Thursday, November 20, 2008

The consequences of Big 3 failure

Now I am not an Economist and I certainly don't like bailouts. I am not a total free market guy (as you know) and have no personal love for the American car industry. Heck, the last time I bought an American car was 1992 ( I was done with that car in 1999) and I only bought American because we had good friends that owned dealerships. My only connection is through lifelong relationships to many in all areas of the car industry.

However, when looking at this $25 billion bailout for the auto industry I don't think everything is black and white and I wish everyone, including Detroit, the Senate and Americans that like to complain about everything would step back and allow people to seriously discuss this, do some number crunching and see if it is in America's best interest for these companies to fail or restructure. 

While the numbers could be inflated, some say there is a potential for up to 3 million jobs to be lost if companies fail. While not that high, there will be huge job losses if any merge or go into bankruptcy. Now, I can be a callous free market guy and just say that is the price of doing poor business, letting costs rise faster than revenues, letting unions have their way, building cars no one wants, poor strategy or tell you we need to let the market readjust. And yes, all of those would be somewhat correct. 

However, I am supposed to be a compassionate person, not beholden to any man made ideology (and yes, free market Capitalism is not a Biblical concept- just deal with this). So, I cannot think in such black white terms. Also, we need to hear people doing the dirty work to find out the potential cost to the American people and the government coffers if these industries fail. Sadly, I am seeing little serious analysis of the potential costs on both sides, just ideologically based analysis, which is not analysis.

As one that has experience with unemployment, I know it has many costs for society. There is the cost for unemployment benefits (which will be overwhelmed by the job loss), potential welfare, state funded insurance, job retaining government entities, etc. If 3 million people lose their jobs and are on unemployment for 6 months at a benefit of $250 p/w (max benefits run between $205 and $450 per state- and many of these people would be max) that cost alone is $18 billion (yes I know the benefits come from states, not federal government and are supposedly insured). I am just throwing that number out there to show some of the costs associated with extreme job loss that are not being talked about.

Churches and charities will take huge hits, especially since car dealers and manufactures have been good to many communities, realizing that being an active participant in community functions and charitable giving benefits their business' bottom line. There will be a great opportunity for churches and charities to step into some voids by providing food, shelter, job training, etc. However, they will be doing this with less money and less volunteers.

Now, I offer no suggestions for those making decisions.  I only offer these as food for thought for individuals: 
  1. Let us be patient
  2. Let us pray for wisdom for all decision makers
  3. Let us get past ideology and partisan thinking (it accomplishes nothing)
  4. Let us be compassionate
  5. Let us not make assumptions
  6. Let us get beyond simplistic, reductionist thinking on the issues
  7. Let us realize pragmatism is not always bad
  8. Let us think through unintendended consequences on the front end
  9. Let us not throw around terms like socialism, New Deal, etc. (they aren't helpful)
  10. Let us realize we are not economists
Actually I think I would offer that advice for most issues on the table right now.

1 comment:

Mike Murrow said...


You make some good points.

My frustration with this is that everyone is concerned about what will happen if the big 3 fail, but where was/is the concern over all the carpenters, plumbers, sheetrock hangers, roofers who have been loosing jobs for a year and a half now? Where is the talk about a bail out for the trades? No one even talks about it.