A Stitch in Haste

Some hasty stitches regarding calls to use TARP money to bail out the Big Three automakers:

1. General Motors is not “the U.S. auto industry.” The Big Three are not “the U.S. auto industry.” There are many different metrics (vehicle production, revenue, employment, etc.) but a good benchmark is that the Big Three represent only about one-half of “the U.S. auto industry.” The other half is doing just fine, thank you very much.
2. If the Big Three are “responsible” (defined how?) for 1 in 10 American jobs, then doesn’t simple arithmetic tell us that 9 out of 10 jobs are not dependent on the Big Three? So why should those jobs be put at risk, via higher taxes and deficits, for the 1 in 10 that are?
3. “Bankruptcy” is not the same as “liquidation.” No one is seriously suggesting that General Motors be liquidated, all its plants shuttered, all its equipment left to rust and all its employees let go. Any obfuscation on this point is disingenuous fear-mongering.
4. Speaking of disingenuous fear-mongering, First Prize goes, unsurprisingly, to UAW chief Ron Gettelfinger:
   

   If a major domestic auto company were to fail, a significant number of supplier companies would also be in jeopardy. This would quickly affect all the companies that produce autos in the United States — including Toyota, Honda and Nissan — because many of them buy parts and services from the same group of suppliers.

   Of course, it is just as likely to predict that whatever decline in Big Three supply might occur from a bankruptcy (but see Point #3 on “bankruptcy versus liquidation”) could be picked up by the other half of the “U.S. auto industry” (i.e., Toyota, Honda, Nissan, etc.). Disruptive? Sure? Slow? Absolutely? Catastrophic? No. Unacceptable? Hardly.

5. Another great line from Gettelfinger:
   

   The reality of today’s auto industry is that union-made vehicles are winning quality awards and that union-represented factory workers are winning productivity awards.

   The cars win awards, alright. They just don’t sell. Which should matter more to the taxpayers who are now being asked to fund a bailout?

6. Back to the topic of bankruptcy: The simple truth is that taxpayers will bail out the Big Three one way or the other. If General Motors, Ford or Chrysler declare bankruptcy, then the primary result will be the ability to pawn off their pension obligations to the PBGC — which, despite its propagandistic insistence that it is self-funding, cannot possibly absorb those new liabilities and will have to be bailed out out by taxpayers anyway (cf., this post). So why not at least get a corporate restructuring out of the process anyway — as happened with the airlines?
7. Wesley Clark is an ass — see Point #1. Does anyone seriously think the U.S. would ever face a debilitating tank shortage? How many tanks are currently deployed in Iraq and Afghanistan? Thank goodness Hillary Clinton never had a chance to make this loon the Democratic version of Dick Cheney.
8. Speaking of asses, why is it that the New York Times editorial board sees fit to demand that a Big Three bailout (not an “auto industry bailout” — See Point #1) include compulsory firing of top management and elimination of stock dividends, but not compulsory freezes on all wage, benefit and pension increases — or, for that matter, the ability to strike? All that the Times asks of Big Labor is that they “reopen agreements on pay and benefits.” Given that lavish compensation has been and continues to be at least part of the problem, why the double-standard?

When I was an undergraduate, twenty years ago, the hottest topic in economics classrooms was — care to guess? — “the decline and fall of the U.S. auto industry.” A tattered paperback copy of David Halberstam’s The Reckoning, published in 1986, still sits on my bookshelf. To butcher a famous line: They have been dying from the same heart attack for twenty years. The Big Three (one last time: not “the U.S. auto industry”) and their UAW co-conspirators have been getting it wrong for a generation or more.

Enough is enough.

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