Let’s get some facts straight: First, $25 billion for a dying domestic auto triumvirate is not chump change. Second, it’s not change at all. In fact, it’s the worst kind of statist politics-as-usual. Third, we’re not bailing out workers or consumers – we are bailing out bad managers, uncompetitive products and union dinosaurs.
The one thing that has united auto industry leaders and union officials is their ineptitude. They both have been willing to put the pedal to the medal in a race to crash the companies and have made an art of denying the changing global economy. They also agree they need help and that taxpayers need to pick up the tab.
Despite proponents’ pleas, the bailout is simply a terrible idea. The claim that one in ten American jobs is tied to the auto industry is an unsubstantiated farce that lends credence to the notion that a lie can travel halfway round the world (or nation) while the truth is putting on its shoes. And what of the much-lauded “confidence” we hear about so frequent? I’m confident there are better ways to spend $25 billion.
There are other claims supporting a bailout, largely based on the disposition of credit, consumers, and other factors. But at the heart of the problem is another simple fact: an industry and its union, built fifty years ago and unable to change, has rusted to the point where it’s not worth the investment.
The proposed deal, better described as a swindle, would make a con man blush. The bailout babies want a loan of $25 billion, while the equity value of the companies is worth an estimated $7 billion. What does this loan get the taxpayer? Virtually nothing of value, which is likely why a Gallup poll released this week showed 49 percent of Americans disapproving of the bailout.
But the bailout’s virtually free money would allow the companies to avoid bankruptcy, which would maintain the (diminishing) equity of owners. Meanwhile, bankruptcy is what union bosses fear most. It could take a giant swipe at ridding the companies of generations of costly union contracts, a feat akin to Sampson discovering rogaine and re-growing his hair.
So, the public doesn’t want the bailout and no rational investor would lend $25 billion to the companies hoping to see their money returned. Only a few failed executives in Detroit, including union officials, are for it.
Which begs the question: is President-elect Obama’s support of an auto bailout really just thinly veiled payoff for union supporters? It’s not an unreasonable question. After all, this is the same politician who promised during the campaign – without review – to remove a corruption monitor watching the Teamsters.
Unfortunately, Mr. Obama’s willingness to bail out one decrepit union dovetails with his desire to juice up the entire labor movement on steroids. He has already promised to sign the Employee Free Choice Act, which would make it easier for the UAW, and all unions, to rebound and begin flexing more influence on the economy.
Those hoping an economic recovery will follow a bailout for unions ought to consider the work of Doctors Richard Vedder and Lowell Galloway. They have estimated that in 2000, GDP was reduced by 40 percent thanks to the long-term negative impact of unions. In fact, the scholars estimated the cumulative cost of unions from 1947 to 2000 to the economy was a whopping $50 trillion.
You have to hand it to the power of “crisis.” This entire fiasco is really quite impressive in its gall. A less shell-shocked public would find it absurd to use the government to redistribute an immense amount of wealth to a few mismanaged companies and their union. But that’s the power of the Beltway in a time of “change.”
P. J. O’Rourke has mused, “The mystery of government is not how Washington works but how to make it stop.” Perhaps now, before the check is cut, is a good time to say the same for Detroit.
[Financial disclosure: The author is a very small, very sad shareholder in Ford and would prefer to see the stock go to zero rather than see the free market further disturbed.]
Bret Jacobson is founder and president of Maverick Strategies LLC, a research and communications firm serving business and free-market think tanks.
