In which Kati waffles about the car industry bailout failure.

OK, I'll admit up front that I don't know much about the proposed American auto industry bailout. I'm discussing from a very theoretical standpoint, and as such I don't mind if someone wants to give me some more information or gently correct errors.

Now, just from an academic standpoint, I was torn about the idea of a bailout. On one hand, this industry falling right now would be positively detrimental, but on the other, the American auto industry has been doing poorly for twenty or thirty years. The Big Three have been run on an insanely short-sighted "business strategy" when this result was quite predictable to anyone willing to take a long-term view, and our government has done them no favors by coddling them during that time. For example, the American government's refusal to set any reasonable gas mileage standards (and overturning states who did so) and the corporations' neglect of developing higher mileage cars on their own insured that the American car makers' market is limited exclusively to the United States. Any analyst could tell you that's a horrible state for a multi-billion dollar corporation to be in, but investing in a wider (and thus more stable) market long-term would have amounted to higher expenses short term.

Next, with the bailout work that just fell through, I think the UAW should have been included at least as much as the high company executives were -- especially as cutting UAW wages became the primary mechanism to reestablish profitability. I think it is also essential that CEO wage limits be a part of any type of bailout. It's not just a matter of the money -- although at the money CEOs get, that is significant. It's a matter of proving good faith. A limit on a CEO's wages is the same as the earnest money you pay when negotiating to buy a house. The limit is to prove that "yes, we really are in this much trouble and yes, we really are serious about fixing the problems."
Furthermore, if we're going to expect the ground-pounding workers to be paid as much as their counterparts working for Japanese companies, isn't it only fair that we expect the American company CEOs to be paid as much as their Japanese company equivalents?

Also with that, although I could be wrong and I don't have any statistics to back this up, I strongly suspect that the Japanese-owned plants are safer than the American-owned ones. I base this on a comparison of how Japanese corporations usually operate and how they balance long-term versus short-term costs, compared to American corporations. The higher wages and benefits negotiated for workers in American plants are not just smoke and mirrors. They have been at least partially negotiated to compensate for higher risks.


Finally, I find this unthinking economic recovery strategy of corporate welfare, coupled with the abhorrence of citizen-level socialism, to be pretty scary. For example, with the auto industry bailout, instead of giving $34 billion in handouts to the companies, couldn't we instead give $34 billion of rebates to households that buy a brand new, American made automobile? We pump the money directly into the economy, it ultimately gets more money to the auto industry because the households that participate will be adding in some of their own, it increases the market for the companies' products and probably trickles down to other industries. I can't say that it's the best option, since on the flip side there's also the risk of crashing the used car market as it's flooded with trade-ins (although on the third side, that also reduces the price of them, encouraging those who couldn't afford a brand new car even with rebate to buy a used car) and who knows what other effects. But my point is that it was never even on the table.

You can see this also in the 700 billion bailout. $700 billion would stop a LOT of home foreclosures, which is what caused the problem. But it was never considered to give this money to citizens, to directly benefit the American people. The only lever our politicians consider pulling is dumping money on companies that have proven their irresponsibility and hoping that it trickles down.

That's absurd.