viernes, 21 de noviembre de 2008

Unbearable hypocrisy on the proposed auto industry bailout



Congress is currently engaged in a heated debate over another taxpayer bailout, this time for the U.S. auto industry. More specifically, Congress is debating whether to provide the Big Three with an advance on a $25 Billion loan the government has already promised them and draw on funds allocated for the financial sector bailout for another $25 Billion loan to help them retool and start building greener cars. According to economists Paul Krugman and Dean Baker, the collapse of the U.S. auto industry would be devastating for the American economy and the economies of Michigan and Ohio, which are already reeling, in particular. Many parts suppliers and other businesses in the Mid-west depend on the Detroit automakers for most of their business so if they were to cease production, the result could be the loss of as much as a million jobs. Of course, this is the last thing we need right now, as unemployment and home foreclosures continue to surge upwards and productive investment is on the decline. As such, I support, though not without qualification, extending U.S. auto makers a helping hand.

Now, like any rational person, I fully admit that the management of Chrysler, GM, and Ford brought much of this crisis upon themselves by maddeningly refusing to produce smaller, more energy efficient cars for many years and relying on gas-guzzling SUVs and trucks for far too long. Further, the United Autoworkers (UAW) must share in some of the blame as well, because they've basically echoed Detroit's line on environmental issues for many years. Any cash we hand out to the auto industry should come with strict conditions regarding environmental standards. There should also be aggressive government oversight of how they use the money, unlike the current financial industry bailout, which Naomi Klein rightly calls a giant corporate crime scene.

Bearing that in mind, however, I simply cannot stomach the excessive hand-ringing in the mainstream media directed towards the auto industry, particularly in light of the MSM's intense and near unanimous support of the financial bailout several months ago. Frankly, all too many commentators in the mainstream media are pure hypocrites and I, like Dean Baker, suspect that much of the criticism of the auto industry among our nation's opinion elite stems from their intense hatred of the UAW, labor unions, and working people in general. To prove my point, let's have a look at how two influential and supposedly "liberal" sources of elite opinion, the editorial page of the Washington Post and New York Times columnist Thomas Friedman, responded to the proposed bailout of the auto industry and the actual bailout of the financial sector.

Back on November 8th, here's what The Post had to say about bailing out the auto industry:
the only sensible bailout of Detroit would be one with strict conditions...

Post columnist Steven Pearlstein has suggested that these companies need to be reorganized top to bottom, through a kind of "prearranged" bankruptcy greased with federal aid: Under court direction, the firms would trim wages and benefits that far exceed those of non-union competitors, reduce the burden of pension payments, which stands at $90 billion over the next decade, and prune an outmoded network of 10,000 dealerships.

In his November 12 column titled "How to Fix a Flat", Thomas Friedman largely echoed the Post's recommendations, though he also added his own self-righteous diagnosis of how the industry got in this mess:
How could these companies be so bad for so long? Clearly the combination of a very un-innovative business culture, visionless management and overly generous labor contracts explains a lot of it...

The blame for this travesty not only belongs to the auto executives, but must be shared equally with the entire Michigan delegation in the House and Senate, virtually all of whom, year after year, voted however the Detroit automakers and unions instructed them to vote....

if we are going to use taxpayer money to rescue Detroit, then it should be done along the lines proposed in The Wall Street Journal on Monday by Paul Ingrassia, a former Detroit bureau chief for that paper.

“In return for any direct government aid,” he wrote, “the board and the management [of G.M.] should go. Shareholders should lose their paltry remaining equity. And a government-appointed receiver — someone hard-nosed and nonpolitical — should have broad power to revamp G.M. with a viable business plan and return it to a private operation as soon as possible. That will mean tearing up existing contracts with unions, dealers and suppliers, closing some operations and selling others and downsizing the company ... Giving G.M. a blank check — which the company and the United Auto Workers union badly want, and which Washington will be tempted to grant — would be an enormous mistake.”

These are some harsh words, indeed. Without a doubt, these guys don't want the government to give Detroit any help without forcing them to make drastic changes. In particular, they must deal with their pampered workforce. Going further than that, Friedman is quite critical of Michigan lawmakers, mere appendages of the industry in his view. Certainly then, they must have been quite critical of the pay packages on Wall Street, which are far more excessive, than those of auto workers, who make about $57,000 a year, as well as the members of congress who did Wall Street's bidding by pushing for deregulation, one of the main causes of the financial crisis. Moreover, they must have called for strict restrictions and oversight.

Well, you can see for yourself what they actually said. Both The Post and my buddy Tom Friedman stressed expediency and discouraged government micromanagement of the Wall Street bailout:

The Post, on October 2nd:

AMERICA is the land of second chances, so it is fitting that the House of Representatives should get an opportunity to redeem itself for its reckless rejection of the financial rescue package on Monday

The case for the plan, known formally as the Troubled Assets Relief Program (TARP), does not hinge on its perfection. As we have said, it is possible to imagine alternatives, some of which, such as a direct federal purchase of bank equity, might prove more effective at a lower cost to taxpayers. Or they might not. The point is that TARP is the only plan on the table that has both a reasonable chance of political success and a reasonable chance of economic success. Under the circumstances, which at the moment include a mounting worldwide financial collapse, we do not have time to run a legislative seminar on the theory and practice of financial rescue.


Friedman, on September 30th:

Message to Congress: Don’t get cute. Don’t give us something we don’t need. Don’t give us something designed to solve your political problems. Yes, Hank Paulson and Ben Bernanke need to accept strict oversights and the taxpayer must be guaranteed a share in the upside profits from all rescued banks. But other than that, give them the capital and the flexibility to put out this fire.


Further, concern over excessive compensation at Wall Street firms was either nonexistant (The Post) or written off as a minor issue, by Friedman:

I totally understand the resentment against Wall Street titans bringing home $60 million bonuses. But when the credit system is imperiled, as it is now, you have to focus on saving the system, even if it means bailing out people who don’t deserve it. Otherwise, you’re saying: I’m going to hold my breath until that Wall Street fat cat turns blue. But he’s not going to turn blue; you are, or we all are. We have to get this right

Finally, if there was any concern on the part of these wise men that lawmakers were unscrupulously heeding the will of a particular interest group, that interest group was the American people, who overwhelmingly opposed the Wall Street bailout. Responding to the will of the people was instead regarded as "reckless" by the Post or poo-pooed by Friedman, who assured us that if we knew as much about the world economy as him, we'd surely come around to supporting the bailout:
you can’t save Main Street and punish Wall Street anymore than you can be in a rowboat with someone you hate and think that the leak in the bottom of the boat at his end is not going to sink you, too. The world really is flat. We’re all connected. “Decoupling” is pure fantasy.

In a nutshell, as I said before, these people are total hypocrites and imposed completely different standards on the auto industry and the finance industry. Now, granted, I'll buy the argument that finance is of central importance for the whole economy but that's still no excuse for excusing the myriad abuses of Wall Street. Furthermore, anyone who regards the pay and benefits of unionized autoworkers as excessive is completely ridiculous, at best. Did the Post or Mr. Friedman perhaps consider that maybe the non-unionized, largely southern workforce employed by foreign automakers are underpaid, giving them an unfair advantage? One of the conditions imposed on an auto industry bailout ought to be accelerated passage of the Employee Free Choice Act, which could help level the playing field between American, unionized automakers and foreign-owned, non-unionized companies. Unionized, good paying blue collar jobs ought not to be such a rarity. We could also help the auto industry deal with their high health care costs by enacting single-payer, universal health care, which is absolutely essential if we want to get health care costs under control and deal with the gross inequities of our health care system anyway. That would be change we can believe in.

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