Tuesday, November 11, 2008

Your thoughts on Big Three Bailout.

Would it be so bad if we let the big three auto makers go under? What is the cost to keep them going? If no one is buying their cars and trucks, then what good is it for them to be making anything? Would it be cheaper to pay unemployment benefits or is it cheaper to build something that is not selling? So what are your thoughts?

2 Comments:

At 11:30 PM, Anonymous Anonymous said...

My friend Jeff said,
"When I was a kid, my dad's version of "The American Dream" was more leisure time through efficiency and automation. Everyone was going to share in the prosperity. What happened? We work longer hours now than they did in his generation.

I'm a working professional. My dad was a Kansas farm boy who never darkened the door of a formal school in his life - second to last of 13 kids, his oldest sister home schooled him. He died in 1978, at the age of 49, when I was 18. He was a hard working union employee at a big company - the same one I work for today. My mom stayed at home with us four kids. My wife has to work to maintain about the same standard of living our folks enjoyed, with our moms staying home.

The unions and the workers they represent are made out to be the villains in about the largest collapse of American business ever seen. Their "excesses" are roundly derided. Are they really to blame?

In my dad's day, from post-Korea America until his death, our CEO's and higher level management types made a good living. In the '50's, when he left the Army to begin a civilian life, the average CEO compensation for a Fortune 500 company was about ten times what they paid their average worker. A very good living by any measure. The management structure at these companies was only a few layers deep from the factory worker to the CEO.

Today, we find that the average salary (including all "bonuses" - which are now contractual obligations rather than performance based) of a Fortune 500 CEO is over 300 times that of their average employee. There are now nine levels of management between me, a working engineer, and the CEO of my company.

So who is really milking corporate America? Whose greed is leading to its collapse? There is obviously a lot of blame to share. I just hate to see the majority of it placed at the feet of the American worker."

 
At 12:21 AM, Blogger William Larsen said...

Anonymous,

Nicely stated. I grew up in the 60’s. School was different. School I think was an hour longer, no fall break or teacher days. We had three breaks, Thanksgiving, Christmas and Spring Break. We started after Labor Day (cooler) and got out the third week of May.

My mom was as stay out home. We did not play indoors, but outdoors (foot ball, baseball, tag). We had a black and white TV. When I was in the navy I purchased a 13” Color TV (1978).

You are correct, the dream was higher productivity would increase the standard of living. This works as long we as a country stay ahead of the world. The problem we have is the majority of the world works for lower wages than the US. It is the cheap labor we are competing against. The Big three are not alone. Outsourcing now includes engineering, drafting, accounting and elective surgeries. For a company to remain in business it needs someone to buy its goods and services. We have had many jobs exported resulting in those finding other jobs if they can find jobs at all.

A government bailout is paid for by other workers. The government creates not a single job. It however, can destroy jobs. It can do this by signing unfair trade agreements, giving most favored trade nation status to countries that do not deserve it.

How did we go from being one if not the wealthiest country in the World to nearly a debtor country? At the end of World War II we were paying down the debt incurred during the War. This country was running surpluses actually paying down the debt. Workers were saving over 15% of their pay checks. Families were putting 25% down on homes with 10 year mortgage terms. There were no credit cards. Loans were made by banks you dealt with. So what happened to the American Dream?

In my opinion it started with the depression. Yes it was bad. No, I did not experience it, but my mom grew up on a farm and never went hungry. My dad lived in a city and I think he did go hungry at times. They have two different versions of the Depression. The government stepped in and in some cases did good things, but I believe in one instance the broke the workers back with the passage of Social Security. I believe this because this one single program has transferred far more wealth from workers to retirees than all the programs combined. In fact it has transferred the sum total of $21 Trillion in value from workers today to retirees in the past.

Social Security began with a 2% payroll tax up to $3,000. It did not change until 1950 and then it was still very low 3% on the first $4,500. It actually did not take much until the mid 60’s. The affect was very slow, but it got workers to accept the small incremental increase in the base and the tax. They added Disability in 1957 and Medicare in 1965. Both programs began with unfunded liabilities which have never been paid, each growing at 5 to 6% a year. Each time the payroll tax increased, the U.S. Savings rate dropped. Unions saw this and began to negotiate cost of living adjustments. The payroll tax is a large part of the inflation index. This results in a circular spiral upward. Because the employer pays an equal amount in payroll taxes, they began to slow the growth of wages. The combined slowing of wages and the increasing in payroll taxes lead to a reduced savings rate. This led to the 15 year mortgage, followed by 20 year mortgages and the 30 year mortgage today. At the same time credit card companies made it easy to get credit. People instead of saving to buy something like their parents used credit. This was partly because the reduced savings rate led to reduced purchasing. The government wanting to increase the economic growth looked at credit cards as a way to stimulate the economy.

Medicare began shifting cost to everyone else. This has led to providers increasing their rates. Now we have companies dropping coverage for employees. Our economy is in shambles because congress has artificially stimulated the economy using borrowed dollars. These borrowed dollars need to be repaid and the debt is coming due.

We look at what our parents had at each stage in their lives and we use this as a reference for our own. Because taxes are so much higher today and workers (payroll taxes) our ability to pay for the same goods and services our parents did at like ages cannot be done. The simple time value of money, high taxes, lower take home pay requires two incomes. With two incomes come added costs (child care, second car, insurance, clothing, gas and more).

As I stated in the original post, which is better, let the companies go under or bail them out? If we the taxpayer bail them out and consumers continue not to buy their cars, what have we accomplished? Should those working who don’t need or want to buy a big three car provide assistance to the auto industry and if so why? Keep in mind the steel industry went through what the auto industry is now several decades ago and the taxpayer did not bail them out.

Who is to blame for this mess, our representatives. Who did we just re-elect, those same representatives.

 

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