Police don’t get credit for the crimes they prevent by their presence. Doctors don’t often get congratulated for the ailments they’ve headed off by making their patients improve their lifestyles. And George W. Bush and Barack Obama – yes, the two unlikely co-conspirators in the auto industry bailout – have not gotten the credit they deserve for pursuing that difficult course in the beginning of the Great Recession.
To be sure, principles and pragmatism clashed on the question of whether to let General Motors and Chrysler fail. No one really wanted big government to get bigger. No one really thought a federally run auto company sounded like such a hot idea. Everybody remembered when a favorite store went under and nobody from the Treasury Department was standing by with a rescue kit.
But in fact, the consequences of not acting in the fall of 2008 and spring of 2009 would have been so dire that all the maxims of tough love and capitalistic Darwinism just had to be cast aside for awhile.
The government loaned GM and Chrysler $80 billion, took on the companies’ stock and gave directions for the two auto giants to restructure.
With the perspective of time and, this week, closure, the decisions that Bush and Obama made seem more clearly correct than they did during those panicked months five years ago. A recent study by the nonprofit Center for Automotive Research confirmed that the consequences of not acting would have been dire. The failure of both companies and the resulting tidal wave through the auto supply industry would have cost the nation 2.6 million jobs in 2009 and 1.5 million jobs in 2010; that’s $284 billion in paychecks. The effect on the nation’s already-ebbing economic confidence would have been profound.
The collapse would have been particularly devastating in our area, with major GM facilities in Defiance, Ohio, as well as in Fort Wayne and elsewhere in Indiana.
Even with the bailout, automotive manufacturing jobs in Indiana hit their lowest point in decades – 69,000 – in June 2009. The recovery was slow but sure. As Indiana Sen. Joe Donnelly noted this week, Indiana auto jobs are now back up to a near-record 102,000.
This week, as the federal Treasury sold back the last of its GM stock, it appeared that the government may have lost as much as $14 billion on the bailout.
But that is more than balanced by the approximately $105 billion in taxes that would never have been collected if the automakers had been allowed to fail.
In retrospect, the bailout could have been more carefully crafted. Last year, analysts James Sherk and Todd Zywicki presented a persuasive argument in The Wall Street Journal that the government could have avoided losing any money on the deal if it had insisted on tougher terms in dealing with the United Auto Workers.
But the American auto industry has transformed itself, the plants are running strong in Defiance and Fort Wayne, and Indiana is now the second-largest automotive manufacturing state.
The bailout not only saved jobs but set the stage for a dramatic, industrywide recovery. Give pragmatism in the face of potential disaster its due.