The current official unemployment rate is 6.5%. The unofficial unemployment rate is 11.8%. Some economists estimate that if the Big 3 automakers go under, it will put approximately 15,000,000 Americans out of work once the effects ripple through the economy. The U.S. workforce has about 150,000,000 people in it, meaning that this would make the official unemployment rate be 16.5%, and the unofficial one be 21.8%.
That's Great Depression territory, folks. Sad to say, allowing Chrysler, GM, and Ford to fail is not an option right now. If the current unemployment rate was 2.5% like under the Clinton Administration and there were widespread labor shortages, that'd be one thing -- it'd hurt, but the economy could absorb 15,000,000 newly-unemployed people. But with the economy already hurting, this would be just one more step into the abyss of a deflationary spiral, and I don't think "Helicopter Ben" Bernanke can drop enough $100 bills out of helicopters to make >15% unemployment paletable.
-- Badtux the Numbers Penguin
You're so obviously correct that they will NOT bail out the automakers...
ReplyDeleteWith other companies shedding employees like a mange dog soon the unemployment rate will top 10%
ReplyDeleteThe government didn't bail out the airlines and we were all able to fly around the country just fine. Remember the panic?
ReplyDeleteWhy can't we let GM file for bankruptcy? Suppliers would get screwed (but many of them already are getting screwed-I work for one), many union jobs would vaporize and the bad executives would be removed. Then, the company could resurface with a renewed perspective and set of goals. If the former union people wanted a job, I'm sure GM would have one to offer with a realistic wage.
These are the days of competitive employment. Whether we bail them out, loan them money or let them fail, a lot of jobs will be lost.
The current state of GM is that they have no idea how to turn things around. Throwing money at that mindset is likely to get us no progress. The simple fact that one week they were talking about buying Chrysler and then a couple weeks later, they were begging for money illustrates that their priorities are all screwed up.
I'm using GM as the example because I just spent three days staring at their corporate office from across the river.
If the company failed-the doors wouldn't close tomorrow and flood the system with millions of unemployed.
The airlines did not/do not employ 10% of American workers directly or indirectly and airliners are fungible -- they can be sold to a new owner and be back flying again within weeks, if not days. Auto assembly plants are *not* fungible -- they must be completely disassembled and retooled in order to build any different car, and that's something that costs about $5 billion dollars and takes about three years.
ReplyDeleteIn short, you're comparing apples and oranges, Josh. Heavy industry is not transportation, and you're comparing heavy industry with transportation. Transportation, by definition, is portable. Heavy industry is portable only in the sense that once it's sent to the scrapyard and melted down, you can buy it in the form of a new Toyota -- but without the jobs and industrial capability that you had back when it was heavy industry.
As far as GM is concerned, GM's problem is not bad executives -- German executives didn't do any better over at Chrysler back when Daimler-Benz owned Chrysler. GM's problems are due to the American business climate, which punishes anybody who thinks long term. If GM had built unprofitable small cars back when nobody was buying small cars, they would have been sued out of existence by irate shareholders upset that GM was passing up easy profits in order to do the right thing. Honda doesn't have that problem -- Japanese law does not allow shareholder lawsuits of that sort. Toyota doesn't have that problem. Ditto. But they're not American companies. And that's a problem, and one that needs solving, but if we allow GM to collapse the other two Detroit automakers will collapse shortly thereafter because their shared suppliers will collapse, and then we're talking Great Depression style unemployment, and no (zero) industrial base left in the United States. We truly will be a third world country then. Even *BRAZIL* can build its own cars, but if Detroit collapses, the United States won't be able to do so. At that point, I might as well move to a third world country that doesn't pretend to be a first world country, because at least then nobody will have any expectations of a civilized life...
- Badtux the Industrial Penguin
"We truly will be a third world country then." It's happening now and absolutely astounding to hear folks like Summers or Rubin pretend to be shocked, just surprised at this ungluing. Roubini, Mike Whitney, Craig Roberts and others have been saying as much for several years. What a nightmare. Millions out of work and a destroyed industrial base that no artificial new bubble can fix.
ReplyDeleteTHANK YOU FOR THIS POST!!!!
ReplyDeleteMany on the left are saying let them fail.
When I point out that at the minimum 1 in 10 american jobs are tied to the auto industry, they just blink and say nothing.
We can pay the ransom or we can pay welfare, unemployment and food stamps to the workers..either choice is a lot of money.
Unfortunatly, we have to bail them out. But before we feed them cash, we have to reempower the american dollar, we have to get healthcare for all, that is their big problem, we have to stop the bailout of Iraq, we have to become a world leader, again, and more and more.....
ReplyDeleteBut we have to become a producer nation again, this world banking problem is touching them the least so far, the countries that produce have the cash to spend on the bailouts. We, as a service country have to sell our kids as fodder, and a whores.