this. Besides, the Treasury has said it has no interest in ... telling the industry what cars to make.

The only practical purpose I can imagine for the bail-out is to slow the decline of GM to create enough time for its workers, suppliers, dealers and communities to adjust to its eventual demise. Yet if this is the goal, surely there are better ways to allocate $60 billion than to buy GM?

What about patronage?

4 comments:

  1. $60b buys a lot of votes. Meanwhile the federal highway road fund will run out of money in August like it did last year. Our federal priorities seem to be shifting from historical responsibilities of defense and infrastructure to unfunded liabilities like automotive production and universal healthcare.

    ReplyDelete
  2. Patronage may be part of it. But if you're looking for UAW support, why would you force the companies into bankruptcy and ask the UAW to make a lot of concessions? Sure they're going to own a big chunk of the company, but would you trade billions of dollars in benefits for an equity stake in GM? Besides, I know a Dem. Congress approved the initial auto bailout, but the Bush administration pushed for it too. So the patronage claim doesn't really work there either.

    I think the most logical answer, as it usually is when the government intervenes to help a failing company/industry, is that the administration believes that it would cost the economy more than $60 billion if GM failed (Felix Salmon makes that point here: http://blogs.reuters.com/felix-salmon/2009/06/02/why-the-government-is-keeping-gm-alive/). A debate over that claim would be an interesting one, but I think it's a little unfair to just assume that that's not at least part of the Obama team's decision making here.

    ReplyDelete
  3. I don't believe that it's a partisanship in the traditional sense (Rep vs Dems) but rather party in power versus party not in power. No elected official wants to be blamed for 'letting GM fail', even though that may be the best option (for the economy) in the long run.

    I don't doubt that the current administration (nor the previous one) calculated the cost to the American economy if GM and other American car makers filed for bankruptcy. However, I expect that their economists or analysts measured the impact to the economy Politicians do not get re-elected for doing nothing, even though that is often the best course of action.

    --Travis

    ReplyDelete
  4. correction . . .

    However, I expect that their economists or analysts measured the impact to the economy in election year timelines. Politicians do not get re-elected for doing nothing, even though that is often the best course of action.

    --Travis

    ReplyDelete