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Friday, May 29, 2009

$1.4 million per job saved: Cheaper than letting GM fail?

The Globe and Mail is reporting on the new cost estimates of the auto sector bailout bill, which could be as large as $13.5 billion dollars. What kind of cost is that putting on taxpayers - many of whom don't have the high wages or padded benefits packages that autoworkers enjoy?

At General Motors of Canada Ltd. alone, the rescue package could amount to a staggering $1.4-million for every job saved, with no guarantee that the bailout will ensure the long-term survival of the company's remaining auto assembly and engine plants.

You read that right - GM alone will cost taxpayers $1.4 million per job.

What's worse is that it's awfully hard to believe that these bailouts actually create or save any jobs at all.

“You're not going to save jobs. All you are going to do is destroy jobs at Ford and Toyota,” said Mark Milke, director of research at the Frontier Centre for Public Policy in Calgary.

Mr. Milke dismisses the bailouts of GM and Chrysler as “a massive transfer of wealth to companies that consumers have already rejected.” The result, he maintains, is that governments “are punishing the companies that have actually run their businesses very well.”

More evidence that when government gets involved in business it's no longer "give the customers what they want," it's "make them pay for what they don't."

h/t: taxpayerblog.com

Posted by Janet Neilson on May 29, 2009 | Permalink

Comments

This is unacceptable but inevitable given that Mr. Harper needs southern Ontario votes. If only that weren't so, then the rich Ontarians can starve. Lazy rich bigots.

Posted by: Zebulon Pike | 2009-05-29 11:42:25 AM


Do those jobs counted only include GM's direct employees, or employees at all firms that substantially depend on GM as a customer?

Posted by: Shane Matthews | 2009-05-29 12:08:26 PM


Doesn't matter how many jobs are "saved" or at what cost. It was theft and will result in more lost jobs than saved in the long run.

Posted by: Charles | 2009-05-29 12:32:00 PM


Populism in action!

Posted by: Mike Brock | 2009-05-29 1:03:23 PM


Actually, Charles, that it was theft is an opinion, and to judge from the lack of public outcry, not a widely held one. That it will cost more jobs than it will save in the long run is likewise an opinion. The bailouts were predicated on the belief that if the industry infrastructure imploded, it would be prohibitively costly to rebuild it from scratch. I don't know enough about the industry to be able to say whether that's true or false, and neither do you.

Posted by: Shane Matthews | 2009-05-29 1:22:48 PM


"Populism in action!"

Indeed. But right or wrong, they pulled it off. So if you want any of your own policies to ever take root, I suggest you take note of their methods. Because you'll never achieve anything by carping from the sidelines and deleting posts.

Posted by: Shane Matthews | 2009-05-29 1:29:55 PM


Actually, Shane, it is theft. The government is forceably removing money from taxpayers and giving it to someone else.

Your other point makes no sense. Just because the majority agrees with this position does not change the fact that it is theft. Nor does it give government the right take money away from those who do not want to finance the car manufacturers. That's why we have financial markets Shane, to ... you know ... finance.

"and neither do you." How the hell do you know?

"The bailouts were predicated on the belief that if the industry infrastructure imploded, it would be prohibitively costly to rebuild it from scratch." Economic illiteracy. The infrastructure won't implode Shane, the infrastructure required for production to meet demand will simply be sold at firesale prices to investors. That's why bankruptcy is the most essential aspect of capitalism. As it is right now, the government overpaid for the assets, violated bondholders' property rights, stolen from taxpayers, and now will have to either raise taxes or run deficits (both of which destroy jobs).

But hey, bailing out GM was necessary right?

Posted by: Charles | 2009-05-29 2:01:54 PM


Charles,

1. Using that logic, all tax is theft. Good luck building a political platform on that.

2. That it is theft is an opinion, not a fact, so you should refrain from presenting it as such.

3. Because anyone radical enough in their outlook to argue that all tax is theft and inherently destructive to society is not an economist.

4. The fact that the infrastructure assets would be sold is no guarantee that they would continue to produce infrastructure. The facilities might be retooled for other industries, gutted, or even bulldozed and redeveloped. You were just hoping I hadn't thought the matter through that thoroughly.

Posted by: Shane Matthews | 2009-05-29 2:37:57 PM


Shane,

1. I never said all taxes are theft. Please read what I said carefully. There are legitimate uses for tax revenues. Handing it to corporations is not one of them. Do you not see that making risky investments in the automobile industry (or any other) should be voluntary?

2. Again. Taking from someone forcefully and giving it to someone else is theft. I will not be lectured by you as to what I should refrain from doing.

3. I never said I was an economist (although I have substantial training and experience in both finance and economics). I also never said all taxes were theft. Stop putting words in my mouth.

4. "The facilities might be retooled for other industries, gutted, or even bulldozed and redeveloped. You were just hoping I hadn't thought the matter through that thoroughly." You didn't think the matter through very thoroughly apparently. So what if some of it is gutted? Production needs to fall to meet demand. Or haven't you noticed that Americans have bought too many cars in the last decade (you can thank loose monetary policy for that one). As long as there is demand, someone will produce those cars. Doesn't matter who.

Posted by: Charles | 2009-05-29 2:52:35 PM


Shane, to rebuild the industry from scratch makes no sense at all. If it failed, it is a fact that the buildings and equipment (and in my opinion, many of the people too) would remain. Someone would come in and buy it for pennies on the dollar. Some of these factories would retool to build cars and some might retool to build other things. They would be more competitive in either case.

Posted by: TM | 2009-05-29 3:59:46 PM


Spot on, Charles. Too bad that everyone whose business fails due to poor management, greedy unions and customer rejection is not also rewarded and propped up. When the government uses taxes to reward the few at the expense of all others, it is theft, which is exactly what any redistribution of wealth is. Furthermore by rewarding bad behaviour, expect more of it.

Posted by: Alain | 2009-05-29 4:01:26 PM


It has nothing to do with economics: this was a political act. Southern Ontario, regrettably, is the swing area for all parties. Whosoever wins it can win the whole election. If either Iggy, May or Taliban Jack were in power *shudder* he'd hand over cash faster than Chretien at Adscam. Sadly, Harper must do the same.

If only there was an elected and equal senate where Ontario had no more seats than anyone else. Then this may not have occurred.

Better yet: expel Ontario from confederation for its bigotry and segregated schools. That way they can starve while others can prosper.

Posted by: Zebulon Pike | 2009-05-29 6:08:02 PM


Sometimes numbers get in the way of facts.

Proctor and Gamble built a pulp mill in Grande Prairie in 1972. Twenty five years later, when the mill was nearing the end of its useful life, someone calculated the real financial benefit of the mill. All the tax breaks, low stumpage fees, and incentives received by P&G were the equivalent of paying every employee $50000 a year welfare, for 25 years. Every time the province tried to re-negotiate, P&G would threaten to close the plant. They had a free ride from the provincial government all those years.

On the other hand, a lot of people lived, raised families, and made homes for 25 years. Was it worth it?

Posted by: dp | 2009-05-29 8:02:21 PM


Proctor and Gamble built a pulp mill in Grande Prairie in 1972.

On the other hand, a lot of people lived, raised families, and made homes for 25 years. Was it worth it?
Posted by: dp | 2009-05-29 8:02:21 PM

Zebulon Punk will claim yes because it was in Alberta. No if it had been in Ontario.

Posted by: The Stig | 2009-05-29 8:44:28 PM


Charles,

1. You said that taking money in the form of taxes and giving it to someone else is theft. That's what the government does with every single tax dollar. You clearly take exception to that someone being a corporation but don't explain why this ought to be the case.

2. Retread of 1. And your freedom in this matter is restricted to ignoring the lecture, not to prevent me from making it.

3. You said "How the hell would you know"? Either you were copping an attitude in the hope of deflecting further exploration of this tangent because you weren't an economist or you were offended because you were. The forthright approach would be to simply concede the point and move on.

4. And if all those car producers are overseas companies? Are you really prepared to let the North American auto industry perish?

Posted by: Shane Matthews | 2009-05-29 9:04:09 PM


TM, most of the buildings and equipment remain in the case of an idled sawmill. However, after a few years, it all begins to deteriorate, making restarting it a more and more expensive proposition with each passing year. There are innumerable abandoned industrial sites that have not been pulled down but might as well be.

Posted by: Shane Matthews | 2009-05-29 9:05:16 PM


Stig- I only used an Alberta example because I know details. I'm sure there are plenty of similar cases in Ontario. For me, it comes down to making communities work, not constantly looking at ledger entries. You can't reduce a workforce to a spread sheet.

Isn't the world economy more illusion than reality anyway? When Ford posts a second-quarter loss, what actually happens? Does the vice president go without supper? Are the shift supervisors taken out and shot? My company revenues are way down this year, but I'm not losing my little paunch. If taxes go up, I won't be cancelling any plans, whatsoever.

I play the game, just like everybody else. I'm just old enough to understand that it is just that, a game. The real trouble won't start 'til the food runs out.

Posted by: dp | 2009-05-29 10:12:33 PM


GM may be a basket case but hope springs eternal. For many decades they have injected a enviable standard of living into Ontario.I don't even blame them for the mess they are currently in. They built the vehicles that consumers wanted. What sunk them was/is the the greed of the oil companies and the speculators that drove the price of fuel through the roof. Although the foam at the mouth, granola crunching,planet saving tree huggers cheered the emergence of $1.49 a litre for gasoline, the driving public was suddenly faced with a choice of driving or eating.
We have already outsourced pretty well everything we ever made and now we lose one of the highest paying industries that was the blue collar standard. Although I envy the perks and wages that the workers had, I do not begrudge them. The high wages were agreed to by GM management and all money earned was circulated back into the economy. Funny that no one rags on the oil companies for making billions every quarter while knowing their unbridled greed was bringing the country to it's knees. GM is just another victim. That said ,I believe the billions spent to save them is a waste of time and money. Let the free market decide. What's left of it. It may feel satisfying to have Ontario knocked off it's high horse, but we will have to pay for it. "have not province". Get used to it.

Posted by: peterj | 2009-05-29 10:41:15 PM


No amount of government aid is going to help.
If the managers of GM and the product they offer
aren't competitive the venture fails, plain and simple. Getting the government involved is industrial welfare and a prime example of...(wait for it)...."Fascism". Yes fascism. When the government makes itself partner, banker and advisor to private industry we have a situation much like BMW under Hitler, without all the shooting, mind you. But its still the same thing - National Socialism. For that reason and that reason alone, if the government bails out GM we might as well rename it "Government Motors Corporation". I'll never buy one again that's for sure. And God help us as this bulls*it policy makes its way into every other area of life. This kind of state welfare is like a cancer on a healthy economy and needs to be removed before the patient dies.

Posted by: JC | 2009-05-30 8:01:22 AM


Shane, the point is, where there is a deal, someone will buy it. Often sawmill sits in a remote location, is a relatively small employer, and is without the same infrastructure and availability of a skilled workforce relatively close. The auto sector is the opposite. Someone will swoop in a buy it, if it is allowed to die.

If it does sit idle for so long that it is harder to restart than build new, then that is exactly what should be done. In either case, out of the ashes of a dying industry is build a new industry. It happens every time. And we are better off because of it.

Posted by: TM | 2009-05-30 9:02:00 AM


Well, TM, let me ask you this. Perhaps as late as 1970, the U.S. was the electronics capital of the world, employing many thousands, perhaps millions of Americans. But how many mainstream computer and A/V manufacturers remain in the U.S. today? And what about the Midwest Rust Belt--millions of manufacturing jobs, the Big Three among them, that have gone overseas and simply never come back?

I understand what you're saying--the free market is still the best moderator in most circumstances. However, the fact remains that since the 1930s, we have had a regulated economy (to varying degrees), and that furthermore we have never had a recession as long and as deep as the Great Depression, which lasted ten years. Our current recession, while miserable (and bankrupting at least one country) has lasted barely a year and already recovery is in the air.

No one suggests a Soviet-style command economy, but on the other hand temporary loans (not grants or handouts) from the government, strategically made, can make a big difference. Of course, the question now is: Now that two of the big three are entering bankruptcy proceedings, what will happen to the bridging loans granted by the government?

Posted by: Shane Matthews | 2009-05-30 9:17:03 AM


"And what about the Midwest Rust Belt--millions of manufacturing jobs, the Big Three among them, that have gone overseas and simply never come back?"
Posted by: Shane Matthews

Why have they gone overseas? Unions? Costs too high? "political" free trade? Just asking what are your thoughts?

However, the fact remains that since the 1930s, we have had a regulated economy (to varying degrees), and that furthermore we have never had a recession as long and as deep as the Great Depression, which lasted ten years.
Posted by: Shane Matthews

It lasted 10 years (IMO) "because" of government intervention and things like "government job creation" which was a furtherance of governmental dependency and lead to the welfare state we enjoy today.

Our current recession, while miserable (and bankrupting at least one country) has lasted barely a year and already recovery is in the air.
Posted by: Shane Matthews

Disagree. I don't think we've seen the worst yet.
Wait until all of this government bail out program really starts to kick in and we will see just how artificial and shallow the economy really is. Currency is a commodity and the more of it there is in circulation the less valuable it is. Add to that the fact that it has no backing in the first place and we have a recipe for disaster that has not yet manifested itsel fully.

Over to you Shane... :)

Posted by: JC | 2009-05-30 10:58:22 AM


"Why have they gone overseas? Unions? Costs too high? "political" free trade? Just asking what are your thoughts?"

Unions are a big part of it. If not for unions, it might have been otherwise. Japan has no unions but its workers still make a good living, as do those of Japanese companies in America. In fact, it was Toyota the Obama administration used as a model when ordering GM and the CAW to reduce labour costs.

"It lasted 10 years (IMO) "because" of government intervention and things like "government job creation" which was a furtherance of governmental dependency and lead to the welfare state we enjoy today."

World War II ended the Depression through government spending on a scale that made the public-works projects of the 1930s look like peanuts. The Depression lasted so long because there were no safety nets in place to regulate the various components of the economy that we enjoy today.

"Disagree. I don't think we've seen the worst yet.
Wait until all of this government bail out program really starts to kick in and we will see just how artificial and shallow the economy really is."

This is dogmatic and not based on any facts you have seen fit to share.

"Currency is a commodity and the more of it there is in circulation the less valuable it is."

Incorrect. It is the amount of MONEY in circulation that determined the value of a currency, not the amount of CURRENCY in circulation. Printing currency does not cause inflation; inflation causes the need to print money. The government prints as much as people want. And the amount of currency in circulation is only a small fraction of the total amount of money, most of which is tied up in assets, not banknotes.

"Add to that the fact that it has no backing in the first place and we have a recipe for disaster that has not yet manifested itsel fully."

I presume you're obliquely suggesting a return to the gold standard. However, a study of the history of the Depression shows that the first countries to abandon the gold standard fared better than those that waited.

As I said, I don't favour a command economy, or even a socialist one to the degree practiced in Europe or even Quebec or Newfoundland. The U.S. model is actually a pretty damned good one. It has served them well through the years.

Posted by: Shane Matthews | 2009-05-30 11:27:19 AM


*

Assistance is futile


*

Posted by: Momar | 2009-05-30 2:00:38 PM


If the jobs continue, $1.4 million per job is cheap.

Posted by: dewp | 2009-05-30 11:33:44 PM


Shane,
Thanks for the feedback. We've actually taken a run at this sort of conversation before. I was just wondering if this avenue might have seen us able to agree on some economically based things.
I know we agree on a few subjects and not so much on others, so for the moment on this thread...
we still disagree.
I'd explain more but I'm trying to get some yard work done and my wife is giving me the hairy eyeball. :)

Posted by: JC | 2009-05-31 10:41:44 AM


Shane,

1. Good grief Shane. Do you even understand the classic liberal principle regarding taxation? I asked you a question. Whether you thought it was moral to force people to make risky investments. Think about it, it pretty much answers your question. Investments should be voluntary. Altruism should be voluntary. Taking money away from me (through taxation) to give to a corporation will benefit a very small number of individuals and hurt me. On top of being immoral, it hurts our economy. Tax revenues for such things as the army, police, our court system, which benefit everyone is legitimate. I thought someone who constantly berates libertarians on a libertarian web site would at least take the time to understand their positions.

2. Doesn't mean I can't call you on it and the arrogance which is intrinsic to the statement.

3. Why would me not being an economist have any relevance as to my knowledge of the auto industry? What I took exception to was you assuming I had none. It's arrogant and it makes you look foolish. Seriously, if you want to know what I do for a living I'll gladly answer.

4. Wow. That one really revealed your limited knowledge of business, finance, and economics. First, it is the laws that encourage unions, bad managerial decisions, and stupid regulations that killed the North American auto industry. Bailing them out will only ensure their continued failure. We need to let them fail. Get rid of the people (managers and union) that led to the failure. The only way to have any possibility of a North American car industry is to bring in new management, with fresh strategies.

Posted by: Charles | 2009-05-31 10:51:09 AM


I'm going to help you a bit here Shane. I'm an investment professional. I work for a firm that manages stocks for pension funds.

A large position in our portfolio is a company that sells used car parts. It is therefore part of my job to be an expert in the auto industry.

You can make assumptions about my knowledge and expertise all you want, don't be surprised if those assumptions come back to bite you in the ass though ...

Posted by: Charles | 2009-05-31 11:04:44 AM


"Incorrect. It is the amount of MONEY in circulation that determined the value of a currency, not the amount of CURRENCY in circulation. Printing currency does not cause inflation; inflation causes the need to print money. The government prints as much as people want. And the amount of currency in circulation is only a small fraction of the total amount of money, most of which is tied up in assets, not banknotes."

Are you serious??? When the government prints money it gets lent out by the banks. Entrepreneurs, investors, and homebuyers, for example, take the money and invest them in hard assets, causing inflation (since the amount of goods and services in the economy has not increased).

Posted by: Charles | 2009-05-31 11:10:53 AM


Charles, I totally agree with your stand on this issue, but I find that most other people I know find it acceptable. That actually says a lot about us as a people. Most have been brain-washed into believing that wealth redistribution is good and compassionate, rather than a tenet of communism. I note that writers for Russia's Pravda recognise it for what it is, while most North Americans remain blind.

Posted by: Alain | 2009-05-31 11:12:51 AM


Alain,

Most people I know either find it acceptable or analyze the instances individually and figure it's not enough money to be worth the effort. When you add it up however ...

Posted by: Charles | 2009-05-31 12:21:35 PM



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