Tuesday, December 02, 2008

An Idea for the Auto Bailout

I've previously posted on the potential aid to automakers, recommending that bankruptcy be a condition precedent to bailout. That's because Detroit has huge underlying issues, which include the current clueless ownership, the present incompetent management, high-cost legacy union contracts, and contracts and a legal regime absurdly tilted toward protection of car dealers. Because it will push out current owners, and allow renegotiation of current contracts with management, unions and dealers, bankruptcy is the one approach that could address these problems.

I've thought of another condition (in addition to bankruptcy first) on Federal aid for automakers. Rather than hand-out cash or guarantees--even with conditions--shouldn't the taxpayers instead get something for that money? In particular, the Federal government must buy or lease big-3 vehicles. Couldn't any bailout be structured as a forward purchase agreement, for example, contracting and paying in advance for cars and trucks to be acquired over the next three to five years? That would provide some guaranteed revenues during, and immediately after, the reorganization of the companies, which would increase their attractiveness as an investment. The contract could help to convince car buyers that the companies will survive and be able to service automobiles in the future. The deal could include the same or similar conditions as any aid or loan. And, as I said, at least the taxpayers would be getting something back for their bucks, as opposed to wasting money.

There's a potential flaw in my plan: I don't know whether the volume of vehicles purchased or leased by the Federal government over a few years represents a significant percentage of total new car sales. Anyone know?

National Review's Jonah Goldberg floats an even more radical idea:
[R]ather than blow money on a lavish reenactment of the New Deal, or continue bailing out undeserving corporations, why not really think outside the box? Rep. Louie Gohmert (R., Texas) suggests an across-the-board reprieve on paying 2008 income taxes. This would leave an extra $1.2 trillion in the hands of Americans, who are the best stewards of their own money. Nobel Prize-winning economist Robert Mundell proposes a one-year moratorium on corporate income taxes in order to stimulate investment, job creation and the like. That wouldn’t be as popular, for understandable reasons.

The details can be negotiated, but this sort of approach would certainly create more jobs and spur more consumer demand than paying for a lot of asphalt. It would buy a lot more prosperity than any corporate bailout. Politically, it could buy Obama and Congress a year to formulate a serious tax-reform proposal. And -- here’s the amazing part -- it would be much cheaper than what we’ve spent already.


OBloodyHell said...

> I've thought of another condition (in addition to bankruptcy first) on Federal aid for automakers. Rather than hand-out cash or guarantees--even with conditions--shouldn't the taxpayers instead get something for that money?

A friend of mine suggested during the M$ antitrust stuff that what the Fed really should do is to require that a certain large percentage (say 25%) of its agencies be required to use a competitor to M$. This creates a large competitive marketplace of organizations which can be assured of a certain amount of money as a competitor to M$, who can rest assured that they can't just be stomped out by M$'s various and widely anti-competitive business practices (and they very much ARE that).

That would have been a much more effective use of government power, by using its purchasing power yet without requiring ANY action external to a segment of the government itself.

It also would have strongly constrained M$ from making one of its more common anti-competitive practices, of deliberately screwing with things to make them pointlessly incompatible. (Note: I've seen Adam Barr's "refutation" of this claim, which carefully ignores the time frame in which it actually applied, which is late-80s/early 90s, not the early 80s timeframe Barr "verifies", which was before M$ was the monolithic Borg-like juggernaut it is and has been ever since).

Had that (Federal purchasing requirement) happened, we might, by now, be seeing a real competitive market for creating and selling applications, and we would not be getting bloatware like Vista, which is to Windows XP what w98 was to w95 -- a largely cosmetic upgrade -- one which takes not less than an entire gigabyte of memory to run, and really needs 2gb to run properly (a fact I find entirely amusing in some regard, since I have, somewhere, a quotation from Bill Gates, ca. 1985, in which he says he sees no reason why any personal computer would EVER need more than 16 MEGAbytes of RAM.)

Carl said...

I suspect Federal employees would not be pleased to be bait to create a second viable OS.