24 thoughts on “Government Motors”

  1. Government bailouts are always a bad idea. Let the market decide winners in losers.

  2. Actions have consequences. And, the refusal to act is a form of action too. If GM had been allowed to fail, that could have ruined a slew of suppliers which also supply other auto companies. A ripple effect would have kicked in, causing further damage to the economy.
    There also would have been a direct additional burden on many state governments, for unemployment and welfare payments, and a drop in their revenues as those supply-chain companies vanished.

    Rand, it’s not true that “we’ll never know what would have happened”. We can reasonably forecast what the results would have been: hundreds of thousands more jobs lost, and the deep recession may have tipped into an actual depression.

    So the “bailout” of GM and the money spent on Chrysler may have actually saved the taxpayers from larger expenses. It avoided the burden of the complete destruction of the two corporations and their suppliers, and the private and public costs of that destruction.

    GM is recovering faster than predicted and is already repaying the government. The net cost, in the end, may be quite trivial compared to the costs that would have been experienced: on the Federal government, many State governments and on private concerns too.

  3. And, all the while, Ford managed to restructure and continue to churn out profitable vehicles that people want to buy, all without a bailout. Funny, that.

  4. Ford and GM started restructuring at the same time. Ford got done earlier than GM. The UAW contract where the UAW took responsibilty for members’ health care was signed in 2007.

    Of course, that’s not really relevant. What is relevant is that if GM had gone bankrupt without government debtor-in-possession financing, we would have seen:

    1) Assets being liquidated at fire-sale prices
    2) Massive additional unemployment
    3) The collapse of dozens of tier 1, 2 and 3 auto parts suppliers

    It was a disaster averted.

  5. You can claim counterfactuals until the cows come home, but it doesn’t make them reality. It’s quite possible that the company could have been restructured, after breaking the union contracts, and found private investors.

  6. We can reasonably forecast

    Apparently not
    The forecast showed that if we stimulated the economy, which included bailing out entities, we would save jobs that otherwise would be lost. The facts is we lost more jobs than what forecasts suggested would happen had we done nothing. Many people predicted this would be the case, because government managing of economic growth is highly inefficient.

    Yet sychophants spouting their failed ideology kept telling us that Keynesian works. Now that its been shown once again not to work, the best response we get is “well, their really is no such thing as a shovel ready job.” Yeah, some of us knew that was only a good stump line with little value, but indeed, there were jobs already functioning that have since been lost, because the government took money from an efficient system and redistributed it to an inefficient system. Hence, we are now starting the double dip that others said would happen if we pushed through the stimulus.

  7. we would have seen:

    1) Assets being liquidated at fire-sale prices

    Great for small businesses looking to acquire assets to grow.

    2) Massive additional unemployment

    We got more unemployment, and it was massive.

    3) The collapse of dozens of tier 1, 2 and 3 auto parts suppliers

    Many factories were still closed. What really happened was suppliers were chosen for political reasons rather than economic ones. And good suppliers would have been able to sell their products to other producers like Toyota, Honda, and BMW (all of which have growing plants in the US, well Toyota, because of the bailout had to close its part of the California one).

  8. Rand – assuming that the company would be restructured after a bankruptcy is a counterfactual which you just said we can’t make.

    Leland – Paul Krugman, for one, said at the time that the stimulus was too small.

    I do remember all the way back to 2008. Nobody was buying much of anything back then. And do you really want to argue that unemployment would be improved by letting companies collapse? By that logic we should make every company collapse immediately.

  9. Paul Krugman, for one, said at the time that the stimulus was too small.

    Yeah, he says stupid things all the time. Just because he thought it was too small doesn’t mean it was a good idea at all. The fact is the stimulus did more damage than the administration predicted would happen if it never occurred. Many of us predicted that would be the case, and reality has shown we were correct. You can site Krugman all day, but I haven’t found evidence to back up his assertions.

    And do you really want to argue that unemployment would be improved by letting companies collapse?

    Yes. Bad companies collapsing is part of a efficient system. Just because they collapse doesn’t mean a demand for their service has collapsed. Other more efficient companies take the place of the bad companies. It’s called turnover, and naturally it happens all the time. When governments try to pick winners and losers, the result is an inefficient system, which causes steeper peaks true, but those are short lived and are followed by huge valleys while the corrections occur. In aerospace, we call it “pilot induced oscillation”, when the attempts to correct things doesn’t match the rate in which events occurs. This typically results in a crash.

  10. The core problem is the failure of the government to aggressively use anti-trust legislation to prevent firms, from banks to automakers, from getting so large that their failure threatens the economy and creates the need for them to be bailed out.

  11. By that logic we should make every company collapse immediately.

    That “logic” is the result of combining good microeconomic sense (profitable activities should continue, unprofitable ones should stop) with macroeconomic nonsense (what are those fine-grained categories? there’s just “activity”!)

    Paul Krugman said the stimulus was too small because it would result in 7.3% unemployment in January 2011, which critics might spin as failure. The correct takeaway from this is “Krugman doesn’t know what he’s talking about”, not “Why didn’t we listen to Krugman?!?”

  12. Krugman: “The plane is going to hit the top of the mountain – it’s too low!”

    Plane hits the middle of the mountain.

    Roystgnr: “Krugman’s wrong! – It didn’t hit the top of the mountain!”

  13. Leland: Highly inefficient companies should fail.

    Gerrib: By that logic we should make every company collapse immediately.

    Leland: Gerrib’s always had problems with logic.

  14. Leland – I asked if you agreed with the idea that letting companies collapse would improve unemployment. You said “yes.” I carried your logic to its logical extreme.

    The bottom line remains the same – letting companies fail results in increased unemployment. Increasing unemployment is not a good idea during a recession.

  15. I carried your logic to its illogical extreme.

    FIFY. As I said before, you always had a problem with logic.

    The bottom line remains the same – letting companies fail results in increased unemployment.

    You really should find a place to learn macro-economics outside of Illinois.

  16. We bailed out GM and they went bankrupt anyway. There is no reason they could not have gone into bankruptcy before or after the first bailout, we didn’t need to give them another $50b.

    Companies going through bankruptcy does not necessarily mean all of their assets are sold and personnel fired.

    The only thing that is positive about taking a loss by selling GM stock, is that the loss will be lower than $58b or $70b.

  17. Again: the problem wasn’t just GM (and Chrysler) it was the companies in their supply chains. And many of those also produced parts for other auto manufacturers. Many were well-run too.

    So the chaos, disruption of companies that would have otherwise survived, and the added unemployment at the worst possible time, are all predictable consequences of NOT bailing out those two big companies.

    Plus, at least some of that bailout is being paid back.

    So when the dust clears, these bailouts will probably cost far less than the option being supported by Rand and Leland here would have cost us all.

  18. It was a power grab — straight up. That way could work out a sweetheart deal for his union buddies.

  19. Again: the problem wasn’t just GM (and Chrysler) it was the companies in their supply chains. And many of those also produced parts for other auto manufacturers.

    And there we see the fallacy. Which isn’t Kevin?

    If GM and Chrysler go under, why would their supply chains that produce parts for other auto manufacturers go under? Ford didn’t go under. Neither did Honda, BMW, and Toyota. If demand was strong (the only reason to think bailing out GM/Chrysler would be profitable), then why wouldn’t the other auto manufacturers pick up their production to meet the void? Wouldn’t they need more parts?

    If demand was poor (which it was), then how does bailing out GM/Chrysler change the situation? The price of their products hasn’t decreased. Instead, they had to drop production. Suppliers and dealers were put out of business. The Pontiac and Saturn divisions were scuttled. Chrysler was sold to Fiat. All this, as wodun points out, would have happened without giving $50b to UAW. And despite the money, Detroit hasn’t gotten any better.

    History shows we took the second path. Amazing that you are spouting the talking points from 2 years ago as if time hasn’t passed and we can look back at what happened.

  20. “So the chaos, disruption of companies that would have otherwise survived, and the added unemployment at the worst possible time, are all predictable consequences of NOT bailing out those two big companies.”

    GM still went bankrupt. The world didn’t end, GM is still there. The same thing would have happened without a bailout except the taxpayer would not be out $58b.

    Rather ironic that Obama did what McCain suggested during the election despite the kind words Obama had for McCain on the subject.

  21. Krugman, with his eyes closed: “The car is going to slide onto the right shoulder; yank the wheel left!”

    (Car veers into oncoming traffic, crashes)

    Chris: “Ha, we crashed! Krugman was right after all! If only you’d listened to him more and yanked the wheel even *further* left!”

  22. The money given to GM was either created by fiat, taken from taxpayers, or borrowed.

    If created out of thin air, printing presses rolling at maximum speed, then those new dollars slightly devalue all the other dollars already out there. The growth of M1 is a key contributor to inflation.

    If the money was taken from taxpayers, then the money originated from the 49% who are productive enough to pay taxes. Since taxpayers are productive almost by definition, it should be obvious that they could have used that money to increase productivity. Increased productivity would have been achieved through the hiring of new staff, the purchase of capital equipment, and so on, but that money went into a tax and regulatory black hole – far more than the bailout in fact, as there are layers and layers of bureaucracy drawing salary in between source and sink.

    If the money was borrowed, well that’s just one more straw on a already creaking camel’s back. This President is a lost cause. If the US does not drastically cut its budget and much of the regulatory red tape within a couple months after the next Presidential election, then the US is headed for a crash of epic proportions. Y’all have maybe two years to get your act together before China forecloses on your mortgage.

  23. I believed that Detroit was always a one-horse town and since Chevrolet was in Flint, that was also a one-horse town. How small is Detroit today? Flint?

Comments are closed.