Volt Face

As a follow-on to my call for the Right to repeat endlessly that we won the Iraq War, we also need to start repeating that, no, the auto bailouts didn't "work," except in the very limited sense you can throw enough $$ into anything and keep it going.

On June 1, 2009, General Motors filed for bankruptcy, backed by $30 billion in support from the federal government. The same day, in the same New York courthouse, a judge approved Chrysler’s plan to forge an alliance with Fiat and emerge from bankruptcy as a restructured business with an uncertain future.

Two years later, all three American automakers have returned to profitability, the industry has added new shifts and 115,000 jobs, and GM and Chrysler have returned more than 50 percent of the government’s investment. The industry is mounting one of the most improbable turnarounds in recent history.

That's The Indispensable Man himself writing in the Washington Post. The Obama Administration is crowing about how they "saved" the American auto industry while simultaneously admitting that they have lost $16 billion saving 75,000 auto jobs (actually union dues paying sinecures). If they admit to $16B, then the real number must be quite something. Even worse, we are intentionally losing money on the government's stock holdings because the Obamites don't want to be holding a Government Motors stock position going into 2012.

There is a lot to this point, but it’s not really so simple. You can’t compare all of these net tax receipts (or more broadly, economic activity) to what would happen in “the world as it is today, minus GM.”

First, in the event of a bankruptcy, you don’t burn down the factories, erase all the source code on all the hard disks, make it illegal to use the brand name Chevrolet, and execute all of the employees. Others take ownership of the assets, and the employees go on with their lives. Some of these assets will be put to use generating revenues, profits, and taxes, and some of these former employees will get jobs or start businesses, and generate revenues, profits, and taxes. In order to measure the effect of the bailout over, say, five or ten years, you have to compare the actual taxes collected to what would happened over this same period in the counterfactual case where the bankruptcy was allowed to proceed. What owners would have bought the factories and IP assets, and what would they have done with them? What businesses would the former employees have started? Who would have moved to Arizona and retired? What new industry clusters will evolve in Arizona because of this transfer of people?

Second, some of the profit GM makes today would have been made by other companies that picked up some of the slack if the company lost market share after a bankruptcy. They would pay taxes on these profits, and as far as government receipts are concerned, money is money. How would auto industry structure evolve over time given whatever changes happened to the assets currently owned by the legal entity GM, or the employees currently paid by it?

Anybody who tells you they can answer all of these questions reliably is full of it.

And that doesn’t even start to get to the really long-run considerations of what effects this has on rule of law and moral hazard (or if you want to make the case for the bailout, social solidarity and degradation of the working class).

As others have pointed out, if the point was to "help" the auto workers, it would have been cheaper to give GM's 75,000 pre-BK employees $250,000 to start over. That's the In Our Hands plan. But that wasn't the point of the bailouts. The point was to reward allies, preserve the Wagner Act, and expand the government's sway over heavy industry. Sure, GM and Chrysler are still in business and their factories are still pumping out cars, but it's still an open question whether the bailed out will return to profitability.

Not only that, a very specific part of the bail out doesn't seem to be working at all. Back in 2009, we were hearing all about how GM was developing the Chevy Volt, that this was the car of the future, and that we should bail out GM to give them a chance to bring this Green Wonder Car to market. Have you ever seen a Chevy Volt on the road? I live in San Francisco, a "green" city filled with hybrids, whether Prius's, Camry's, Lexus HS's, Ford Escape's, or what have you. It's very easy for me to just walk around my neighborhood and encounter all manner of exotic cars: Bentleys, Maseratis, Lotuses, Porsche Panameras, Teslas. Even Ferrari's are a fairly common sight (by that I mean one or two per week).

I have seen one Chevy Volt.

Now, I'm just one guy living in one neighborhood in one city. But, if there's one place in the United States that you would expect to buy into the GM bailout via the Volt, this would be it. They're not buying it.

The government has lost billions on GM.

The Volt is not "saving" the planet.

We are going to have to bailout GM again.

It shouldn't be difficult for the Right to repeat these very basic facts.

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