Another Perspective on the Auto Bailout

I came across a column by economist Thomas Sowell this morning entitled “Postponing Reality,” and I’d just like to discuss part of this column with you:

We are told that the collapse of the Big Three automakers in Detroit would have repercussions across the country, causing mass layoffs among firms that supply the automobile makers with parts, and shutting down automobile dealerships from coast to coast.

You should hear the news stations here in Detroit.  The news anchors night after night of covering House and Senate votes keep making comments like, “Some Senators just don’t understand how detrimental this will be to Detroit,” or “The Southern Senators don’t understand what’s happening here in Detroit” or “Talk to your friends in other states about contacting their representatives to explain how bad this would be for Michigan.”  And you can substitute the word Senators with Republicans for a lot of the news anchors, since the media here in Detroit tends to lean left (as does all of Wayne County).

A renowned economist of the past, J.A. Schumpeter, used to refer to progress under capitalism as “creative destruction”– the replacement of businesses that have outlived their usefulness with businesses that carry technological and organizational creativity forward, raising standards of living in the process.

It’s survival of the fittest, economic style.

Indeed, this is very much like what happened a hundred years ago, when that new technological wonder, the automobile, wreaked havoc on all the forms of transportation built up around horses.

For thousands of years, horses had been the way to go, whether in buggies or royal coaches, whether pulling trolleys in the cities or plows on the farms. People had bet their futures on something with a track record of reliable success going back many centuries.

Were all these people to be left high and dry? What about all the other people who supplied the things used with horses– oats, saddles, horse shoes and buggies? Wouldn’t they all go falling like dominoes when horses were replaced by cars?

Unfortunately for all the good people who had in good faith gone into all the various lines of work revolving around horses, there was no compassionate government to step in with a bailout or a stimulus package.

They had to face reality, right then and right there, without even a postponement.

He actually brings up a really good point here.  Industries go through cycles, and to stop these cycles with the use of  government funds is only going to harm us more in the long run.  Like I’ve said before, the main reason that Michiganders support this is because it helps Michigan.  If the technology industry were to suffer detrimental losses, I’d be willing to bet that you couldn’t find 30% of Michiganders who would be in favor of spending billions of tax dollars on helping Silicon Valley in California.

Who would have thought that those who displaced them would find themselves in a similar situation a hundred years later?

Actually the automobile industry is not nearly in as bad a situation now as the horse-based industries were then. There is no replacement for the automobile anywhere on the horizon. Nor has the public decided to do without cars indefinitely.

While Detroit’s Big Three are laying off thousands of workers, Toyota is hiring thousands of workers right here in America, where a substantial share of all our Toyotas are manufactured.

 But Toyota doesn’t have union workers.  Without unions, their workers make (on average) a measly $30/hour.  Wait a minute, that’s not measly.  In fact, that’s more than the average GM worker ($29.78/hour).  The difference comes in pensions and health care.   GM has to pay out an extra $39.22/hour (that includes pensions for retirees), while Toyota has to pay out an extra $18/hour (with far less retirees).  So, the average Toyota worker (assuming he worked 40 hours/week with 4 weeks of vacation), would make $57,600.  That’s not that bad folks.  You assume that his spouse works part time (20 hours/week at $10/hour), that’s another $9,600.  That’s a yearly total of $67,200, which is DEFINITELY enough to live off of (My family of 4 lived off of about $80,000/year until my mom got a job, but she did that more out of boredom than need for more cash inflow.  And we were decently well off.  We aren’t rich, but we’re definitely nowhere close to going broke.), even though they may get a little less when it comes to health care.

Will this save Detroit or Michigan? No.

Detroit and Michigan have followed classic liberal policies of treating businesses as prey, rather than as assets. They have helped kill the goose that lays the golden eggs. So have the unions. So have managements that have gone along to get along.

EXACTLY!  I was just talking about this the other day.  Every time one of the Big 3 is in financial trouble, they go to the UAW and ask them to take a pay cut.  The UAW, being filled with greedy Americans says no.  So instead of setting a good example and taking a 50-75% pay cut, the management simply sat there and said, “You need to take a pay cut, otherwise we may go bankrupt.  The UAW continues to say, “No.  And if you don’t give in, we’ll go on strike.”  So, the company heads wind up giving in.  If I were head of any of the Big 3 right now, I’d immediately decrease my pay to $0.  Then, I’d tell the unions, “Take a pay cut, or go on strike.”  If they didn’t take a pay cut, I’d let them go on strike and hire new workers.  If a court ruled that I’m not allowed to hire new workers, I’d let the strike continue.  Eventually, the workers will have to come back to work or the company will fail.  If the company fails, it was the union’s fault for not showing up to work.  But the UAW wouldn’t let the company completely fail, because then their workers would be out of a job.  The corporate heads need to 1) lead by example, and 2) have some guts and stand up to the UAW.

Toyota, Honda and other foreign automakers are not heading for Detroit, even though there are lots of experienced automobile workers there. They are avoiding the rust belts and the policies that have made those places rust belts.

A bailout of Detroit’s Big Three would be only the latest in the postponements of reality. As for automobile dealers, they can probably sell Toyotas just as easily as they sold Chevvies. And Toyotas will require just as many tires per car, as well as other parts from automobile parts suppliers.

So, there you have it.  This was one of the best analyses I’ve seen on the auto bailout, and I couldn’t agree more.

Who’s at fault, the UAW or the corporate heads?  Both.  The UAW needs to stop being greedy and be willing to take a pay cut.  The leaders of the Big 3 need to lead by example and take MASSIVE pay cuts and start standing up to the unions.

Done Ranting,

Ranting Republican
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3 Responses to “Another Perspective on the Auto Bailout”

  1. John P Says:

    Well said, I totally agree. The UAW has leaned on corporate America too long, and now they will pay the price.

  2. inkslwc Says:

    Or we will. That decision is now up to the President and the Treasury Department.

  3. President Bush Approves $17.4 Billion Auto Bailout « Republican Ranting Says:

    […] continuing to pay wages that you can’t afford would make you go into bankruptcy eventually.  Like I’ve said before, it’s the companies’ heads’ fault for not cutting wages of the workers as well as […]

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