Human Cost Versus Social Cost Of Letting The Big Three Die–UPDATED

In a moving piece, Megan McArdle more eloquently states what I believe and feel. And this whole subject pains me deeply. I still mourn Michigan. She says:

But whatever your feeling about government intervention in the economy, or the correct level of income inequality, I think there’s one thing we can all agree on: for the world to get better, things that don’t work have to fail. We cannot keep alive every company, every car and every job that someone once liked, because that way lies stagnation and death. Places where production decisions are made based on how much labor they can consume, rather than how much value they can produce, make everyone in society worse off in the long run.

So while I fully understand the human cost (I think), it has to be borne, for the same reason we couldn’t save all the folks who loved their gentle home-weaving traditions, or their jobs making buggy whips. This is, of course, easy to say, when I am not bearing it. But I’m not against helping the auto workers transition to doing something else; I think unemployment assistance is a good idea, and should be extended during this crisis to at least 52 weeks. I would be fine with a job training program, if we could find one that works (so far, government training programs seem to run from useless to actively harmful). I’d be happy to take some of the money we aren’t using bailing out auto companies, and offer relocation assistance to people who are trapped in factory towns.

I understand that this is not what the auto workers want; they want their jobs. But while I am happy to help the auto workers, I am not happy to help them manufacture undesireable cars at massive social cost. I too, would have liked to keep my job as a management consultant. But I didn’t have a right to have the job I wanted merely because I liked it. And it wouldn’t have been good for America if I had.

The brutal reality with sick patients is that sometimes the doctors have to talk with all involved and say,”I’m sorry, there is nothing more we can do.” Every once in a while, a patient manages to survive, sometimes by going alternative routes. It would be a great thing for the American car companies to survive, but it would be rewarding corporations that have spent a lifetime living with very bad habits and suffering slowly degenerative disease to attempt to save them. Rehabilitation is unlikely and the taxpayer shouldn’t be paying the bills. (Although, in the interest in accuracy, the car companies are asking for low-interest loans, not free money.)

Ironically, now, as the car companies lay gasping on the gurneys, the Union bosses note that it’s not management that has killed the patient, but external bugs–like high gas prices and the economic downturn. From the Wall Street Journal:

For decades, the UAW waged bitter battles with management over wages, benefits, executive pay and jobs. Only a year ago, the union called short strikes against GM and Chrysler during their contract negotiations a year ago, and Mr. Gettelfinger suggested top executives earnings millions were “hogs slopping at the trough of corporate greed” while trying to force workers to bear the brunt of cost cuts.

Now, with GM at risk of collapse, the union representing about 150,000 U.S. auto workers is joining forces with the companies in a blitzkrieg public campaign to plead for a federal bail out. Although Mr. Gettelfinger rarely talks to the media aside from local radio stations in Detroit, he has reached out over the weekend to make the union’s viewpoint clear.

Although GM Chief Executive Rick Wagoner has come under heavy criticism, Mr. Gettelfinger said a change in management is not needed. “”It’s a stretch to say that management is responsible for all of the things happening now that no one anticipated or expected,” he said.

That’s a shift from the past when union rhetoric typically pointed the finger at management mistakes as the main reason for Detroit’s troubles.

Huge shift, indeed. Meanwhile, the Democrats want the government to have a stake in the auto industry. Isn’t socialism state-owned companies? First the financial sector and now the manufacturing sector.

Of course, letting the Big Three go, means that their suppliers go, their employees go, the union goes, etc. Or, it could mean that. Filing bankruptcy is what an individual in their situation would have to do. How will individuals or corporations modify their behavior if they don’t pay the consequences for their behavior?

If I had to wager, I’d bet that the car companies get their money. It’s symbolic, even if Americans don’t want it. Will the UAW finally recognize that their practices kill productivity? Will executives slash the bureaucracy? Will Detroit finally build a BMW-esque engineered car with Apple like innovation?

Color me cynical, but my guess is no. And that’s why, the patient should be allowed to die.

UPDATED: More here.

Posted in Show Me The Money
Tags: Economy • Tax