The case for bailing out the auto industry can be summarized succintly by paraphrasing James Carville: it’s all about the jobs, stupid.
Another half million jobs were cut in November, making it the 11th consecutive monthly decline in employment, increasing the unemployment rate to 6.7%.
The case for a bailout is this: when people lose their jobs, they don’t spend, they get on the welfare rolls of their state governments, at least three-quarters of which are facing budget shortfalls. If they lose their job, they are more likely to be unable to pay their mortgages, resulting in more foreclosuers, which brings about a further contraction in the buildings and manufacturing sector, requiring businesses in those sectors to lay off workers, and those workers don’t spend, get on the welfare rolls of their state governments, so on and so on. And if all these people are laid off, they stop buying stuff, and when they stop buying stuff, companies who sell those stuff will have to cut back capacity by lowering production and laying off people, which means capital, both physical and human, will lay idle. And those people who were laid off by businesses selling stuff will lower spending, get on their states’ welfare rolls, and the vice just tightens.
It’s a bad downward spiral all the way around. And if the auto industry collapses, you can imagine the increased magntitude of this cycle, by simple virtue of the fact that because the American auto industry has become unwieldy and inefficient, it employs a shit load of workers. An economic contraction of this magnitude can only make the current recession THAT much worse. If you think this is the worst it can get, you have no idea how much worse it’ll become when the jobs related to the auto industry, directly and indirectly, are gone.
This is a bottom-up approach to a bailout, because this case is founded on helping people. At this point, moral hazard issues are no longer sufficient to stop the bailout. And as far as I’m concerned, bailing out the financial industry at the expense of the manufacturing sector is misplacing priorities. To mix my Marxist metaphors, the financial sector is the super-structure while the manufacturing sector is the base. If the base is not secure, the superstructure is fundamentally not sound.
So this is a terrible, and I mean absolutely terrible time to have bailout fatigue on The Hill. Congress should realize that a deficit now will be better than a much larger deficit later. Sure, crowding out will happen, but its magnitude will be lessened because we are in an economic recession: when the private sector cannot or is unwilling to spend, as it is the case now, government has to become the spender of last resort.