Sunday, November 16, 2008

Why Democrats Want Detroit Bailout

Advocates of a Detroit bailout often try to have you believe that if GM and the other Detroit auto makers went bankrupt, all of their operations would cease. But that would probably not be the case. Shareholders would lose all of their money (which is actually a good deal for them since GM has negative equity) and creditors would lose some of their money and they're gonna have to close more plants. But they would still be able to run some operations, just like many airlines that have gone bankrupt. If they through bankruptcy laws were able to be freed of some of their debts and more importantly, the union deals that means that the hourly cost of their workers are $73 per hour versus $48 for workers at Toyota plants in America, and if they reduced their capacity, then operations could be made profitable (at least once the current slump is over).

So why is it then so important for Obama and the Democratic congressional leaders to prevent this from happening? Charles Krauthammer gives a pretty good description of this in his latest column (The columns contains some nonsense about Republicans being too minimalist, but never mind that). First of all, they want to prevent or at least greatly limit the necessary reductions in wages and various benefits for Detroit auto workers that the United Auto Workers union has imposed. As unions are important donors to the Democrats, Democrats do as they wish.

Secondly, the bailout will almost certainly be linked to some form of demands for a green revolution in Detroit. As Krauthammer puts it:

"Once the government owns Detroit, it can remake it. The euphemism here is “retool” Detroit to make cars for the coming green economy.

Liberals have always wanted the auto companies to produce the kind of cars they insist everyone should drive: small, light, green and cute. Now they will have the power to do it.

In World War II, government had the auto companies turning out tanks. Now they would be made to turn out hybrids. The difference is that, in the middle of a world war, tanks have a buyer. Will hybrids? One of the reasons Detroit is in such difficulty is that consumers have been resisting the smaller, less powerful, less safe cars forced on the industry by fuel-efficiency mandates. Now Detroit would be forced to make even more of them.

If you think we have economic troubles today, consider the effects of nationalizing an industry of this size, but now run by bureaucrats issuing production quotas to fit five-year plans to meet politically mandated fuel-efficiency standards — to lift us to the sunny uplands of the coming green utopia."

Thus, while a bailout will cost taxpayers a lot of money and delay necessary restructuring and adjustments, it will please two key Democratic constituencies: unions and environmentalists.


Anonymous popper said...

I would not support the bailout if the workers of the big three and other people who will be unemployed are sent to "AMS-measures," or "labour market policy measures."

I would oppose the bailout if that was on the table.

1:53 AM  
Anonymous Anonymous said...

Sounds like it's not so much bailing out the Big Three, but the Big One... the UAW

11:29 AM  

Post a Comment

<< Home