Ed’s Daily Notes for December 10th   2 comments

I am still trying to get used to the new layout at Bloomberg. Who came up with that garbage?

Los Angeles Times: GM, Chrysler federal bailouts were net economic gain, report argues

As the federal government gets ready to sell the last of its shares in General Motors Co., a research institute has calculated the final bill on the auto industry bailout and says that taxpayers were net winners.

The Center for Automotive Research, a Michigan nonprofit organization that analyzes auto industry issues, said Monday that the U.S. government will lose about $13.7 billion on its bailout of GM and Chrysler Group.

But the think tank said those funds “saved or avoided the loss of $105.3 billion in transfer payments and the loss of personal and social insurance tax collections — or 768% of the net investment.”

Additionally, the center said the bailouts and financial restructurings saved about 2.6 million jobs in the U.S. economy in 2009 and $284.4 billion in personal income over 2009 and 2010.

In the report, “The Effect on the U.S. Economy of the Successful Restructuring of General Motors,” researchers Sean McAlinden and Debra Maranger Menk wrote that the value of the bailouts can’t be considered just by what the taxpayers will lose in the sale of GM’s stock.

While I agree that the GM and Chrysler bailouts cannot be judged simply on what the U.S. government loses on their stock, there is another aspect which the report ignores: Why were these companies failing? Because the world, and the U.S., has too many car companies. Would the U.S. government have been better off making “$105.3 billion in transfer payments and the loss of personal and social insurance tax collections”, or was it better to prop up failing businesses that the economy doesn’t need? The proof will come when we end up with another car manufacturer failing. Chrysler already went through this once before, and they came back, only to fail again. At some point, we have to recognize that all these jobs in auto manufacturing aren’t needed, and these workers need to find jobs in other fields.

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Posted December 10, 2013 by edmcgon in Economy, Market Analysis, News

2 responses to “Ed’s Daily Notes for December 10th

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  1. While I haven’t read the report, I have to wonder if the authors took into account the broken window fallacy. That is, what potential benefit might the bailout funds have resulted in if they were put to some alternate use. Given that the government spent the money though, who knows what additional damage might have been caused.

    • Not to mention that the $13.7 billion is just the “stock loss”. They also buried another 60 billion in “bad assets account” called Ally Bank.

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