Let’s just come out and admit it: Many of us hate the notion of a bailout for automakers. If they can't endure a downturn for a few months, why not just let ’em die? These guys brought it on themselves.
So here's the most irritating thought of all: We should bail 'em out anyway.
It galls me to say this, even as the Bush Administration today patches together a temporary $17.4 billion breather for the Big 3, for I fancy myself to be a pro-free-markets pixel pundit who is wary of Big Government. But the bailout, odious as it is, should go through because jobs now are Job One (to borrow from an old Ford ad slogan) in the all-consuming crusade to mend the fractured economy. The No. 1 spot had belonged to the housing crisis, and then it shifted to the credit crunch and systemic risk. Now unemployment is the crisis au courant.
And that helps the car guys' case, even if by rights they don’t deserve a rescue at all. For three decades the Big 3 acquiesced to irresponsible and burdensome union demands; and for years, the union fought against desperately needed fixes and cutbacks. In the meantime, Detroit churned out generations of redundant, lookalike cars that emphasized durability over creativity, imagination and fun. And it loaded up on Hummer-sized gas-gluttons as the main source of profits, though everyone knew one day OPEC would take vengeance on us for years of cheap oil prices.
The Big 3 made things worse with the reprehensible performance their chief executives put in when they went begging to Congress last month. Flush with self-entitlement and fresh off their profligate private jets, they demanded a no-strings handout—without offering so much as a sketchy survival plan—and threatened us with "catastrophe" if we didn't pony up.
That was accompanied by silly claims that the car biz is "the backbone of American manufacturing" and provides one in 10 jobs. It isn’t, and it doesn’t.
The Center for Automotive Research, an industry organ, warns that a 50 percent cut in car production would put 2.5 million jobs at risk, from factory folks to cabbies to hairdressers. The real facts: The auto industry directly employs only six-tenths of 1 percent of the job base in America. That is fewer than 900,000 jobs. High-tech, by contrast, employs 18 million.
With 10 million people out of work and an unemployment rate expected to rise from a current 6.7 percent to 8 percent or higher next year, we should try to avoid the hundreds of thousands of extra layoffs that could result if Detroit dies. Even at $50 billion, a rescue would cost us all of $20,000 per job if you buy the industry’s inflated estimate of 2.5 million people at risk; use a figure closer to 900,000 and the cost still is at $55,000 or so—cheaper than the income that workers would lose.
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Plus, a Big 3 lifeline barely amounts to a rounding error in the vast sums of taxpayer dollars at risk in this whole economic mess, now approaching $2 trillion. On that scale, even a $50 billion facelift would amount to a mere 2.5 percent increase. And with Treasury yields at historic lows, the government’s cost of borrowing that money is a pittance. Five-year Treasury bonds now pay 1.26 percent annual interest, so borrowing $50 billion for that time would cost all of $3.15 billion. It’s a lot—but it’s puny compared with the carnage on Wall Street.
Ideologically, the feds’ resuscitating the Big 3 is a nightmare—government should stay out of business to help it the most, not play a parental role and second-guess on everything from spending to compensation to product design.
But it’s hard to argue ideology when doom looms: When your car is hurtling off a cliff, it’s no time to debate the wisdom of seatbelt laws. Just buckle up and brace for impact.