Tuesday, June 02, 2009

Auto Bailouts: Welfare, To The Nth Power

Let's drill down the numbers a bit on the government's bailout of the United States automotive industry...

GM has recieved $19.4 billion in loans from the American taxpayer. They currently employ 91,000 people, coming out to $542,000 per job "saved". This, for what liberal columnist Eugene Robinson calls a "temporary reprieve".

Couldn't we instead have just given every employee a severance check for a quarter-million dollars, and called it a day? We could have saved half the money, and be rid of future bailout obligations. I would go so far as to say very few GM workers would have complained....

How about GMAC? The federal government has provided $12.5 billion in loans and aid to GMAC, which employs just over 26,000 people. This comes out to $468K per job.
See my alternative above....

And Chrysler? They've currently taken a mere $8 billion in loans, but are expected to recieve another $6 billion on top of that (and will that even be the end? unlikely...). Add that to the total, and it comes out to $337K per job/employee. Chrysler Financial received $1.5 billion in TARP funds; they employ somewhere around 4,000 people. Their welfare grant comes out to a $375K per employee.

And how will this massive transfer of wealth from productive Americans to buisnesses that are unsustainable work out? David Brooks agrees with Eugene Robinson:

The Obama plan dilutes the company’s focus. Instead of thinking obsessively about profitability and quality, G.M. will also have to meet the administration’s environmental goals. There is no evidence G.M. is good at building the sort of small cars the administration demands. There is no evidence that there is a large American market for these cars.

The result is quagmire. The costs escalate. There is no exit strategy.

It will work out like all welfare: money down a sinkhole; capital taken away from the productive (and out of the capital market) and put into the hands of the unproductive, in order to buy a little time "until the reciepent gets back on their feet". Alas, inevitably, more money is always needed. And more, and more....

I guess the lessons we learned about welfare - and how eliminating it turned out to be an overall positive - needs to be repeated in the business sphere in order for us to realize its overall moral failure. Unless, of course, Obama and the Democrats understand its moral failure, and simply don't care...

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