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Commentary: Say no to the auto bailout

  • Story Highlights
  • Daniel Mitchell: Bailing out the Big Three would reward shoddy management
  • A bailout would be unfair to other auto companies making cars in the U.S., he says
  • Mitchell says auto execs, workers and unions are overpaid
  • Bankruptcy would let the companies streamline their operations, Mitchell says
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By Daniel J. Mitchell
Special to CNN
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Editor's Note: Daniel J. Mitchell is a senior fellow at the Cato Institute, a libertarian public policy research foundation. He formerly worked at The Heritage Foundation and as an economist for Republican Sen. Bob Packwood and the Senate Finance Committee. He also served on the 1988 Bush-Quayle transition team.

Daniel Mitchell says an auto bailout would subsidize bad management and reward inflexible unions.

(CNN) -- General Motors, Ford, Chrysler and the United Auto Workers union are pouring millions of dollars into a lobbying campaign for a taxpayer bailout.

The money devoted to influence peddling in Washington would be better spent on improving quality and finding ways to reduce a bloated cost structure, but both management and UAW have decided that fleecing taxpayers is a better option.

A taxpayer bailout would be a terrible mistake. It would subsidize the shoddy management practices of the corporate bureaucrats at General Motors, Ford and Chrysler, and it would reward the intransigent union bosses who have made the synonymous with inflexible and anti-competitive work rules.

Perhaps most important, though, is that a bailout would be bad for the long-term health of the American auto industry. It would discriminate against the 113,000 Americans who have highly-coveted jobs building cars for Nissan, BMW and other auto companies that happen to be headquartered in other nations.

These companies demonstrate that it is possible to build cars in America and make money. Putting them at a competitive disadvantage with handouts for the U.S.-headquartered companies would be highly unjust.

A bailout also would be bad for General Motors, Ford and Chrysler. The so-called Big Three desperately need to fundamentally restructure their practices. More specifically, the car companies need to endure some short-term pain in order to restore long-term viability. But that won't happen if politicians raid the treasury.

Getting access to taxpayer money would be akin to giving an alcoholic the key to a liquor cabinet. It also would be bad for American taxpayers and the American economy. For instance:

A bailout will hurt the overall economy by misallocating resources. When politicians grant special favors to a certain industry or a particular union, such decisions necessarily mean that market forces are being replaced by special-interest deal-making. This type of interference with free markets is why nations such as France, Germany and Japan tend to grow more slowly and enjoy less prosperity.

But if America goes down this same path of government intervention, it is inevitable that we will suffer the same fate of stagnation and higher unemployment.

A bailout will encourage other industries to seek taxpayer handouts. The Wall Street bailout was a disaster in many ways, most notably as measured by the weak stock market and economic volatility. But another negative aspect of the bailout is that other industries have now decided that it is OK to stick their snouts in the public trough, as well.

First Wall Street's high fliers get a bailout. Now the inefficient management and union at the Big Three want a handout. Who will be next in line to pillage taxpayers? Giving handouts in exchange for political support is akin to getting high. Once politicians decide they like the buzz of campaign contributions, they'll turn into junkies with ordinary Americans footing the bill.

A bailout is a perverse transfer from poor taxpayers to rich taxpayers. America's Founding Fathers surely never envisaged that the federal government would take money from one group of Americans and give it to another group. Yet much of the federal budget is devoted to redistribution programs.

Bailouts are a particularly bizarre form of redistribution, however, because the corporate bureaucrats at the Big Three are among the very richest Americans. The UAW bosses make extravagant salaries, as well, and even regular union workers make an average total compensation including benefits of approximately $70 per hour, far higher than the average American.

The government should not be in the business of giving unearned wealth to any group of citizens, but surely liberals and conservatives both can agree that politicians should not be taking money from middle class taxpayers and giving it to upper-middle class and rich taxpayers.

Advocates oftentimes admit that bailouts are not good policy, but they invariably argue that short-term considerations should trump long-term sensible policy. Their biggest assertion is that a bailout is necessary to prevent bankruptcy, and that avoiding this result is critical to prevent catastrophe.

But Chapter 11 protection may be precisely what is needed to put American auto companies back on the path to profitability. Bankruptcy laws specifically are designed to give companies an opportunity - under court supervision - to reduce costs and streamline operations.

Bankruptcy would not be popular in some quarters, to be sure. The bloated management structure would be streamlined and many overpaid executives would be unhappy about having to find new jobs.

The UAW would be equally upset, particularly since bankruptcy might force an end to extravagant pension benefits and inefficient workplace practices. But bankruptcy is akin to getting an alcoholic to put down the bottle. There clearly will be short-term discomfort, but compassionate people recognize that this is the best approach.

America is on a dangerous path. The Wall Street bailout was a mistake. It transferred a huge amount of money from the productive sector of the economy to the government, and also exacerbated "moral hazard" by rewarding companies and executives who made dumb decisions. But this may be the tip of the iceberg.

A bailout of U.S.-headquartered auto companies also would be a mistake, as would bailouts of homeowners or any other constituency. If politicians genuinely want to help the economy, they should focus on reducing the burden of government, not increasing it.

The opinions expressed in this commentary are solely those of Daniel Mitchell.

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