Why It's Important to Bailout the Auto Industry

Proposals for a bailout for Detroit's Big Three have generated a lot of controversy across the internets recently. Predictably, conservatives oppose any government aid to the auto industry. For some it’s a principled argument. They also fiercely opposed the recent $700 billion aid package to help Wall Street despite the fact that the collapse of the financial industry would have created a domino effect which would have upended business on Main Street too. Two things make the conservatives dig their heels in. The first is their fierce faith in the market to self-correct, weed out the unworthy, and rebound by itself. The other equally fierce belief is that the less government intervention in anything the better. In fact, shrinking the government and drowning it in a bathtub has been their anarchic goal for years.

But another reason the right is so opposed to helping out the automakers is that they are salivating at the chance to bust the unions. You can see it in comments every where from the Wall Street Journal to the Cato Institute’s website.

But some progressives are echoing the conservatives' disdain for helping out the car makers. The environmentalists particularly have their gripes with the auto industry and, believe me, that distaste is well deserved.

But Robert Creamer provides a counter argument, on Huffington Post, to why progressives should support a bridge loan for the Big Three car makers. He’s not a naïf. And it’s not because of misplaced admiration for the captains of that particular industry who ran it down with poor management, bad products, obstruction of green technology, and generally bad business decisions. But he’s cognizant of the economic fallout across the board of allowing the auto industry to fail. His argument also gives lie to the conservatives’ complaint that it was overly generous wages and benefits packages to union workers that caused the companies’ failure. Indeed, he argues that high wages for union workers is a good thing for the economy and for America.

In fact, it is precisely this fact -- that unionized automobile manufacturers provide their workers with middle class incomes -- that makes it critical for government to assure the long-term survival of this industry in particular and the U.S. manufacturing sector in general.

The core failure of the radical-right-Bush economic policy is that the "markets uber alles" economic philosophy led them to lower incomes for most Americans while siphoning off all of the fruits of economic growth for the top two-percent of the population. Of course, that is a terrible outcome because the point of our economy should be to improve the lives of everyone -- not just the gang on Wall Street. But it has also been a disaster because widely-spread income growth is necessary to provide the demand that fuels long-term economic growth in the entire economy.

It's really simple: good economic policy requires that more and more Americans make higher wages, not that more and more Americans make lower wages.
Unfortunately, market forces by themselves do not yield that result. For that to be the case, you have to have strong unions like the United Auto Workers -- whose demands for good wages helped create the American middle class after World War II.

If we allow the unionized American automobile industry to collapse, we will accelerate the reduction of middle class incomes for everyone. That collapse would start a tidal wave of lower wages and, in turn, lower buying power throughout the economy. The auto industry and its suppliers represent a huge chunk of the American manufacturing sector. The collapse of GM or Chrysler would throw hundreds of thousands of workers onto the shrinking job market. It would start a domino effect of bankruptcies and layoffs among suppliers and dealers all over the country.

As I pointed out, Creamer is not naïve and he’s not willing to give away the whole store to the large auto companies. His bailout would come with strings.

Should the government make capital available without strings? Absolutely not. The taxpayers should demand a plan that guarantees the American auto industry has long-term viability. But that doesn't mean it should become a low wage industry. Its problems have very little to do with "bloated union contracts." And they certainly were not caused by "overregulation" or the intrusion of government into the decisions of the "private sector."

The economic problems of today's American auto industry are grounded in two catastrophically bad management decisions -- both rooted in the view that unregulated markets always yield correct outcomes. These have been exacerbated by the recent collapse of the financial markets.

This week Congress needs to do what is necessary to prevent the short-term collapse of the American auto industry. But over the long term a viable auto industry requires more than capital for auto companies. It requires a federal program to guarantee health care for all, a new approach to private pensions and a crash program to free us from our dependence on oil-powered vehicles.

It will also require a renewed commitment to strong unions and a high-wage economy that grows from the bottom up. After all, the health of every American business is ultimately grounded in the existence of consumers with enough money to buy their products.

Meanwhile, also at Huffington Post, Robert Borsage chimes in with an article declaring the following:

The era of big government is over is over. In the crisis, we are, as Richard Nixon once said, "all Keynesians now." Former Clinton Treasury Secretaries Robert Rubin and Lawrence Summers, until recently notable deficit hawks, now call for substantial fiscal stimulus -- deficit funded federal spending -- to get the economy going.

Summers whose alliterative guidelines for this year's earlier $150 billion stimulus -- "timely, temporary and targeted" -- helped to fix its mistaken focus on tax rebates, has changed his consonants. Now he says the stimulus should be "speedy, substantial and sustained," noting that some estimates on Wall Street have gone as high as "$500 to $700 billion." Rubin agreed, saying "we need a very substantial stimulus," while mumbling about needing to reduce the budget deficit over the longer run.

A major recovery program -- featuring substantial public investment -- will be inevitably the first initiative of the Obama administration. It should feature more spending than tax cuts -- investing in renewable energy and conservation, in rebuilding everything from schools to bridges to a smart electric gird, in helping cities and states avoid crippling cuts of services, in keeping college affordable, providing health care to children, and aiding those most in need.

I think this is the opening salvo in a new progressive narrative about the role of the government and unions in protecting the economic interests of the average citizen. It’s long overdue too. The argument is that just as in the 1930s, it took a combination of government programs, union activity, and a progressive alliance to jump start an ailing economy and usher in an era of unprecedented prosperity, not just for the Astors, Rockefellers and DuPonts but for the Joes and Jills who toil in the factories, kitchens and shops of America too.