Wednesday, November 19, 2008

Transportation Whoopee Part II

Via Paul Krugman, I recently read Jonathan Cohn's piece in the New Republic in support of a bailout for the Big Three. I've been having a difficult time deciding where I fall on this issue; part of the reason I asked Will to write the previous piece on the auto industry bailout was to get some information to clarify my own views. From the beginning, I've tended to side with a bailout because the facts of bankruptcy - job loss of a half-million to two million and the loss of work and infrastructure already in place - seemed much more costly than a bailout with the right strings attached. What hung me up was how, and whether, it was possible to attach the right strings to such a bailout. As Will wrote:

"If the government injects capital as equity, and takes part ownership of GM, does anything really change, or does GM just get a whole bunch more money to burn through? This is a serious concern, as GM (and the rest of them) have been burning through cash like a California wildfire this quarter. If the government takes an equity stake, how does it ensure that GM will use that capital to retool factories and designs to make more efficient cars? What if oil keeps going down and SUVs become the rage again, but GM cannot compete with other companies because the Government told them they can't."

I've now settled on supporting the bailout for the Big Three. The prospect of such massive job loss is probably enough to support the bailout, but I guess I wanted a little more convincing. If the most dire predictions are right - job loss in the three million range with a Chapter 7 declaration - then the midwest is going to look a whole lot worse very quickly and it already is a mess. Cohn's solution below:

"A better solution [thank bankruptcy] would be another government bailout--albeit one with lots of conditions attached. Those conditions would include limits on executive compensation, as in the Wall Street rescue, but also more specific requirements designed to push the Big Three toward greater innovation and fuel efficiency. The bailout might also require more concessions from the unions, perhaps over the relatively generous health benefits UAW workers enjoy. And it would probably mean cleaning house in GM's executive suites. (Vice Chairman Bob Lutz, a notorious skeptic of climate-change theory, should be the first to go.)"

If it is possible to construct the bailout in this fashion, then I'm for it. It sounds like a plan like that, which I think is what Obama's people have in mind, would leave room for a solution similar to what Will proposed:

"In my eyes, a better option would be essentially 'earmarked' financing. GM could turn to the government to provide favorable loans for specific projects that are aimed at diversifying product lines and creating more fuel efficient cars and a production system that mimics Toyota's. This way GM would essentially be forced to come up with socially benevolent solutions, because it cannot survive without government infusion, but the government does not tell them HOW to achieve these goals."

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