E. J. Dionne thinks so, in an articled titled, “How Big Government Saved General Motors.” I’m not wholly persuaded.
Dionne’s argument for the claim that General Motors has been saved is…well, he doesn’t actually make much of an argument, beyond the fact that GM currently exists, which isn’t really saying much. His strongest claim is that the Obama administration kept its hands off GM, and is letting it run itself like a business, rather than making politicized choices for it.
Well, okay, but of course prior administrations kept their hands off GM as well, yet the company still managed to fail, so clearly “hands off” isn’t a sufficient condition. Perhaps it’s the combination of a massive cash infusion combined with a hands-off approach. Let’s consider that idea for a moment. Even if it works in this particular case, would Dionne really argue for a general policy of “give large failing companies massive amounts of taxpayer money, then leave them alone and don’t hold them accountable for that money?” I just don’t see that as a wise course of action.
But of course it’s not true that the Obama administration was completely hands off. Right after the bailout, Obama effectively fired GM CEO Rick Wagoner (suggesting that the President may actually have more business savvy than people like me anticipated!). Then he ensured that the company would not move its headquarters out of Detroit. Obama also pushed GM to put more focus on hybrid cars (the Volt will be available soon–at a price that’s drawing very wary looks from industry observers).
So Dionne is not precisely correct in his claim that the government hasn’t interfered. But if GM really is saved, he’d have an even stronger argument for government intervention if he pointed out how the governments “hands on” actions saved it.
But what are the grounds for claiming GM is saved? Again, Dionne doesn’t really say, beyond the fact that GM is still–at this moment–still building cars. Of course if you manage to shed a large amount of debt through bankruptcy and receive tens of billions of dollars from the government, you ought to be able to stay in business for at least the next year or so. Although, to be sure, GM was losing as much as $9-15 billion per quarter, so perhaps they deserve credit for stretching the $49.9 billion ($6.7 billion in loan, the rest in the government purchase of shares of GM) they received beyond 4 quarters.
Dionne could have mentioned that GM had repaid its $6.7 billion government loan early, but fortunately he didn’t. Fortunately, I say, because GM didn’t really repay the loan, at least not with their own money. Rather, they repaid the government loan with government money invested in the company, then asked the Department of Energy for a $10 billion dollar loan–even more than they had borrowed in the first place.
GM did indeed post a profit this quarter. But the real issue is how long they will be around. The big reason to doubt Dionne’s claim that GM has been saved is that we’ve gone through this before. Chrysler was bailed out to the tune of $1.5 billion in 1979, but thirty years later needed to be bailed out again. Granted, Chrysler did pay back that original loan, but was it really saved that first time around, or was its demise just delayed? Would we have been just as well off now if it had died then, and Michigan had begun it’s economic diversification a generation earlier, rather than having to give it another $15 billion three decades later?
Dionne’s major argument in favor of the GM bailout–which is distinct from a claim that it has actually saved GM–is that a million jobs would have been lost if they had not saved the auto industry. The rough math works out to $50,000 per job (it’s hard to say exactly, as the final cost is unknown until the government sells its shares of GM, and we see if it pays back it’s DOE loan. It’s actually possible the government won’t take a loss, or will take a very small one, on this bailout. But there’s still the question of whether it was an efficient use of public funds.
Dionne claims also that without the bailout, “[t]he decision to lose one of our core manufacturing sectors would also have been irreversible.” Ponder that for a moment. If GM went out of business, no other company could have stepped into meet the demand for automobiles in the U.S. Really? Dionne is primarily worried about jobs, but he seems not to notice that Honda, Subaru, Toyota, Kia and Mercedes all employ American autoworkers. He seems not to notice that some of the Big Three’s plants are quite modern, and buying them at firesale prices might have been more attractive than building a new plant from scratch. He seems not to understand that letting GM or Chrysler simply go into bankruptcy and be sold off might have resulted in new owners, rather than the wholesale elimination of the company.
In short, E. J. Dionne (whom I like, really–he’s one of the few liberals who ever has anything good to say about libertarians), is looking only at the surface, ignoring the facts, and not considering the long-term implications of continuing to bailout failing firms just because they’re large. In the best case scenario the government turns a small profit on the GM bailout. But by bailing out GM–as with their bailouts of the large banks–they only create incentives for businesses to act carelessly, anticipating that the government will be their lender of last resort. That’s not a path toward creating a more stable economy.
Just because the teenager with the car keys gets away with reckless driving once doesn’t mean he always will. It just increases the odds he’ll drive more recklessly in the future, with predictable consequences.