Isn’t Bailing Out Automakers Trickle-Down Economics?
By Alan Stewart Carl | Related entries in Business, Cars, Economy
O.k., I’m obviously being provocative, but I felt it needed to be said: if trickle-down economics is as bad as Democrats have told us it is, then why do so many Democrats support giving $25 billion to the automakers?
Make no mistake, trickle-down is how the bailout is supposed to work. We give the top of the pyramid (GM, Ford and Chrysler) $25 billion and they use it to pay suppliers who in turn pay employees and keep the economy humming. Right? The money trickles down.
So, how is giving $25 billion to the top of the pyramid any different than reducing taxes by, say, $25 billion for the top of the pyramid? And if giving the automakers money is good for the American economy, shouldn’t we be giving money to (or alleviating the taxes of) other corporations who keep large numbers of Americans employed? How about helping out all those billionaires who pump their money into burgeoning businesses which in turn hire Americans? Philosophically, what’s the difference?
Now, I’m no supply-side absolutist or even a major proponent. The idea has its merits but, if used improperly, it can create the kind of wealth and resource concentration that is more like oligarchy than capitalism. But bailing out the automakers is supply-side in its conceptualization. The more we give to GM, Ford and Chrysler, the less is available for entrepreneurs and individuals down at the bottom of the pyramid.
How many new businesses could be funded with $25 billion? If even one of those businesses became the next Google or Microsoft, wouldn’t that be worth the investment? And wouldn’t that kind of investment be “trickle up” rather than trickle down?
I’m just saying…
This entry was posted on Thursday, November 20th, 2008 and is filed under Business, Cars, Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
November 20th, 2008 at 8:11 pm
Actually its prevent-a-depression-nomics Alan
November 20th, 2008 at 8:38 pm
Tax cuts are local, but the economy is global. So you cut taxes in the US investment, job creation, etc. all go up globally. But it’s concentrated in un-developed countries because returns are higher because risks are higher.
The Big Three bailouts will work because they’re local. American tax money will ensure American workers get paid, American retirees receive their pensions, millions of Americans stay on health insurance, that all the businesses those folks use stay open, etc.
The problem the bail-out is supposed to solve is that the Big Three could shut their doors without it. That means hundreds of thousands of immediate firings, lay-offs at parts-supply companies, etc. In this economic environment that would be pretty disastrous. And if loan guarantees prevent it I’m all for them. Heck I’m all for the government actually loaning GM the money.
Using $25 Billion to create new businesses is not a bad idea, but it just does not solve the problem. Yeah it’s expensive. Yeah it’s anti-free market. Yeah it rewards dumb business decisions. Unfortunately the alternative is apparently the “creative destruction” of millions of lives.
November 20th, 2008 at 9:39 pm
OK, repeat after me–the automakers are seeking a LOAN, not a BALIOUT.
A loan will be repaid.
The LOAN is needed because the CREDIT MARKETS are so completely screwed up by the lack of oversight and deregulation and the automakers–which would normally get the LOAN via these avenues–are seeking them from the government.
Corporations are always borrowing money to cover costs and make payroll, but when you are the third biggest company in the country, you can’t exactly wander on down to the bank and trust and borrow some cash to tide you over for a month.
IF the government had practiced proper OVERSIGHT and if the government plan that resulted in pissing away $350 billion so far had worked, we would not even be talking about this. But, instead of freeing up the credit market, the financial houses and banks took the money and did things like buy other failing banks and stash the cash to tide them over until things improve instead of actually freeing up the credit market, which is why we went through the exercise last month.
November 21st, 2008 at 7:17 am
At times like this I’m given to reflection on the Declaration of Independence and our Constitution. Both documents were largely written to protect the common person from the predations of a large, powerful, centralized government. What we need today is this spirit renewed, but in addition to protection from a government gone wrong, we need to realize that megacorporations are the new King Georges. We need to seriously think about reversing the government tampering that has allowed these few players to attain such a dominant role in our daily lives. What we have seen now is the fruition a a corporate worst-case scenario, when the company stops serving the interests of the people and exists solely to support its own interests. Where is the legislation to stop this from happening again?
On a more specific note, I agree in principal with Congress’s position: there can be no bailout loan (there, I split the difference) without a fundamental change in HOW these companies do business. Otherwise in 24 months, in the middle of the Obama nation-state makeover, they come back to D.C. with their tophats in their hands for more.
And Alan is right–this is a case study of how trickle-down works. The government could easily step in and guarantee that the workers themselves will have a government pension and benefit program equal to what the automakers would have given them, and cut them a check for two years’ wages while they retrain (at government expense, of course) for jobs that matter in 2009 and beyond. But that isn’t what is being proposed, is it? Why not?
Dark days ahead….
November 21st, 2008 at 8:37 am
Best line of the week.
But I’m with gerryf on this one. Trickle down refers to tax revenue, not loans, right?
November 21st, 2008 at 11:13 am
Justin — you’re splitting hairs with the definition. The point is that supporting the bailout is acknowledging the validity of top-down economics. That MORE good will come from helping the top of the pyramid than spending the money on the bottom of the pyramid. I find it odd that Democrats who snipe about corporate welfare and the like are the same people who are now all in favor of helping the supply side of the chain. I don’t have a huge point here — just trying to get some people to reconsider their conceptualizations of how the economy works and why they might want to be less demonizing of future efforts to relieve the suppliers of economy from certain burdens.
November 21st, 2008 at 4:32 pm
This doesn’t make much sense to me, Alan. Lending someone money essentially to make payroll and pay the bills to keep the lights on is not trickle down. Admittedly you could split the difference and give some of the money directly to employees and the rest to ownership but then it’s you who’d be splitting hairs. The benefits to the employees are only part of the equation here, and in the short term not the biggest part. This seems like a stretch to me, but then I’m no economist.