The following is a guest post by Greg McFarlane. He is an advertising copywriter who lives in Las Vegas and Lahaina. Greg runs ControlYourCash.com and recently wrote Control Your Cash: Making Money Make Sense, a financial primer for people in their 20s and 30s who know nothing about money. You can reach him at [email protected]. Finally, please note the opinions of Mr. McFarlane do not necessarily represent those of Lazy Man and Money
Read into this post what you want, but it’s not intended as political commentary.
Last week, the New York Stock Exchange relisted General Motors’ stock at $33. GM had spent much of the past year drawing billions from one taxpayer-funded account to pay its obligations to another. The automaker is celebrating its new viability by spending yet more money taking out ads thanking the American people for our “generosity”, as if we had a choice.
Earlier this year the president spoke to autoworkers in Detroit, defending his and his congressional cohorts’ decision to confiscate an average of $283 per American and award it to the managers of General Motors, Chrysler, and the United Auto Workers to distribute as they saw fit.
The president didn’t just impoverish critics of the auto bailout, he chided them ““ adding insult to inconvenience. GM and Chrysler sales rose since the bailout: of course they did, those companies can name their own taxpayer-subsidized prices. The president argues that the relative “success” of GM and Chrysler proves that those of us who criticized the bailout weren’t just wrong, but unpatriotic. As he phrased it, “Don’t bet against the American worker. Don’t bet against the American people.”
Speaking up in favor of the 99+% of American people who aren’t autoworkers is now betting against the American people. In 2010, the intercontinental, universal language is not English so much as it is hyperbole. If the stock market retains 95% of its value on a given today, and is all but certain to regain much of the losses the following day, it indicates a “crash”. The Gulf of Mexico is “destroyed” even though it suffered the aquatic equivalent of a fingernail cut too short. A Congress with large majorities in each house, and a president of the same party is in a “lame-duck” session. A bunch of football players from across the nation happen to get drafted by, traded to, or signed as free agents by the one NFL team that plays in a sub-littoral zone, and those players win sufficient games to “save“ that city and turn it into a magical Utopia free of crime and graft.
And so to the auto bailout, which has “saved a million jobs.” If you’re skeptical, which presumably means you’re betting against the American people, you want to see those jobs quantified.
Unedited, from an Agence France-Presse story:
“In the year before the bankruptcies, these companies lost almost 340,000 jobs,” said Ron Bloom, a senior advisor to Treasury Secretary Timothy Geithner.
“In the year since then, 55,000 jobs have been added into these companies; if we hadn’t stepped in when we did, most observers believe at least a million jobs would have been lost.”
Bloom appeared to be referring not just to Chrysler and GM, but to the large web of suppliers which manufacture components for the plants, which would also likely have gone under if the big auto giants had collapsed.
That quote is provably nonsense. Considering it was uttered by an economic advisor, it shows a powerful misunderstanding, intentional or otherwise, of fundamentals.
Let’s say the man in the White House ““ whether the incumbent or his predecessor ““ had done the humane thing, preserved sacred taxpayer money, and stood by as General Motors and Chrysler went the way of Packard, American Motors, Studebaker, and Pierce-Arrow. What would have happened?
Suppliers disappearing (for any reason other than reduced demand) doesn’t have the slightest effect on demand. Last year, about 10 million Americans bought new cars. Had GM’s total unit sales gone from 2 million to 0, viable car manufacturers would have picked up the slack: specifically, the efficient market players who didn’t sign masochistic union contracts and had enough economies of scale to make things work.
One of the most dangerous and foolish assumptions you can make is that jobs, or any other component of an economy, are static. Sure, GM and Chrysler folding would have meant a few thousand people would have been temporarily displaced. But their skills and experience would still have had tremendous value for someone, somewhere; maybe the Honda plant in Marysville, Ohio, or the Toyota plant in Princeton, Indiana. The auto bailout didn’t save one job ““ it merely preserved some at the expense of other, more dynamic ones with greater potential for growth. For every Band-Aid placed on GM’s debilitated carcass, its competitors forwent expansion that we’ll never see.
Keeping decrepit automakers alive doesn’t do a thing for the ancillary companies who are one step removed from the bailout, either. Were Chrysler to go under, Interstate would still need to sate America’s demand for batteries. Why is it inherently bad that those batteries be installed in more Fords and fewer Chevys?
How viable is a job when taxpayers have to subsidize it, anyway? Autoworkers aren’t soldiers, providing a service that requires a national monopoly and doesn’t cotton to multiple market players. General Motors proved itself incapable of selling cars at sufficient price and quantity to satisfy shareholders, customers and employees. Only under the fallacy of composition does it stand to reason that no one else can, either.
What does this have to do with you? Everything. When you patronize a business that sells its wares less efficiently than someone else does ““ which usually means for a higher price ““ not only are you not doing yourself a favor, you’re not helping out the economy at large, either. That applies to your own position as a salesperson in the labor market, when you sell yourself to the highest or most promising bidder. When you work merely to preserve your job, acting defensively, you’re not growing. You’re not making yourself adaptable, and you’re setting yourself up for failure should your employer ever go under. Working 45 years leading to a gold watch was nonsensical then, and nonexistent now.