Milton Friedman had a pithy, one-line explanation for why government can’t be expected to spend money wisely: You can’t expect someone else to spend your money as carefully as you would spend it yourself. The news this week shows that you also should not want government to invest your money, as the US Treasury announced plans to sell its remaining shares in General Motors–at an $11 billion loss. The loss is considerable, but would have been even higher if not for the recent run-up in stock prices, engineered by the Federal Reserve.
In any event, the $11 billion loss must be borne by everyone who pays taxes, which includes everyone who writes for this website. So what did we get for our money? Well, according to Tim Massad, assistant secretary for financial stability at the Treasury, the government’s “emergency support to GM during the financial crisis was necessary to prevent the collapse of the American auto industry and save more than 1 million American jobs.”
Oh really? Which American auto industry would that be? Because there are really two American auto industries. There’s an almost entirely non-unionized one run by foreign companies such as Honda, Nissan, Hyundai, and BMW. These and other foreign automakers
have invested $44 billion into their U.S. operations, accounting for 80,000 direct vehicle-manufacturing jobs and an additional 500,000 dealer and supplier jobs, according to the trade group Global Automakers. Their 300 U.S. facilities also account for nearly half of all vehicles built in the U.S.
Then there’s the fully-unionized auto industry: Ford, GM, and Chrysler. The bankruptcies occurred only in the unionized industry, but did not include Ford: only GM and Chrysler. Moreover, GM and/or Chrysler may well have survived even without bailouts; they might have been merely restructured in Chapter 11 bankruptcy, as have many other large companies such as United Airlines.
Otherwise, even if one or both of GM or Chrysler had in fact been liquidated, much of their productive assets would have transferred to other automakers, who would have filled the gap by expanding their own production. Notwithstanding the statement by assistant secretary Tim Massad, we conclude that the auto bailout did not “prevent collapse of the American auto industry.”
How about Massad’s claim that the bailout saved “more than one million American jobs?” Some jobs associated with the auto industry may have been lost, but it cannot be true that America’s entire economy would have lost one million jobs overall. For instance, it cannot be true that America would have had 144 million jobs with the bailout, but only 143 million without it. Why? First, as noted above, not all jobs supported directly or indirectly by GM or Chrysler would have been lost because one or both of those firms might have emerged from Chapter 11. And even if they had not survived, their assets would have been productively employed by other automakers, thus expanding employment among those other auto firms.
It is, however, possible that a few auto and related jobs might have been lost, but probably far less than one million. Moreover, the resources freed up from the auto industry would become available to support employment in other industries. Every dollar that Americans no longer spent on GM or Chrysler products becomes available for spending on other products, perhaps including landscaping or health care. So while America might have lost some auto industry jobs, these would largely or entirely be offset by new jobs in landscaping, health care, and other occupations. The best guess is that the overall number of jobs should hardly change at all.
But what if Chrysler and GM had failed, and the money previously spent on their products were diverted to purchasing imports? Money spent on imports would not directly support production and jobs in the U.S., so wouldn’t the U.S. lose jobs in that case?
No, because money spent on imports still supports jobs in the U.S. indirectly. The reason is that money spent on imports must either a) come back to the U.S. as foreigners spend the money on U.S. exports or b) if there’s a trade deficit, what’s not spent on U.S. exports comes back to the U.S. as investment. Either way, the money spent on imports indirectly supports production and jobs in the U.S.
We conclude that Tim Massad’s claim that the bailout saved “more than one million American jobs” is false. Indeed, his statement is so inaccurate that he must be either pathetically ignorant and incompetent, or he is a public servant who is willfully misleading his employers–the American people. In a world where the people held their public servants to a higher standard of accountability, he would be tarred and feathered.
So, the taxpayers basically get nothing in return for their $11 billion. Most of the benefit of the bailout goes instead to the UAW. Note that the bailouts did not prevent bankruptcy; GM and Chrysler both did go through bankruptcy. But without the bailout money, the bankruptcies would almost certainly have voided the union contracts. That outcome, and not concern about overall U.S. employment, is what motivated the bailouts. The UAW used its political influence to get the government to structure the bankruptcies in a way that preserved the union contracts. The bailouts didn’t rescue an industry, or even specific firms, so much as they rescued a labor union. Rather than “auto bailouts,” they should more accurately be called the “UAW bailouts.” The bailout money was needed to finance rigged, and frankly lawless, bankruptcy plans that preserved the UAW’s perks, privileges, and 2,000 pages of work rules. That’s what taxpayers got for their $11 billion. What a deal!
And note that the $11 billion must be paid for by people who worked hard, chose wisely, and acted responsibly and who, unlike the UAW, didn’t run their businesses into the ground. As usual, government punishes the prudent to reward the imprudent. This phenomenon is what a typical college professor might describe as “social justice,” the modifier “social” being necessary to distinguish it from regular, plain-old, you know, justice.