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Friday, December 12, 2008

The TARP Covers That Too?

Despite insisting they would do no such thing, it appears that the administration is going to use TARP funds to help automakers:

White House and TARP to the Rescue -- of Automakers, but not of States and Locales, by Robert Reich: What now for the automakers? ...TARP was enacted to save Wall Street but it's already been so twisted out of its original shape by Hank Paulson that a bit more twisting to save the Big Three from bankruptcy over the next few weeks won't be difficult. The White House was behind the auto rescue, and Bush doesn't want to leave yet another failure on the portico as he leaves. ...

But the real immediate need right now lies with state and local governments. States and locales are already showing shortfalls in the range of $70 to $100 billion this fiscal year, and they can't officially go into deficit. That means they're starting to whack public services -- teachers, police and fire, social workers, admission to state universities, garbage collections, you name it.

Most of the public ... doesn't really believe that if the Big Three implode they'll be hurt. But when it comes to their own local services, it's a different story. To them, these are the only things government really does. And cuts in these services, on the magnitude just starting to happen, will generate holler on Main Street...

If we're bailing out Wall Street and the Big Three, the public will insist that public services be restored. If not through TARP, then through the big stimulus package that will be signed January 20 or 21st. The federal government is bailing out America. But who's bailing out the federal government? You and I, as our limited savings move into the safe haven of T-bills, along with a whole bunch of Asians.

James Surowiecki adds:

Government Meddling Is Bad, Except When We Do It: The narrative Senate Republicans are going to try to spin, about the death of the automakers’ bailout, is that it was the fault of the U.A.W. After refusing to support the bill..., some Senate Republicans suggested that they might be willing to support a bill that rolled back U.A.W. wages to the levels earned by U.S. workers at Japanese- and German-owned plants. The union, which had already made concessions on work rules, said it would be willing to renegotiate wages in 2011, when its current contract expires, but not to roll back wages immediately. This was a deal-breaker for the Senate Republicans.

There are a couple of things to notice about this story. First, it has almost nothing to do with the core problems faced by G.M., Chrysler, and Ford. The wage gap between U.A.W. workers and workers at other car companies is no longer that big, and labor costs at this point account for only ten per cent of the cost of producing a vehicle. So rolling back wages was not going to suddenly make G.M. and Ford significantly healthier than they are today... In other words, if you could support the loan with the givebacks, you should have been willing to support the loan without them.

More important, having the government dictate the wages of employees—which is literally what the G.O.P. was insisting on doing—is precisely the kind of government meddling in the marketplace that Republicans normally abhor. ... They shouldn’t ... attempt to have the government dictate wage levels. What’s next? Price controls?

    Posted by on Friday, December 12, 2008 at 10:08 AM in Economics | Permalink  TrackBack (0)  Comments (30)

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