The Auto Bailout and How to Assign Economic Blame
Amy Payne engages in precision critical thinking in examining President Obama’s approach to the auto bailout in Morning Bell: Auto Bailout Was Really Just a UAW Bailout. The auto bailout included $25 billion agreed to by the Bush administration, and an additional $55 billion under the Obama administration. Steven Rattner was given the task of guiding General Motors and Chrysler through a structured bankruptcy. These proceedings favored the UAW and its pension plan more than would have been the case in a normal bankruptcy, leaving investors and bondholders in a less favorable position. Now that the bailout is ending, and loans have been paid back and the government’s stake in the auto companies is being sold, the government will come out behind by about $23 billion. It turns out that the favorable treatment of the UAW pension plans gave them $26 billion more than would have been the case in a normal bankruptcy.
One could have assigned the $23 billion government loss to any of a number of elements in the $80 billion in the bailout. Chrysler received $4 billion under the Bush administration, and an additional $8.5 billion from the Obama administration, and paid back $11.2 billion, leaving $1.3 billion unpaid. President Obama proclaimed that Chrysler had paid back every penny his administration had lent it, conveniently assigning the unpaid $1.3 billion to the Bush administration.
But Payne, quoting the authors of the study, James Sherk and Todd Zywicki, makes the right call in assigning the unpaid portion of the General Motors bailout to largesse to the UAW. The study notes that UAW workers made over $70 an hour in 2006, and that such high wages contributed to the bankruptcy. And while noting that averaged wages had since fallen to $56 an hour, this is still higher than any of its foreign competitors, for instance Toyota, which only pays $55 an hour (Wall Street Journal, A Fresh Take on the Auto Bailout).
Similarly making the right call on where to assign economic blame is Gov. Bobby Jindal of Louisana, in a recent editiorial on CNN (Obama’s message of divide and blame). Jindal notes that federal spending is now at 24% of GDP, exceeding post-World War II norms. He could have noted that defense spending as a portion of GDP has increased 20% from 2007 to 20101; and that Social Security and Medicare spending increased 18% between 2007 and 20112. But that would have been assigning blame where it is not due. By quoting the 24% figure, Jindal rightly assigns the blame to President Obama and his federal government’s intrusion into our daily lives.
They say that statistics never lie, but that liars use statistics; one of the most important things in getting facts correct is to know in advance where to place the blame, so that the statistics you quote tell the right story.