BY JOHN LOTT
Would you hire President Obama as your financial adviser? Three years ago his administration invested more than $100 billion in taxpayer money to bail out General Motors. On Tuesday, the entire company, not just what the government owns, was worth less than $34 billion. By anyone’s definition, that investment is a glaring failure. Yet over the last few days the Obama campaign, in a $25 million marketing blitz, has flooded the airwaves with ads in battleground states, claiming the bailout should be counted a rousing success.
Unfortunately, assertions
that “all loans have been repaid to the federal government,” that the bailout
“saved more than one million American jobs,” that “U.S. automakers are hiring
hundreds of thousands of new workers,” that GM is again the “number-one
automaker” — all are based on creative accounting.
The money the government spent adds up quickly: $50 billion in TARP bailout
funds, a special exemption
waiving payment of $45.4 billion in taxes on future profits, an exemption for all
product liability on cars sold before the bailout, $360 million in stimulus
funds, and the $7,500 tax credit for those who buy the Chevy Volt. GM’s
share of other programs is harder to quantify but includes, for example, some of
the $15.2 billion that
went to Cash for Clunkers. Those costs are in addition to the billions taken
from GM’s bondholders by the Obama administration.
A look at the accounting shows the trouble with contentions that much of
the TARP money is getting paid back. The Obama administration compares the $50
billion in direct bailout funds with the price it will eventually be able to get
for selling the GM stock it owns. But that assumes that the stock price won’t
reflect government subsidies, including GM’s exemption from paying $45 billion
in taxes. By the Obama administration’s logic, if the stimulus grants to TARP
recipients were simply large enough, all the TARP money could be paid.
Claims that GM paid back its TARP loan are true but misleading. President
Obama clearly wants to create the impression that all the money given to the
auto companies has been paid back. But the $6.7 billion loan to GM was just a
tiny fraction of the money given to it. As TARP special inspector general Neil
Barofsky explained, GM used “other
TARP money” to pay off the loan.
So what about President Obama’s boast in a White House speech in late April
that the bailout “saved probably a million jobs” and that “GM is now the
number-one automaker again in the world”?
The “million jobs” contention is quite a stretch. Before filing for
bankruptcy in July 2009, GM had
91,000 employees in the United States. You can reach a 400,000 total by assuming
that all of GM’s jobs, as well as all the jobs of its parts suppliers and car
dealers, would have been lost. Last year, employment in the entire automotive
industry in the U.S. (counting Ford, Toyota, and other companies and their
suppliers, in addition to GM and Chrysler) was only 717,000.
Obama’s
economic advisers told him during an April 2009 meeting that job losses in
the auto industry would be only a fraction — 10 to 20 percent — of these claimed
numbers, even for the much weaker Chrysler. The advisers reported the obvious:
Bankruptcy would not kill all jobs at GM and, even with cutbacks, suppliers
would pick up other work. But Obama keeps using numbers that his own advisers
told him were wrong.
Even saving 20 percent of 400,000 comes at quite a cost — at least $780,000
per job. How many workers would have been willing to quit working for GM for a
$400,000 severance payment?
The “number-one automaker” assertion is no more accurate. Obama’s sales totals
include 1.2 million mostly cheap commercial vehicles built by China’s Wuling, a
company in which GM owns a small stake, and it excludes sales by vehicle makers
in which Volkswagen owns a majority share. Fortune magazine lists GM’s
revenue as smaller
than Toyota’s and Volkswagen’s.
The only real winners from the GM bailout were unions,
which were protected from pay cuts, from losing their right to overtime pay
after less than 40 hours a week, and from cuts to their extremely generous
benefits. They faced only minor tweaks in their inefficient union work
rules.
Having just $34 billion to show after a $100 billion-plus investment would
get a chief executive of any private company fired. Unfortunately, Obama does
not seem to understand how this money has been wasted.
— John R. Lott Jr. is a FOXNews.com contributor. He
is an economist and a co-author of Debacle:
Obama’s War on Jobs and Growth and What We Can Do Now to Regain Our
Future.
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