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Wednesday evening, I heard two interesting sound bites on NPR. They were covering the House debate on the doomed automaker bailout bill. Republican Representative Eric Cantor of Virginia took the floor to argue against the bill. He asked why Congress should invest public dollars in GM and Chrysler when private investors were unwilling to put their money in those companies. Democratic Representative Dennis Kucinich of Ohio responded that the loss of 3.3 million jobs tied to the American automotive industry was simply "untenable."
The bill passed the House, but failed in the Senate. Now President Bush appears to be taking Rep. Kucinich's position, reversing earlier opposition and looking for a way to direct some TARP money toward GM—not much, maybe $4 billion and change, just enough to keep them afloat until Inauguration Day, when Bush can wash his hands of the problem.
Two ironies here: one, that George W. Bush is agreeing with Dennis Kucinich, and two, that I, a diehard Kucinich supporter, am not sure either man is right. I actually have some sympathy for Rep. Cantor's argument, as the free market still holds great appeal for me. The automakers' plans for restructuring were discussed publicly at the Congressional hearings; if those plans were so great, Wall Street should have responded, right? The market would have recognized the automakers' plan as a winner and started pouring private capital back into the automakers' coffers. That didn't happen (although we can argue chickens and eggs here: GM's stock did tick up on Monday, but investors were more likely betting on government aid, not faith in GM's vision).
Cantor's argument is free market fundamentalism at its finest: if the free market says die, let it die. And for the most part, when it comes to these greedy, mismanaged, short-sighted corporations, I agree. Workers and homeowners have to live and die by the market; why not corporations?
But let's remember: the free market isn't the final arbiter of value. Like Kucinich and now President Bush, Adam Smith saw the free market as a means to some but not all ends. Adam Smith recognized that government has a proper role in doing what the free market cannot. Among other things, the government has in Smith's economics a duty to support those great public works that the free market cannot, things like roads, bridges, and parks.
So the question is not simply "Can GM survive in the free market?" The question is, "Is GM not just a corporation, but a great public work?" Does GM serve such an important public purpose—providing useful jobs, benefits, and products—that we should invest public dollars in it?
President Bush seems to be coming around to Rep. Kucinich's position that yes, GM is so worthy. Will wonders never cease?
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Concerned, heated disagreement everywhere. Gray for sure, but we are far from a free market environment anyway. Personally I think we have to take reasonable steps to save them, although I don't know what that means. People are not investing in solid companies so don't expect a rush to buy. If you want to speculate a few dollars you can loose, Ford looks like the best bet. jh
ReplyDeleteIn my view, "saving" GM/Chrysler would be a huge mistake.
ReplyDeleteFirst, the only argument to save them that even gives me pause is that some ridiculous number of jobs could be lost. But honestly, would all of those jobs really go away forever is these companies went bankrupt? For a tiny business this might be true, but large companies reorganize or get bought up after bankruptcy. I would bet that after bankruptcy these companies would shed many employees and become profitable again. The losses may be substantial, but nothing like 3.3 million (which includes all of the parts suppliers). Maybe 10-20% would lose their jobs. So at absolute worst 330k. That is a lot, but would not sink the economy directly.
Secondly, let's pretend that we gave these car companies all of the money they desired. Does anyone actually believe that would "save them"? After reading about their restructuring plans I just started laughing. Their plan basically amounts to weathering the storm and then going to back to business as usual. There never will be another business as usual. Gasoline is on the way out and they haven't invested in alternate technologies. They are conservatively 5 years behind the foreign automakers.
Lastly, we need to get away from thinking of companies as "american" or "foreign". Large companies are multinational and hold allegiance to none. We should not as consumers hold any allegiance either. There is no benefit to do so. Buying "american" doesn't send money back to america. Ownership of companies are now distributed throughout the world. Profits, accordingly, are also distributed globally.
One can get a mighty good deal on a GM car right now. I doubt that the government will let these companies fail.
ReplyDeleteI'm not buying a new vehicle for the same reason as if the economy were robust: I don't need one.
I would like to hear Senator Thune explain to the people of South Dakota why he voted for the financial industry bailout but against the auto industry bailout. It looks like a double standard, so I'd like to hear him explain it.
ReplyDeleteI really don't want to see any more jobs lost, but I don't think all of us taxpayers should have to pay to save their jobs. From what I understand, the Senate voted it down because the Auto Workers Union didn't want to make a paycut. The national news reported a couple weeks ago that the average auto maker is paid, on average, $73/hour. No wonder cars are so expensive.
ReplyDeleteMay the autoworkers should reconsider taking a paycut vs. losing their job. Greed is definitely what this country is built on. It sad...