Better World Club

Thursday, October 16, 2008

The Government Gives $25 Billion to the U.S. Auto Industry

You Think That's Bad for Taxpayers?

What Does It Mean for Conservatism?

by Mitch Rofsky, BWC President

The next time I want to sneak something past my wife, I'll ask the US auto industry to help me out.

While all eyes were on Wall Street over the past two weeks, the auto industry walked off with $25 billion in government money. Apparently, automakers are paying double digit interest rates - when they can get credit - and that's preventing them for re-tooling for the next generation of automobiles.

This isn't the first time that American car companies have come knocking at the door of the U.S. Treasury. Back in 1979, the Chrysler Corporation needed government funding to avoid bankruptcy...

And I was working on that legislation as an attorney for Ralph Nader's Public Citizen. Boy, have things changed over the past 30 years. (And I'm not referring to disco.)

Then, the Chrysler bailout was hugely controversial. The legislative process took months. If my memory is correct, we were the only liberal opponents of the bill, joined by a number of conservative/business groups. The bailout narrowly passed the Senate 53-44.

This bailout passed on a voice vote.

This is despite the fact that this bailout was of a completely different scale. Chrysler ended up receiving about $1.2 billion, or about $3.5 billion in current dollars. Today's bailout is $25 billion and is being described by many Michigan legislators as merely the first step. They are looking for as much as $25 billion more.

Back in 1979, the Dems were in control and were determined to help Chrysler--or, more correctly, the United Auto Workers--out. As the loan was going to be approved, we also pushed for a fair deal for the U.S. taxpayer. After all, the government's funding was more of an investment than a loan, so the government deserved an investment rate of return.

That's the next difference, the public had an upside: back in 1979, the government received warrants and actually made $400 million (over $1 billion today). Now, the government is about to give the Big 3 and a number of suppliers a low interest loan which may have no upside return. (Details are not in the legislation and may depend on the rules developed by the Bush Administration.)

And there were other conditions on the Chrysler loan, requiring Chrysler to operate more socially responsibly. Little of that here--although the loan is supposed to be aimed at re-tooling for the next generation of more fuel efficient automobiles. Let's hope the Bush Administration's rules assure that this is the case.

There are better ways to help the auto industry. For one, its health care costs are huge and put it at a competitive disadvantage to many of its overseas competitors. If the industry needs relief, how about its leaders spearheading a fight for universal health insurance?

Apart from the details of how this ''rescue'' is structured, it raises an interesting question in tandem with the Wall Street bailout: what happened to economic conservatism?

Liberals and conservatives divide on a long list of economic issues, but the biggies are commercial regulation, countercyclical efforts to support the market--including deficits, and government activity in the marketplace.

Conservatives generally oppose regulation and deficits, support the market through investment--rather than consumer--incentives, and oppose any government replication of marketplace activities.

But in the past few weeks, Republicans have undermined these traditional positions. Long ago, they let go of balanced budgets. Now, their efforts at deregulation appear hopeless as the current financial crisis establishes the need for sound regulation of the marketplace.

Republican Presidential Candidate John McCain has also announced a massive subsidy for home owners--consumers. Supporting consumers rather than investors is liberal turf. Meanwhile, the government is increasingly active at assuming both lending and insurance roles--as part of a plan devised by a Republican administration.

It's one thing for conservatism to lose an election. It's another thing to lose its reason for being.

In a two party system, the pendulum has to swing back eventually, although, in the U.S. progressive policies virtually never roll all the way back (despite who's in power, we still--fortunately--have the New Deal's programs, Medicare, the Civil Rights Laws, et cetera, et cetera).

Hey, maybe disco will make a comeback as well.

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  • Something that I, as a card carrying philosophical libertarian, who traditionally votes the conservative ticket, can agree with you on....

    I am fuming over these bailouts. Why did I work 4 jobs, over 100 hours per week, many times over 120 hours per week to pay my bills in the 1990s? When Bill Clinton ended my job (yes, President William Jefferson Clinton), I just got another one and didn't ask for unemployment. When he raised my taxes, even though I was making less money, I took on another job, and paid even more to him. I learned to enjoy beans and rice, and frozen pot pies. I have been hungry enough to sell plasma. I survived on my own.

    Why can't these businesses do what I did--cut spending, reduce hours, cut the price of their merchandise to increase sales.

    Why am I being forced to pay their bills as well as my own bills? I am about ready for someone to invest some money in me, so I can live extravagently. But, I don't want to lose my independence.
    President Ford said it best--"The Government that gives you everything can take everything later."

    Think a "tea bag in the Potomac" would get anyone's attention.

    By Blogger At October 17, 2008 4:26 PM  

  • I couldn't agree more. I'm a conservative Democrat - there are such beings - who believes that ever more government spending is not the answer to every problem. If the Big Lie of the Democratic Party is that every taxpayer dollar invested by the Guvvamint reaps future economic return (when, oh when?), the Even Bigger Lie of the Republican Party is that they don't believe in spending unnecessary taxpayer dollars. Let's face the facts - the only question on the table is which party gets to control the direction of the overspending. As Gregg points out, the folks out there working their butts off to pay for the mistakes of poorly managed companies (I don't see any politicians rushing to bail out MY poorly managed employer, by the way) are the ones suffering - not to mention our children and grandchildren who will pay off all the Treasury bonds that the Chinese have bought. We need to get a handle on this, people.

    By Blogger TallPaul, At October 17, 2008 6:11 PM  

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