- The Washington Times - Monday, November 17, 2008

It is a waste of taxpayer money to bail out Detroit‘s Big Three auto companies. These companies have been in secular decline for at least two generations. Their automobiles have been less fuel efficient, of lower quality, less inspiring and more expensive than the automobiles of foreign-owned competitors.

In the 1980s the government bailed out Chrysler. Now Chrysler, accompanied by GM and Ford, is back at the public trough. Public bailouts of failing companies only postpone the inevitable demise of these companies. Let the creative destructive force of this recession euthanize an inefficient group of companies by forcing them to reorganize or go out of business. Since the federal government is debating the size and form of a bailout, let us examine the rationale for a public bailout.

Perhaps the most compelling and compassionate reason to support a public bailout is to save hundreds of thousands of jobs that would be lost if these businesses fail. The losses would be felt by employees of vendors and dealers, as well as employees of the Big Three. In the short run, a bailout would definitely save jobs. However, in the long run, saving jobs to produce Big Three cars comes at a high price. Workers compensated at above- market wages would be producing high-priced, inefficient cars that consumers do not want to buy. If these subsidized jobs were lost because the Big Three were reorganized or went out of business, additional jobs would be created by U.S.-based foreign manufacturers and the reorganized leaner remnants of the Big Three. These jobs would not be subsidized by the government. These employees would be more effectively employed producing cars that consumers want. That would be a big plus to the economy. So, why would the government want to save these jobs in inefficient companies?

In order to preserve labor peace over the postwar period, the Big Three have entered into a Faustian bargain with the United Auto Workers (UAW). In addition to paying above-market wages, management agreed to a number of very expensive benefit programs. These programs include employee medical and retiree medical benefits. They also include rich pension benefits and a program to pay redundant employees not to work. If the Big Three go into bankruptcy, the federal government may be forced to assume the unfunded obligations of these benefit programs. The Pension Benefit Guarantee Corp. (PBGC) is already overburdened with unfunded pension obligations from the past. Perhaps a government bailout could push the Big Three unfunded obligations further into the future so our children can deal with them when they are much larger. It will be an off-balance-sheet obligation of the federal government that will make politicians feel good but will not solve the long-term problem of reducing these unfunded obligations. Why would the government want to push off these obligations to future generations?

If venture capitalists wanted to invest in energy-efficient technology, they could have easily invested in the Big Three over the past 50 years. They chose not to invest. Why? The Big Three does not have a very good track record developing and commercializing energy efficient technology. A Detroit-made fuel-efficient car is an oxymoron. Fuel-efficient automobiles have been developed by Detroit’s foreign competitors. Fuel-efficient technologies and alternative-energy-powered vehicles have also been developed by small U.S.-based companies. Detroit may have developed the technology for fuel-efficient cars, but it never commercialized it. When the price of oil falls, Detroit goes back to making and promoting gas guzzlers. Why would any professional investor provide money to Detroit to develop energy-efficient technology? They would not because of the present management and bloated employee benefits structure. Why should the government make a bad investment with taxpayer money?

During the campaign, Mitt Romney said that if he became president, these lost automobile jobs would return to Michigan within six months. John McCain said these jobs are not coming back to Michigan and displaced employees need to retrain and retool. Without giving specifics, Barack Obama gave these unemployed workers hope that the jobs were going to return when he became president. History will show that Mr. McCain was right. The textile mills did not return to New England and the steel mills did not return to Western Pennsylvania. Unfortunately, presidential candidates do not win elections by being candid. The voters of Michigan and the UAW overwhelmingly supported Mr. Obama. Now the new administration must pay its due bill. While there is no rational reason to believe that automobile jobs will ever permanently return to Michigan, the new administration will squander taxpayer money on subsidies to the Big Three to give unemployed automobile workers hope in the impossible dream.

Armstrong Williams’ column for The Washington Times appears on Mondays.

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