Need 2 No Y

I was twittered yesterday by a friend wanting to hear my thoughts on why the government committed to spend several billions of our tax dollars supporting GM and Chrysler. (This action had nothing to do with the minority Conservatives trying to appease the Liberals and the NDP).The question came hot on the heels of my listening to The Agenda on TVO December 10. The topic was the New Deal - President Roosevelt’s attempt to get the economy moving during the Great Depression. According to the panel, all experts on the economy or history, the New Deal was very much a fiscal flop although it did have some positive social results that carried over for many years.

It seems throwing money at the problem may have actually extended the duration of the great depression. Which makes one wonder if throwing money at the present problem is not trotting down the same path. There is rightfully great sympathy for autoworkers that may lose their jobs because of the downturn in the economy, much as we all feel sad for the forestry workers who have lost jobs in the past couple of years. The difference in the current politically-driven fiscal action is the result of the number of autoworkers in Ontario versus the countrywide loss of workers in forestry.

It seems when the tree-cutters ran out of market they closed shop and tried to move on. The folks at GM and Chrysler want to keep their workers producing machines, even though chances of selling them are becoming more remote by the day. Had the government followed the same logic with forestry, we would have piles of lumber, plywood and newsprint stacked in vacant lots all across the country. Away back when we studied economics 101, that old company, ABC Inc, made widgets that cost (x) dollars, a cost consisting of variable (y) and fixed costs (z). ABC often floundered in the classroom because of inventory carrying costs, a disease that is now affecting sales of everything from widgets, to cars, to appliances all around the world.

It would be nice if the government would share GM’s plan for recovery with us so would know just how many of those 500,000 workers in the industry will have jobs a year from now. Surely they will not all be employed making cars for we will still have a glut of those machines years from now. Even Tiger Woods cannot sell a Buick! Back in the good old days, we could count on a vehicle rusting away in a few years, a planned obsolescence that guaranteed a market for new vehicles. Competition finally drove the Big Three to making more durable machines, but they had already lost the quality race and now face a market share far smaller than their economic production levels.

Hindsight will tell us that we might have been just as well advised to lengthen the Employment Insurance payments to laid-off autoworkers while they retrained as to dump money into a company that has been losing money hand over fist with no solid business plan to save themselves. Even if GM and Chrysler (& Ford) can design vehicles that the public wants to buy, can they change their business model to ensure their continued existence without more bailouts by the government? We have been propping up the auto industry for years in North America, all in the name of creating jobs, but perhaps it is time to stand back and let the market determine products and jobs.

I believe we called that ‘capitalism’ back in Economics 101. I twittered my friend one word: Socialism.