The Bailout Paradox

As a condition of getting a federal bailout, the Big Three are promising, among other things, to cut costs. Among the costs to be cut will be jobs. This is paradoxical, since the reason Congress is considering bailing them out in the first place is to preserve jobs and avoid the social costs of large-scale job loss (unemployment insurance, lost tax revenues, pension payments that have to be picked up by the Pension Benefit Guarantee Corporation, and so forth) .

We should take a lesson from the Chrysler bailout of the early 1980s. The ostensible reason Congress voted for it was to preserve Chrysler jobs. Yet once the bailout was underway, in order to generate the money it needed to restructure itself, Chrysler laid off more than a third of its workforce. Most of these jobs never came back.

And it’s much the same with the mammoth bailout of Wall Street. Absent an explicit understanding of why public money is needed and what it’s to be used for, taxpayer dollars end up bolstering executives, creditors, and shareholders rather than the workers and communities that need the most help.


Originally published at Robert Reich’s blog and reproduced here with the author’s permission.

5 Responses to "The Bailout Paradox"

  1. Jeff   December 5, 2008 at 8:37 am

    I completely agree with you. These companies are not competitve..they have not been for over 20 years. It is Ironic that the Big 3 magically, now believe they can cuts huge numbers of jobs, re-tool to the make the “Right” cars, re-negotiate contracts that should have not been given years and years ago, but most importanly learn how to manage a company. History, unfortunately is the best predictor of the future. If they (big 3)really want to impress Congress, they should immediately declare that every employee of the big 3 making over $50,000 will have their salary reduced by 5%, over $75,000 cut by 7.5%, over $100,000 by 10%, over $125,000 by 15%, over $150,000 by 20%, over $200,000 by 25%,…lastly those making over $500,000 by 50%. All legacy employees over 62 go to Medicare..no company Health care. All investors should cut all interest payments in half…Then Congres should revisit.

  2. Anonymous   December 5, 2008 at 12:08 pm

    Too bad this ancient worm knows nothing about rights. Protect the power structure, Bobby, at ALL costs. Well, it’s going to collapse anyway.John Ryskamp

  3. Guest   December 5, 2008 at 2:45 pm

    Americans give no thought whatsoever to the hundreds of millions of dollars each year that congressional members collect from lobbyists, unions, lawyers, and other corporate interests that help keep them in their elected offices. For most people, that money is the equivalent of a charitable contribution that does more good than harm and keeps campaign costs off the backs of taxpayers. It’s a delusion. Beneath all the Democratic arguments in support of the auto bailout is a powerful motivator: payback time for the support received (both dollars and votes) from the UAW and the automotive industry. Granted, it’s not the sole consideration but it’s an important one.

  4. Anonymous   December 5, 2008 at 6:36 pm

    Big oil should bail out the automakers.

  5. Intermediary   December 12, 2008 at 2:27 pm

    The politicians who have in one way or other have been enriched, directly or indirectly by the auto industry or their suppliers, will manage to throw the industry a life line.Unforturnately, there is no one at the other end of the line that will hang on indefinately. At some point the industry will be broken up, parted out, and re-emerge to compete as they should have already.