08.27.2008 11:21 am
Why Detroit shouldn’t take taxpayers for a ride
St. Louis Post-Dispatch
Plenty of readers disagree with my column that argues against a government handout for GM, Ford and Chrysler. Some make an emotional case — Mike, for example, doesn’t want Congress “turning our back on an industry that helped this nation become what it is” — but others attempt to use logic. The trouble is, much of their logic is fallacious.
Here are a few of the ways folks are trying to justify this $50 billion loan package, with my response:
- The Japanese subsidize their auto industry, so we should do the same. As Daniel Griswold notes, recent criticism of Japan revolves around the notion that it holds down the value of the yen to promote exports. Griswold doesn’t think this is really having much of an effect on the auto market. But even if it does, is Japan the nation we want to emulate? It’s been an economic basket case since the mid-1990s and may be headed for recession again.
- We subsidize housing and Big Oil, so why not carmakers? First of all, I have argued that, when we finish bailing Fannie Mae and Freddie Mac out of their current problems we ought to privatize them and leave housing finance to the banking industry. As regards Big Oil, its subsidies come in the form of tax breaks, some of which admittedly are hard to justify. But that’s part of the bigger problem with our corporate tax code, and the answer is to get rid of loopholes, not create a whole new kind of corporate welfare.
- The government created the problem, so it needs to solve it. I’ve heard a couple of versions of this story — Mike hangs the Detroit Three’s problems on U.S. labor laws, while Eric blames corporate average fuel economy standards. The important thing to keep in mind here is these laws apply broadly to all auto companies (and all employers, in the case of labor laws). Light trucks were favored under the CAFE standards, but Toyota, Honda and others didn’t bet the whole company on pickups and SUVs. Ford, GM and Chrysler did, and they’re learning now that it was a losing bet.
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
I agree with David that most of these proposed “solutions” are nothing more than a call for more of the same INAPPROPRIATE government meddling that exacerbated the problem in the first place. Fundamentally, the problem is democratic government responding to the demands of economically illiterate Americans to guarantee them cheap and plentiful energy; the “right” to buy gas-guzzling, road hogging vehicles; immunity from foreign entanglements (as with the countries selling that energy); job security for life at ever-increasing rates of pay and benefits; etc., etc..
Economic reality is that it is impossible for either government, or unrestrained free markets, to continue to provide all of these things in the way that seemed to be possible for the brief, exceptional, and mostly unsustainable period from about 1950 to 2000. You can’t have your cake and eat it too, and during that period the world and the U.S. not only gobbled up a lot of the “cake” (particularly of readily accessible fossil fuels) but also multiplied the number of people trying to live off of it. Any “solutions” that don’t both increase the efficiency of resource utilization, and reduce the population competing for a limited resource base, are ultimately doomed to failure — meaning a continued drastic decline in the standard of living accompanied by increased societal discord of a magnitude that is completely unpredictable.
While a frequently differ with you, David, I have to take your side on this one. Here is a brief, unfortunately true, story that explains why US auto manufacturer’s are in the state they are in:
I know a woman that walked away from her 20+ year job at Chrysler to try another career. Notice I said “walked away”, not quit. She just simply quit showing up because her union representative told her that if she ever wanted her job back, she would only need to file a grievance. Three years later, Chrysler announce a buyout package for many of its employees. This woman showed up at the Fenton plant, after being a.w.o.l. for three years. She filed a grievance with the union. Within a matter of a day or two, had her job back. Guess what happened next… That’s right! As soon as she was reinstated, she accepted the buyout for $100,000.00.
I am not anti-union, or pro-union for that matter. Like Democrats and Republicans, you need Union and Management to keep the other side honest. That being said, I have trouble buying into the “Working man can’t get ahead” ramblings of disgruntled auto workers after seeing this happen. UAW mambers need to clean up there own house first, before they point the finger of blame at Government, Japan, and all of the other scapegoats. They take such pride when they puff out their chests and make comments like “I don’t pay anything for MY family’s healthcare.” They need to realize that the are killing their own industry, CLOSING THEIR OWN PLANTS!
Ok, RanRob… You say you are neither pro or anti union and you even give one good example of why unions are necessary, then you proceed to rant anti-union (chest puffing and bragging on union won benefits). It is true, however, that a lot of auto worker’s union shenanigans take advantage of their positions of “no work, no product”. The example you site is as much the company’s fault as the unions. The company does, and always has had the right to tell the union “no”.
What good would it do to bail out the auto industry? For 30+ years its been obvious that fuel efficient cars and trucks were the future but unlike the Japanese and Koreans, America’s car manufacturers consistently failed to develop a line of fuel efficient vehicles.
The managers are not capable of seeing what the future holds and how to prepare for it. They will all need to go bankrupt and have new owners come in and toss out the deadwood bureaucrats who rely on lobbyists to try to keep their companies profitable.
Its a sorry state to be in but it happens when a bureaucracy gets too big and ingrained into the society to retain the skills to adapt to a constantly changing world.