General Question

cdwccrn's avatar

Are you prepared to spend your tax dollars to save Detroit, et al?

Asked by cdwccrn (3605points) December 4th, 2008 from iPhone

I am not at all sure that if we give them billions in tax dollars they will not be back for another handout very soon. When will it end?

Observing members: 0 Composing members: 0

37 Answers

critter1982's avatar

It will eventually end when we hit hyperinflation.

laureth's avatar

And it’s not this year’s tax money anyway – if that makes you feel any better.

SquirrelEStuff's avatar

Correct Laureth. It’s my kids and their kids, and their kids.

What’s a few billion compared to the estimated 8.5 trillion the economic recovery plan may end up costing. Let’s just give them all our money, all of our property(which they already have their hands in via taxes), and all our labor for the rest of our lives. Let’s get it over with already so people can finally see the big picture.

“Every movement that seeks to enslave a country, every dictatorship or potential dictatorship, needs some minority group as a scapegoat which it can blame for the nation’s troubles and use as a justification of its own demand for dictatorial powers. In Soviet Russia, the scapegoat was the bourgeoisie; in Nazi Germany, it was the Jewish people; in America, it is the businessmen.”
—Ayn Rand

laureth's avatar

Personally, I think propping up all these industries that are past their prime is only trying to keep useless things going, and preventing the start of anything new that can adapt to the world as it currently is (rather than the world as people want to believe it is). However, going from the current model to a new model will involve a whole lotta pain.

JohnRobert's avatar

Given that domestic automakers spend more on health care for their employees than the do on steel, a bailout will only buy them a little time. That will run out and they’ll be back where they started.

loser's avatar

We just need to have a really big bake sale…

laureth's avatar

Theoretically, it’s for retooling the factories to make the small, fuel efficient cars that they offer for sale in Europe, but say that they don’t have the technology to make…

steelmarket's avatar

Alright, how about some really (illegal) radical fixes?
Give every auto worker $200,000 tax-free and disband the UAW forever.
Make the big three merge into a big one.
Put a $5000 surcharge on all foreign car brands.
Tie the cost that you pay for a gallon of gas depend upon what vehicle you put it into.
Give every taxpayer who rides a bike to work a 5% income tax reduction.
<(;-)

cdwccrn's avatar

Great ideas, steelmarket!

jessturtle23's avatar

Yes, as long as it is conditional and they pay it back with interest. We are talking 2 million jobs. Where are 2 million workers going to find jobs that pay the bills? It’s their tax money as well. If we lose these companies it also means that our American made cars are worthless. Yeah, our car companies are expensive because they actually pay people a good wage and give them benefits. I don’t care about the overpaid CEO’s but I do care about all of the people who could lose everything.

JohnRobert's avatar

I really believe that the unions are much of the problem. Maybe they served a purpose many years ago, but now they just protect the lazy worker and have just become a fat, blood-sucking leech on the a$$ of the automotive industry.

SquirrelEStuff's avatar

@johnrobert

Do you mean unions in general or auto worker union?

Snoopy's avatar

I heard on NPR today that 10% of the cost of the car goes into labor.

I really don’t know….does that seem excessive?

@JohnRobert Gee. That seems a little inflammatory. And ignorant.

TaoSan's avatar

@JohnRobert

Whenever big, I mean really big companies get in this sort of trouble it’s never mismanagement, it’s never CEOs with their heads up their asses , it’s always those stupid lazy workers that just won’t move their lazy asses, won’t work 60 hour weeks for 400 bucks and on top have the crazy idea that health-insurance isn’t an evil, communist invention…...pffff.

steelmarket's avatar

Better believe it, @Snoopy.

Ford alone owes the UAW $6.3 billion, due at the end of this year.

Every US steelmaker went bankrupt (except Nucor), because at the end over 20% of the price of each ton of steel went to the union retirement funds.

TaoSan's avatar

@steelmarket

Okay, I buy it, I like the approach-angle

Snoopy's avatar

@steelmarket….so do you think 10% is excessive…?

steelmarket's avatar

I read you wrong, @Snoopy, thought you were saying that 10% went into labor funds. My apologies. The 10% of cost is certainly not excessive for total labor as a part of the total cost of a manufactured component.

What I have read is that ~$1600 of the cost of every GM car goes directly into union benefits funds. The automakers carry a huge “inventory” of retired auto workers, who worked under contracts that pretty much guaranteed a full retiree a good lifetime pension. Those days are just simply gone forever.

U of Michigan economist Mark Perry says that it costs over $73 per hour on average to employ a union auto worker. Now, I am ok with everyone negotiating all they can for their salary. But, at that rate, you cannot expect your job, your company, to be competitive in a global market.

JohnRobert's avatar

@Tao and Chris: I’m speaking from personal experience with both union and non-union shops in the rubber industry. Some were automotive companies, some not. Anyway, I used to make deliveries to union and non union companies. Without fail, a clear pattern emerged. When I would deliver to a non-union shop, I would back the truck into the dock and walk inside the building. By the time I got inside the building, there would be someone there ready to help unload and we would efficiently unload the truck, sign the papers and I’d be on my way. I would be out of there in 20 minutes or less. In contrast, when I deliver to a union shop, the scenario would be completely different. The dock workers (If I could find them) would sit and read a newspaper until they were good and ready to unload the truck. Not just anyone was allowed to load (union rules), and I was not allowed to grab a pallet jack and do it myself (more union rules). They were definately not in a hurry to do anything. As a result, one of the big factors in schedule my deliveries for the day was based how much time at the dock at that company. Non-union, schedule 30 minutes plus drive time. Union shops, schedule 90 minutes plus drive time. My apologies to the hard working union workers out there (I know that there must be a good dozen or so of you out there). Also, I know it’s hard when your union co-workers frown on you working too hard and screwing up the production quotas by showing how much can get done in an hour.

TaoSan's avatar

oh wow! I never heard a first hand account before!

I wasn’t aware that this problem has such magnitude….wow!

I stand corrected then….

JohnRobert's avatar

Thanks for letting me vent. It was so frustrating to watch that nonsense every day.

Snoopy's avatar

JohnRobert. Thanks for sharing that story. And yeah, that would piss me off too….

It also pisses me off, however, when I hear people make blanket negative statements about unions.

My husband is a union electrician and he works his ass off…..he must be one of the 12 you reference.

TaoSan's avatar

heck after reading what you wrote I kinda understand the sentiment. I’ve never been exposed to union labor, so I had kind of a vague idea.

Aside from that though, I think US carmakers crawling up oil-company butts is still a major factor.

It’s not really that foreign countries have cheaper labor, it’s the fact that American cars are mostly crap these days.

JohnRobert's avatar

I’m sure that he is one of the 12. And yes, broad generalizations are not a good way to communicate. I know better than that.

Perhaps if companies would not have taken advantage of employees, then unions would have never been needed. It just seems to me that the unions (not the workers) went too far and have become all about the coddling and survival of the union, even at the expense of the company, let alone helping to provide value to the customer. Again, I was only exposed to a particular segment of the unions, so perhaps other unions are a blessing for their members.

Snoopy's avatar

Well you summed it up in a nutshell….indeed. If companies had treated their employees well, unions never would have been….

They treated them like crap….unions happened.

But I agree, in some industries, the pendulum seems to have swung too far…

steelmarket's avatar

My dad was in the UAW all his life. Heck, that paid for my childhood and some of my college. So, I am not dissing unions.

But the negotiated contracts with the automakers were just too greedy. Way too much of that money, some of which fed and clothed me, was borrowed, borrowed ahead, borrowed way to far ahead.

Economists, the government and the automakers knew that a day of reckoning would come. The current economy did not cause the automakers problems, it simply revealed them to everyone.

wundayatta's avatar

Management has a great deal of responsibility for negotiating such bad contracts with the UAW. These contracts allowed the kind of behavior described by JohnRobert. At the time the original contracts that lead to the current ones were negotiated, gas was cheap, the auto industry was making money hand over fist, and they thought the gravy train would last forever.

So why not give away all these special rules to the unions, and guarantee employment forever. They believed they could afford it. Of course, their crystal ball was obviously very cloudy.

Funny thing, though. Even when all the rest of our crystal balls were clearly showing that fuel efficiency was absolutely necessary, they must have been looking in some sham balls, because they never caught sight of the gas run-up or global warming or even the idea that efficiency makes you more money.

Money. Ahhh. The smell thereof!

Money, most people forget, is not a real thing. It is a metaphor. It is a metaphor for what humans think is valuble.

This meltdown of the economy is a grand realization that what we thought was valuable, wasn’t nearly as valuable as we thought. This lead to a crisis in confidence in our economic system that is shared by people around the world.

Since money is a metaphor, a metaphorical response is entirely appropriate to try to rebuild confidence. If we can build confidence, the economy will follow.

So it doesn’t really matter how much money governments must mint. They just have to keep on minting it until people feel like things will be ok. Sure, it might lead to inflation, but right now deflation is more of a concern, and in my opinion, printing money is the appropriate answer to deflation.

Once people regain confidence, they will start spending again, and this will drive the economy into growth mode again.

The auto industry is a significant, perhaps overwhelmingly significant symbol to the United States. Never mind how inefficient it is, and how much it deserves to fall on it’s own sword. If it goes down, or if even parts of it go down, or even if they are only badly injured, the crisis in confidence will continue unabated, and may even get worse, and we’ll be in for a long, long bad time, maybe even a depression.

So I think the government (i.e., us) has to prop them up. We have to hold our noses, and print a bunch of money for them. We have to send newly minted money everywhere there is a leak in the damn keeping fear and lack of confidence away. By this, I mean to any sector of the economy that needs propping up. That includes consumers.

Once the economy has recovered—if the economy has recovered—we will have a lot of loose ends to clean up. There will be all kinds of economic dislocations and inconsistencies that threaten to destabilize confidence again. But we’ll deal with that when we get there.

If we get there.

critter1982's avatar

@daloon: I disagree. I think the obvious solution to this mess is letting the troubled automakers, financial institutions, etc. declare bankruptcy. Bankruptcy will wipeout the shareholders and the creditors would control the company. Bankruptcy does not mean thought that the company disappears; it is just owned by someone new (ie. airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable. In contrast, a bailout transfers enormous wealth from taxpayers to those engaged in faulty corporate policies, and bad business management. Thus, the bailout encourages these huge companies to take large, imprudent risks because they can always count on getting bailed out by government. This moral hazard generates enormous distortions in an economy’s allocation of its financial resources.

wundayatta's avatar

@critter: If I thought that transfer of wealth actually meant something real, then I’d absolutely be against the bailout. But bankruptsy and bailout both seem to me to have the same result, in the end. One is more likely to build confidence than the other.

Also, from what I have heard, bankruptsy is not so easy as you make it sound. Huge portions of the companies will be mothballed. The cut in production will ripple everywhere as suppliers no longer have customers, and they lay off or close down their companies.

Even if Toyota or Nissan or Pugeot or one of the Chinese or Indian car companies bought parts of the bankrupt companies, there would be an enormous set of closings.

That’s going to happen anyway. The auto companies will all be sheddig brands, and retooling and redesigning for a more efficient product, and production system. The UAW wants to contribute to save something out of this, are willing to make a huge amount of givebacks. This is the effect we want.

If we had to go through bankruptcy (we? why am I saying that? I’ve never worked for them, and only interviewed with one company once), there would be much more uncertainty, leaving the markets to drift ever lower, and this would drag out over a much longer time. I don’t believe (though I could be wrong) that there will be emergency buyouts in the auto industry, like there were in the financial sector.

JohnRobert's avatar

You know… we just gave $750 billion to AIG and other financial institutions who lost on paper becasue their greedy schemes backfired on them.

Now, here we are discussing if we should or shouldn’t give $34 billion to the automotive industry… an industry that produces a tangible product and employs a large part of the middle class. Congress is scolding the Big 3 CEOs for arriving in private jets to ask for their share. Did AIG execs get the same treatment?

critter1982's avatar

@daloon: I’m not so sure that money is only a metaphor as you had stated. In theory I agree but in practicality I don’t. Sure it can be considered a metaphor for what humans think to be valuable but is it not actually that. If we are going to continue to spend money on these overwhelming bailouts of large corporations that money is going to come from somewhere and that somewhere else is likely some other necessity which was considered valuable and is now invaluable because it has taken a back seat to idiotic management. Whether it’s tax dollars that would have been spent elsewhere or whether it’s $35 billion on top of our ever increasing US deficit. We cannot continue to overleverage ourselves as we will inevitably end up in the same situation we are currently in. It’s the same problem every 20 or so years. Companies overleverage themselves, they see a lack of faith in the market, which drops there stock price and reduces their cashflow. They take precautionary measures by laying employees off which eventually find another job elsewhere by new up and coming companies taking advantage of the down economy. Eventually reality settles in and people begin to understand these companies are undervalued, they begin buying and the market becomes confident again. We see these blips every so many years because of company greed or imprudent risks. Capitalism works but the government cannot force a confident market by buying up these fallen companies, I guarantee it won’t work. Confidence will come in the form of new emerging markets, new jobs, and new companies not by forcing citizens to pay up.

wundayatta's avatar

@critter: I think it is very important to understand what money is, and what money means.

The reality of money is that, in one form, it is a piece of paper with ink on it. As paper, there is little one can do with it. Maybe write a note, or something. In another form, money is even less substantial; it is only pixels on a screen, or ones and zeros inside a computer’s memory.

There is no there there. And yet, “money makes the world go ‘round.”

The reason money is valuable is because human beings have an agreement that for each number, whether in pixel form or paper form, we will exchange a real world thing which we value at that number. We can value things at a specific number because we have experience, and know what other things are valued at, by other people and ourselves.

The notion of value, obviously, then, is an opinion. Overall, the value of things (as symbolized by money) is based on a number of transactions, which are based on an average of what all the different people interested in a thing are willing to exchange for it. Value is backed by two things: things, and labor.

So, when we have a “meltdown” or whatever in economics, the amount and quality of things doesn’t change. The amount of work being done might not change at first, but it does change in response to a diminishment in people’s collective assessment of the value of all the things.

In a robust economy, things are being exchanged all the time. When the exchange of things, symbolized by money, diminishes, our economy suffers, and the value of things declines. No one makes this happen. It’s just a collective response.

But the things in the world haven’t changed. The only thing that changes is the amount of things being made, and therefore the amount of labor required to make or maintain those things.

The companies were all providing services, although it turned out that the services they provided were not as valuable as people thought. In fact, many of them were fictional, entirely.

But things? They are substantial. Yet, when fewer people want them, they become less valuable.

So, when the government pumps money into the economy, it is pumping a notion of additional value into the economy. People can either see this for what it is, and then we have inflation, because money becomes less valuable. Or they can believe in it, and think of it as real “wealth” and they are willing to maintain the collective illusion of worth, or increasing worth.

As long as we maintain this illusion, we can have economic growth. When our bubble gets popped, due to any kind of crisis that reduces confidence (say, a bunch of liars being discovered, and the realization that there was nothing to back up the money, after all) the economy shrinks, and things are worse for people.

The economy is, therefore, to a large extent, based on belief in it. Belief depends on confidence. Confidence is a trick. We can influence each other using words to have confidence, or not. Words are symbols for real things. Money is another symbol. The government’s words come in the form of money. By printing money (which the government has the sole right to do), we are all saying together: let’s have more confidence.

Now, I see by the headlines in the New York Times that we, through our government, are skeptical about “bailing out” the auto industry. We don’t believe they are chastened enough to make significant enough changes to deserve our hightened confidence, which is symbolized by money. So the companies probably became worth a lot less today. Yet they still have all the workers and all the factories that they had yesterday.

I’m sorry to belabor this point, but as I said, I think it is important. If we understand this, we can understand the metaphorical nature of money and value, and we can then see that the value of money is not at all fixed. It is determined by what we, collectively, think. The government’s job is to help us believe in value again. If they don’t do it, then we will value all labor and things less, and we will all be poorer, and we will stop building and exchanging things.

That is the key problem, and it doesn’t matter how much money the government spends. We are not mortgaging our children’s future. We are doing it to try to make it possible for them to have a future. If it works, and confidence comes back, everything will be more valuable again, and we’ll have plenty of money to pay off our debts. If it doesn’t work, and confidence stays low, we are essentially screwing ourselves, maybe even back to the stone age, if we’re not careful.

dalepetrie's avatar

Here’s what I really want to know. GM is asking for $18 billion all on its own, over half of what they’re asking for. They say they need $4 billion by the END OF THE MONTH or they won’t survive. Besides the obvious (how can you even GET to a point where all of a sudden you realize I need four billion dollars RIGHT NOW?), look at the value of the company. The total value of all outstanding GM stock is $3 billion. No bank in the WORLD is going to loan ANY company 6 times as much money as the entire company is worth. Why doesn’t the US Government just buy the whole damn company…it would be cheaper, right?

JohnRobert's avatar

Good idea daleperie. How much is all of their inventory worth? If the government bought all of the cars and trucks in inventory, would the auto companies have money then? At least the gov’t would get something for their money. They would have a bunch of cars to give away to people who need them.

laureth's avatar

Daloon, I pretty much agree. Where I do not agree is the idea that we’re not mucking up our future. The government isn’t just printing money out of nothing and giving it away – they’re actually borrowing it, and one day that money’s going to come due. As it is, we’re spending a huge percentage of our national budget on interest on what we’ve already borrowed. That’s money we’re basically flushing down the toilet instead of using productively. By borrowing more, we’re making it worse.

wundayatta's avatar

@laureth, That’s a very interesting point. I’ve never quite been able to understand the significance of all the debt. I know a lot of the money we’re borrowing comes from the Chinese. But the Chinese need to keep us afloat because if we don’t buy their stuff, they can’t keep their own boom going, and people lifestyles will suffer, and they might have political problems.

If we borrow, and we follow my metaphorical analogy above, we’re borrowing future value held by the Chinese, who need us to send that value back to them in return for the product of their work.

We’re using that future value to prop up our companies, so we can pay our people, and start the consumption engine again.

This all works if there are no bottlenecks. Value must be continuously exchanged, and increased by the work of more people, as time goes by. The Chinese need to consume stuff, too. Right now it might be factories and intellectual property, and some goods, but on balance, they seem to be more efficiently leverageing the excess value (apologies to marx) than the United States is.

I trust, however, that things will even out. The US has huge intellectual capital, expressed in inventions and artistic work. We create cultural value, much of which is consumed in the rest of the world, though not “paid” for.

Of course much of the “West” shares in this intellectual capital, and India is joining the artistic capital through the exports that Bollywood generates. I know the Israelis and the Russians are very good computer programmers (although too many Russians turn that talent to the “dark” side).

I guess what I’m seeing is an exchange of things for ideas. Ideas, of course, are hard to quantify. Reputation is a key element in the export of ideas. Perhaps one reason the economic crisis started here is that the US’ reputation suffered an extraordinary drop under our current President, who was very hostile to the rest of the world, culturally (and diplomatically).

Perhaps coming from the wild west atmosphere of the oil industry, he didn’t understand that you win more friends with honey than vinegar. He also didn’t understand the importance of friends. To make an online analogy, he was essentially a troll to the world.

Anyway, I believe this created a hostile environment for an exchange of ideas (of cultural capital), and this is the underlying cause of the current economic disaster.

I’m sure this sounds like a wild and ridiculous idea. Not everyone will agree with me about the importance of concepts in generating an environment of creation. Although I would expect that people who spend a lot of time online will be more receptive to the idea than “mundanes.” (That’s a sf term; I don’t know what online folk call those who don’t live here.)

I’m tossing it out there hot off the presses in my mind. It has only occurred to me in this discussion. There’s a lot of difficulty in measuring virtuality and concept, and it’s role in and effect on the economy. I guess I’m saying it may be much, much more important that we thought.

laureth's avatar

@Daloon – It’s not necessarily a trade deficit that I’m talking about, though. When somebody buys a U.S. Savings bond, they are in essence loaning the government money for a certain period of time, and then when they cash it in, they are being paid back, with interest. In a perfect world, we’d pay off the bonds as they came due just like you and I pay our credit card bills when they came due – with money from our paycheck (i.e., tax revenue, the government’s paycheck). However, in reality, every time that a new set of bonds comes due, the government holds an auction, usually about twice a month, where we borrow enough money from the public (you, me, China, anyone…) to pay off the balance due PLUS enough to keep the government running until the next bond auction.

What this means is that we’re never really paying off the debt, we’re just charging it to another credit card. This is why we’ve been in debt as long as we’ve been a nation, although it was at a low of about $33K in 1835.

Anyway, everytime that we borrow money to pay off the debt, we have to borrow a little more to pay the interest. That hurts us because we could be using that money for something else, or decreasing our debt by not borrowing it at all. Currently, the budget for the Treasury, which includes the interest paid on the debt, is the third largest expenditure in the U.S. budget, right after Defense and Health and Human Services. In Fiscal Year 2008, the U.S. Government spent $412 Billion of your money on interest payments to the holders of the National Debt. (That factoid is from here.)

The interest we pay on the debt is a measure of how expensive the money is to borrow. When there’s a lot of money floating around that people want to let the U.S. borrow, interest rates are low because there is more supply than demand. However, with China bailing out their own economy, there will not be as much unattached cash available for us to borrow. This will cause the interest rate on the debt to rise, because people want more of a return on money that’s scarce.

You say, “If we borrow, and we follow my metaphorical analogy above, we’re borrowing future value held by the Chinese, who need us to send that value back to them in return for the product of their work.” The money we send them in exchange for goods doesn’t take off the amount we owe them (or anyone), though. That’s like saying that the money we get as a cash advance on our credit card is paid back when we use it to buy groceries at the store. We still need to pay the money back. (In a worst case scenario, China could cash in all their treasury bonds and take the cash to bail out their citizens, but not buy any more bonds, leaving us in a real financial mess.) All the money that is going to “bail out” various industries is borrowed. Whether or not it succeeds in stimulating growth in the U.S., we still have to pay that money back someday. Whether or not a bailout is a wise investment that will pay for itself remains to be seen.

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