The Auto Bailout and the Problems of Left Wing Economics

When listening to the ongoing debate concerning the automakers, there are two things that have been overlooked. First, the language of the debate is couched in economic terms that no longer apply to the realities of today. Second, the loss of the Automakers tomorrow is not averted by a bailout today. The first point will determine the outcome of the second point.

Point one, the economic model for the Big Three is based upon 1930's economic theories. What has changed in the past 70 years? Among other things, the lifespan of the average American worker. The 1935 pension model assumed the death of the worker to be 61.7 years. The 2004 reality is 77.5 years. There are 16 extra years of pension and medical expense that must be accounted for in the sale of every new car. The dirty little secret about the politics of retirement was the average worker was supposed to die before collecting any benefits. FD Roosevelt sold Social Security to people who would never receive it. In fact, it is the African American community that was hurt the most by the government system. By taking 12% of the pay of all African American workers, a massive transfer of wealth out of the black community was perpetrated for 40 years before the African American life expectancy reached 65 years in 1974. For some reason, the Social Justice crowd never brings up this point.

I digress. The Big Three pay more people pension and health benefits than wages. This comes as a result of antiquated vesting rules that were designed to give people a couple years retirement before they died, but North America's vast improvements in public health and extremely low levels of poverty were never dreamed of by the writers of the rules. Couple this with the most difficult task in all the universe, taking away something that people are told they are entitled to, and you have a recipe for economic failure.

This leads to the second point. These companies will not avoid bankruptcy after nationalization. It is almost surreal, but the USA seems to have time-warped back to 1970's Britain. How many people remember British-Leyland? The company was know for its union strikes rather than its cars and now they no longer exist. This is the specter facing the Big Three. A history of bad cars coupled with a union culture that prides itself in adversarial tactics will bring about collapse.

The era of the thirty year career is over. The pension was used to make room for the younger workers and reward the older worker. With the US population aging, we must rethink policies put in place when the demographics were radically different. Failure to act in reality will have far reaching negative effects for everyone involved in the US auto industry.