- Our Party
What are economists saying about the auto bailout?
Posted on Nov 19, 2008
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: