The major story coming out of Washington right now is the failed bid to bail out the “Big Three” automakers. There are numerous points of view on the issue, but it seems that much of the debate is being driven by emotion at the expense of reason. This is not surprising- the idea of giving more of their hard earned tax dollars away to failing corporations is extremely repugnant to people barely avoiding foreclosure in Nassau County. What we must do in order to make the best decision for the country at large is to step back and really examine the consequences of letting these companies fail.

Allowing the three largest domestic automakers to close their doors would have an enormous and immediate impact on the national economy. The amount of jobs that would be eliminated overnight could range into the millions. Not only the workers at the plants in Detroit would suddenly find themselves without a source of income, but also all of the workers at the plants that supply parts to the larger factories. These smaller factories are spread throughout the country, and in many cases are the major employers in their immediate area.

As the parts these plants make suddenly become unnecessary, so too does the need to deliver them. Any trucking or shipping company that does business with domestic automakers in any capacity would likely find themselves unable to keep their current workforce. Maintenance of delivery vehicles would also become a less sought- after commodity. Once you begin to extrapolate the immediate impact in this way, it is easy to see how widespread the problem would become if these automakers were to shut down.

The possibility of these newly unemployed people finding other employment would also be extremely slim. The local economies around these auto plants basically depend on the majority of the workforce in that area having enough disposable income to sustain them. If one auto plants lays off 50,000 workers, that is 50,000 less people who will be going out to eat, shopping, going to the movies, employing domestic help, etc. Any industry that depends on well-paid workers patronizing their businesses will suddenly be cutting jobs as well. With 50,000 new workers trying to find work in a town that is shedding jobs, the prospect of success is close to zero.

A drastic and immediate increase in unemployment during a period in which the economy is already shedding jobs is a disaster in the making. If these automakers are forced to close, the people that they employ are likely to soon become the newest beneficiaries of unemployment insurance and other government assistance. State governments where newly defunct plants are located will face major budget shortfalls as their income base dries up. The Federal government will then be increasing assistance to states and individual workers while also facing a vastly decreased influx of tax dollars. Since many of the domestic automakers also supply parts for military vehicles, the Federal government would also likely have to create a new infrastructure to address this shortfall. Increased expenditures for unemployment, welfare, state assistance, and replacement of necessary military supply chains, all while facing a shortfall in tax revenue, could end up costing the government far more than the proposed auto bailout. We need to fully examine all of the facts, and not simply act on anger or disgust when addressing this important issue.

–

This entry was posted on Friday, March 20th, 2009 at 7:23 am and is filed under Budgets & Financial Management, Economy & Politics, Financial Market, Mortgages & Lending. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.