Monday, December 15, 2008

What the Auto Bailout Really means, and why it may be a BAD deal!

If you've been following the news lately, you know that the CEO's of Ford, GM and Chrysler have been to Capitol Hill (twice) to ask for a financial baiout from Congress. The numbers have varied, but add to between $15 Billion and $25 Billion. This on top of the $700 Billion set aside for banks and financial institutions by Congress with the creation of TARP.

So, do the auto makers really need this money? Well, one philosophical argument says that they do, because it preserves American manufacturing in the face of foreign car companies. Never mind that The "Big Three" were too slow to adjust to a changing world, and continued to produce SUVs and pickups after the others had gone smaller again. While no one can claim Toyota or Honda or BMW are perfect tea leave readers, they aopear to be more nimble in terms of changing their manufacturing plan and sales pitches. It turns out that the American three were trying to force consumers to buy into the continued upswinging bubble, even though consumers had already figured out they needed smaller, more efficient transportation.

All that aside, I have to wonder how much a complete shut down of the auto makers will really hurt the American economy. As a scientist, I answer the questions by going to the numbers. Googling on auto industry employment, I find that both the auto industry and the Bureau of Labor Statistics are in agreement. It seems that about 190,000 Americans are actually employed making the cars in questions. Another 777,000 work in suppliers and ancillary support industries. There are 1,235,000 or so who actually sell the cars and trucks once produced (though many of these are part time gigs).

So adding it up, we get about 2.2 million people working in the auto industry. Seems like a lot of people. Yet the current unemployment rate (November 2008) is 6.7% or approximately 10.3 million people. That is up, by 1.7% or 2.7 Million people from December 2007.

If I've done the math right, the auto workers would add another 1.4% to that unemployment rate, driving it to 8.1%. TO put it in context, we went over 8% unemployment between 1977 and 1978; and then again between 1982 and 1985. That, by the way, is a far cry from the 25% and higher unemployment experienced by America in the Great Depression.

So we have a situation wher ethe impacts to the economy aren't going to be as bad as we keep being led to believe. Why is that? Partly its idealogy, partly its the MSM's need to have a controversy to report on. I also suspect, like so many other things, it has to do with American's increasing disconnect from the things, like farming and manufacturing, that underlie our economy.

Should we bail them out? Not if the lax controls that were put in place for TARP are applied here. Giving anyone else my tax dollars wihtout ensuring they do what is right for America is not something I can support. We as a antaion have done it twice in my life time - once with Chrysler in 1979 (!) and once following the S&L crisis. The opinions of the Social Darwinists in the Bush Administration not withstanding, we can do it again.

2 comments:

Mike at The Big Stick said...

There was a good piece by David Brooks awhil back where he talked about other American companies that were allowed to go belly-up. Names we used to remember like Pan-Am and ITT. These were replaced by other companies like Southwest and Microsoft. That is the pattern. Companies fail, other companies take their place and innovation continues. The government's job was to protect workers in these scenarios with things like unemployment insurance, but they did not interefere much with the companies themselves.

We are going to ruin this process and I fear for what an America will look like that picks and chooses which companies live or die.

kcsphil said...

Mike, I tend to agree, particularly since many in the Bush Administration, and in other Republican corners as well, appear to be Social Darwinists. While that might lead one to believe they would be willing to let companies die, it actually means that they believe that, since they have risen to the top, they get to 1) do what they want; 2) tell others what to do; 3) pick and choose which companies and which people succeed. its really sad - especially since we supposedly put this idea out to pasture over a century ago when the monoploies were broken up in the first round of anti-trust laws.