Saturday, November 8, 2008

a modest proposal

General Motors announced last week that they will run out of cash (liquidity) by the middle of 2009 unless the economy and sales recover or the government steps in and gives them money.

Here is an industry that has been in trouble repeatedly for the past 30 years. The American automotive industry has required numerous bailouts, loan guarantees, and other financial assistance to stay afloat since 1970. In return they have reduced their American workforces (even in good times) with automation, outsourcing, and shifts in the location of production; and they have produced huge hulking gas guzzling monstrosities that American consumers were already turning their backs on before we moved into genuine recession.

General Motors themselves have been in serious financial trouble since at least 2005, when the company announced massive layoffs of 30,000 North American employees reducing their workforce to 143,000 salaried and hourly workers by the middle of 2005.

The argument against letting the automotive industry fail (as they most certainly deserve to) has always been that it would be a death blow to the American communities where they operate and to the families of the thousands of workers employed by the automotive industry.

The size of the bailout that GM is seeking has not yet been mentioned, however, one can guess from the fact that GM burned "through $6.9 billion in the September quarter" (CNN today) that any bail out request is likely to be in the range of ten billion or more.

As stated above, in 2005 GM had 143,000 salaried and hourly workers in North America (this includes Canada and Mexico as well as the United States). In April 2008 GM laid off 3,500 workers from their 80,000 North American hourly workforce, bringing their hourly workforce down to 76,500 workers. Then in June 2008 GM pared their hourly workforce even more through buyouts of some 19,000 hourly union workers, bringing the hourly workforce down to 57,500. GM salaried workforce has also been cut back to 32,000 in 2008. So an estimate of the GM North American work force (including Canada and Mexico) is 89,500. Let's say for the sake of argument that at least 80,000 of those workers are in the U.S. Let us also say for the sake of argument that GM would only ask for $10 billion for a bailout.

Well I have a suggestion -- that will probably not be seriously considered by anyone in a position of decision-making authority. What if instead of giving that money to General Motors, we let General Motors go bankrupt and out of business and we give the money directly to each and every individual who worked for General Motors in the United States.

Ten billion dollars divides up among 80,000 workers to $125,000 a piece. Suppose we say that the federal government will replace every single General Motors employees income for two years up to $60,000 a year -- folks that make more than $60,000 will just have to suffice with that. All employees would receive two full years of income, even if they found work again before the two years was up. Moreover, let us also require the recipients to pay income taxes, but not social security taxes (which are only assessed on "earned" income any way). They would not be eligible for unemployment insurance, but the federal government would also pick up the tab for paying General Motors portion of their workers health insurance, while the former workers would pay the same premiums they did under GM. Release from social security payments would give GM employees slightly more money in their pockets for two full years, during which they could go back to school, enter apprenticeships or any other form of education or training they wished to pursue. They could relocate, and take the two years of money with them. They could start their own small businesses.

This will probably be labeled as naive, but it seems to me that this would do much more to put our economy on sound ground than to give more to a company that hasn't seemed to figure out how to do it right for decades.


Chris Crawford said...

Interesting idea. The core argument that GM will offer is that the loan guarantee will permit GM to operate for more than 2 years. Let's say that this loan guarantee permits GM to operate for 4 years. Then all those workers would get their salaries, amounting to more money than we could give them. Moreover, there's lots of money that goes to other industries: mining, steel, glass manufacturers, electronics, and so forth. Put all this together and there's no question that $2 billion will generate a great deal more economic activity if we give it to GM than if we gave it to the workers.

This is not an argument for bailing out GM; I think that they should be allowed to go broke. The pieces will be picked up by other companies, some of the jobs will be saved, and in the end the resources will be put to better use.

Pat Jenkins said...

i imagine you will have every employee clamoring for their buisness to go under so they can get paid too sue if you get your payoff way!!!.... utter chaos!!... and we know it is bad for the industry when nascar comes out and says that the american car makers may not be able to afford to do buisness with them. i say this in all seriousness that is not good!!

Sue said...

Chris C -- your comment, and following the developing story in the news makes me see that my gut reaction -- give the money to the workers -- vastly over-simplifies the issues. You are quite right, that GM (and Ford) are simply the linch pins in much larger economic network. It's not just GM workers who would be without a paycheck should that industry go under, but all the workers in all the supplying and subsidiary industries. Glad you saw through my fallacy!