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Sunday, December 7, 2008

Bailouts Should Create Jobs, Not Cut Them

So we (you, me, every other U.S. taxpayer) hands Citigroup 45 billion dollars to help the economy. In return, Citigroup cans 53,000 workers, including 122 workers in Sioux Falls, who will be in a much worse position to help the economy themselves. Does anyone else see a problem with handing out tax dollars to corporations who then fire workers?

Robert Reich does, as he looks at the proposed Big Three bailout:

As a condition of getting a federal bailout, the Big Three are promising, among other things, to cut costs. Among the costs to be cut will be jobs. This is paradoxical, since the reason Congress is considering bailing them out in the first place is to preserve jobs and avoid the social costs of large-scale job loss (unemployment insurance, lost tax revenues, pension payments that have to be picked up by the Pension Benefit Guarantee Corporation, and so forth) [Robert Reich, "The Bailout Paradox," Robert Reich's Blog, 2008.12.04].

Perhaps we could protect workers with three little conditions placed on all the corporate welfare checks we're writing to Citigroup et al.:
  1. Any worker laid off by a company receiving TARP or other federal money in a given year will owe zero dollars on his/her federal income tax for that year.
  2. That worker's former employer will reimburse the federal government ten times the amount of lost income tax revenue from each laid-off employee. (And to make sure we receive these reimbursements, we will apply strict late fees and interest rates.)
We're not paying Citigroup to fire our neighbors. Let's focus our tax dollars on, as Reich says, "the workers and communities that need the most help," not the bankers, brokers, and corporate execs who could quit now and live the rest of their lives in gold-plated comfort.


  1. Regardless of the Big Three (not so big anymore) bailout or bankruptcy, layoffs will occur as they retool, resize and reorganize to become competitive in the future. Supposedly less layoffs than if they file bankruptcy, but still plenty of layoffs and union benefits for a soft landing.

  2. CAH:

    Your message here is mixed. The point of the bailout is to save businesses (I'm not arguing that it will, I'm just following your lead here). Right now they are not profitable for various reasons. Our entire focus should be on getting these to a profitable status and should not be to saddle them with other future debts. Your suggestions remind me of the huge UAW debts the big three have incurred. I think we need to avoid entitlements and get these businesses running lean and profitable to get them of the government welfare ASAP.

    I think your suggestions will just push problems into the future.

  3. Maybe I'm just too much of a softy, Tony. Indeed, Citigroup and the Big Three need to get lean and mean, but handing a man's tax dollars to the corporation that is going to fire him seems too much of a sacrifice to ask. Let failing companies reap what their bad policies have sown, and let that man's tax dollars go to projects and companies that are actually going to create jobs.

  4. CAH:

    As I said, I don't think the bailout was a good idea or will work. But, to make the best of a bad situation, I would rather make efficient companies with what has already been or will be doled out under this policy.

    I would love to help people keep their jobs, but not if it leads to companies coming back for more government aide. That I why I think we need to go for pure efficiency now.

    I would however agree that we would benefit greatly from a public works type project that would employ basically anyone that needed a job.

  5. Tony, you said: "Your suggestions remind me of the huge UAW debts the big three have incurred. I think we need to avoid entitlements and get these businesses running lean and profitable to get them of the government welfare ASAP."

    If I'm following your argument accurately, you're implying that labor (specifically, UAW) is the big reason the Big Three are no longer profitable.

    Maybe I'm missing something, but it seems to me that as the gap in earnings between skilled workers and CEOs has increased, the profitability has decreased. I don't see how that's a coincidence.

    In other words, I don't see how it makes sense for the guys making tens of millions of dollars a year to try to pass this off onto the workers making $60,000 a year.

  6. Angie:

    Even though the wage gap has dramatically increased, if you look at the total payroll executive pay is still less than 1/10th of a percent of the total. While I certainly agree with you that the pay gap is a bad thing, elminiating it right now will not even put a dent in the losses these companies are incurring. My only concern right now is to get these companies profitable so the you and I aren't forced to hand them dollars without any form of service.

    So, let's say that we cut the executive pay of more than a million a year down to $500k (comparable to Honda, Toyota, etc.). Such a cut would only slow the bleeding down by ~$25 million per year. Now, let's say that we cut everyone's pay by $2000 per year. GM has about ~250,000 employees. That translates into saving of $250 million per year.

    While I'm not saying that executives deserve their ridiculous pay, it is ridiculous to think that simply slashing their pay will have any real impact.

    Your arguement is similar to those being floated by Obama's team about how they're going to cut "pork" spending. It makes up less than 0.1% of the total federal budget. Even if it was cut to 0% it would save us less than $500 million per year which is basically nothing compared to the total budget.

    These arguements are seductive because they enrage your sense of right and wrong, but really, are pointless to even consider.

  7. Suppose one of the CEOs of the Big Three automakers had said, in his second visit to the Oracle on the Hill, that he would slash his own pay and benefits to the median level of one of his assembly-line workers, sell his big house(s) and car(s) and boat(s) and aircraft, and maintain that new standard of living for as long as the stockholders would keep him on the job?

    Then suppose he were to actually go through with the promise?

    In that case, would not the slashing of CEO pay and benefits have a huge impact -- at least for that company -- because it would arouse our sense of right and wrong? Would that not make people want to buy his company's cars and trucks?

  8. Stan:

    It could have some impact, but I doubt one of any significance. Vehicles are one of the consumer's largest discresionary purchases. I would suspect the dollar amounts involved would be too large. Honesly, when I go to purchase a vehicle, I'm looking @ how it's going to help me and suite my needs. Not how much money the CEO of the company is being paid. Further, I think it would be a reminder of how the product you are evaluating for purchase is being manufactured by a company on the brink of bankruptcy which is a further, significant detractor in my mind.


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