Wednesday, September 05, 2012

Why government bailouts go wrong

Michelle Malkin has a great piece today regarding the failure of the Obama bailout of General Motors and Chrysler the UAW.   Profits are falling, stock prices are falling, U.S. and European market share is plunging, and Forbes is arguing ( H/T ColdFusionGuy) that the upcoming Chevrolet Malibu is evidence that "The General" is losing its touch.  Along the same lines, it's worth noting that the government's loss on the bailout--about $20-25 billion currently--is about the same amount as the UAW received from the bailout arrangement.

Now, President Obama's stated goal here was to "stand on the side of the American worker," but if signs are right, what he's administered is not a hand up to hourly workers, but rather a kick to their collective crotch.  How so?

The reasons are basically twofold. First, paying off the UAW keeps the $2000/vehicle "UAW Tax" of pensions, wages, and benefits in place.  For a comparable vehicle, GM's profits will be $2000/vehicle leaner than those of Honda, Toyota, and Volkswagen.  Not a good situation, especially when you remember that product development funds come out of those same gross profits!

Worse yet, paying off the UAW tells every salaried employee and investor--engineers, stockholders, managers, bondholders, and so on--that they will play second fiddle to the UAW as long as they work for GM or Chrysler.  If you thought "That'll get some of 'em to Marysville and Georgetown!", go to the head of the class. 

In short, paying off the UAW ensures a lower quality effort in product development--lower quality for which the UAW will pay dearly in the not too distant future.

The problem gets worse, however, when we consider how keen the minority stockholder--our government--is to spend billions on niche vehicles like the $40,000 Cobalt, known otherwise as the "Volt."  If you thought "Hmmmm....wonder if that money could have been well used for a state of the art DOHC 4 cylinder for the Malibu?", again, go to the head of the class.

In a nutshell, Obama fails to grasp the fact that job security for hourly workers starts with having a first class product to manufacture, and that therefore you cannot pick "hourly workers" as the winner over "salaried workers and capitalist pigs" without simultaneously endangering the livelihoods of those very hourly workers you've just tried to help.

Or, put differently, government bailouts go wrong because they are an application of Marx's theories of class warfare.  23 years after the fall of the Berlin Wall, can't we put Marx's theories to rest?

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