In the interest of being fair and balanced, most intellectuals are leary of a bailout for Detroit's sole economic property, the automobile. www.urbanonramps.com/creative-destruction-and-the-detroit-3/. With that being said, they are wrong in their thinking.
The Detroit automakers represent 1 in 10 jobs in America, if you count all ancillary businesses supporting the automotive industry. Additinally, the automobile is this country's most prized invention - being used all over the world for trasnportation, commercial use, and leisure. If America were to lose this, we would finally become a total service economy...this is not a good thing. It is amazing that we decide to give $750 billion to the financial sector, which has far less employment implications than big auto, with greater debt risk but be opposed to the bailout of these companies.
This is not to say that Detroit is not complicit in their demise. They built crappy, gas-guzzling, unappealing products for years. They raked in huge profits, to the tune of billions of dollars per year, on the backs of large SUVs, and refused to invest any of that cash in the development of fuel efficient vehicles. Meanwhile, they allowed the UAW to enact employee laws that made their fixed costs enormous.
With all that being the case, Nancy Pelosi said it best when she noted, “A healthy automobile manufacturing sector is essential to the restoration of financial market stability, the overall health of our economy, and the livelihood of the automobile sector’s workforce,” in a letter to Congress. Without our most important manufactured good, America's standard of living and GNP will splinter into a much smaller cousin of itself.
The Detroit Three directly employs 1 million people. That only includes employees of the three automakers. If you add dealership employees, suppliers, creditors, ad agencies, and tire manufacturers, that number ballons to 50 million jobs, by many estimates. This number doesn't even include retirees. Let me be clear when I say, that there is nothing currently available or on the horizon that can employ that many people, nor offer benefits to those retirees. This nation would face a catastrophic blow to the economy should even one of these companies fail. Not to mention, America's 11th largest metro area would become half the size it is now.
With Treasury Seceratary Henry Paulson announcing a change in how the approved $700 billion dollars, approved for the financial sector, would be spent it is evident that the second biggest holder of loans in this country deserves some help too. My solution would be to use some of that money to directly aide the Detroit Three; Mr. Paulson disagrees. If that is not the case, more money must be approved to get them through this tight credit time period. The $25 billion dollar restructuring package will do no good for a company that cannot last for six months. Understand this, the tax payers will pay one way or another.
Either we'll pay for this loan, with the expectation that we'll all benefit when it's paid back with interest, or we'll have a massive unemployment bill to pay through our taxes when all of the aforementioned people lose their jobs . The estimates of people much smarter than I, suggest that cyclical unemployment cost could grow to as much as 7.4% http://research.stlouisfed.org/publications/review/00/03/0003sd.pdf, which would mean we would need 4.6% growth in the economy to break even for the costs of this burden. Given that our economy is currently shrinking, I fear that letting this industry go bankrupt would be far worse than the alternative. Let's do the intelligent thing, as ugly as it may be, and choose the lesser of two evils; bail out the big three.
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