I am a sucker for a philosophical debate on the role and scope of government. That is why when I came across a blog post describing the Obama administration as “hell-bent on outsourcing jobs to China,” I couldn’t resist digging a little to see what fundamental support might exist for such an inflammatory accusation.
The blogger’s allegation was apparently based on a comment made by GM’s CEO that 7 out of 10 vehicles produced by GM are created outside of the United States. The offended blogger (we will call her Patty Patriot) was outraged that a government-rescued company could create jobs outside of America, especially at a time when so many Americans are without gainful employment, a valid concern.
However, after confirming Ms. Patriot’s conservative political ideology—based on her plea for readers to “vote for the American in November”— I wanted to see if she could hold to the right-wing political philosophy talking points.
I asked if she would prefer government regulations against GM’s expansion efforts. Ms. Patriot tactfully dodged this trap by pointing out that GM should not be treated like a private company if the federal government was a stakeholder.
So far, I was impressed.
But Patty Patriot then went on to say that Obama should have never gotten involved, and that the federal government should have let the company go bankrupt. Ms. Patriot was obviously stuck at this point between an inconvenient fact [the initial government bailout was authorized by President Bush] and a more convenient hypothetical [the job-slashing bankruptcy option of Mitt Romney].
Like many conservatives who now find their former demigod George W. Bush to be expendable, Ms. Patriot sided with the hind-sighted Romney proposal and concluded that GM should have gone to bankruptcy court because a $25 billion price tag is too high for the American auto industry.
And this is where the real debate should begin.
When Obama chose to rescue the auto industry with an infusion of stimulus money, it was quite literally a calculated decision. At the time, losses from the government’s investment were projected to reach $44 billion.
So why would Obama approve a $44 billion loss of taxpayer’s money? Easy, to save jobs.
As Commander in Chief of an imploding economy, Obama did not have much opportunity in 2009 to be a “job creator,” but he did seize the opportunity to be a “job saver,” albeit at the taxpayer’s expense. According to The Center for Automotive Research, the rescue of the GM and Chrysler saved 1.5 million jobs.
Now, it may be morally questionable to put a dollar figure on one family’s livelihood, but in order to truly assess the economic strategy of the auto bailouts, it is necessary. By dividing $44 billion (the treasury department’s originally anticipated cost of the auto bailout) by the 1.5 million jobs the bailout would save, Obama likely concluded that each job saved would initially cost America about $30,000.
$30,000 is a great deal of money to spend to save one job, but that figure is greatly reduced when one considers two things:
1. The government saves itself from paying for that same person’s unemployment check. (*The average unemployment insurance collected by an individual is $295/week, and the average unemployment duration is 40 weeks. Total: $11,800.)
2. The government continues to collect money in the form of federal taxes from that employed person. (*The average salary for an auto manufacturer around the time of the bailouts was $40,000. Assuming a very modest federal tax rate of 15%, the revenue that the government would have lost from a laid-off GM plant worker is $4,800 over that same 40 weeks of unemployment.)
So in reality the net cost per job saved was originally more like $13,400. Still no small change for a country in the midst of a recession, but that is the price Obama was willing to pay to keep one auto worker employed. Also, it is worth noting that in addition to the unemployment savings and preservation of tax revenue, there were other major economic advantages to saving 1.5 million jobs which are more difficult to calculate statistically. One in particular was keeping those workers from defaulting on mortgages, certainly a critical measure following the burst of the housing market bubble.
Last week, the revised estimates of the auto bailout’s federal cost were reduced to $25 billion from the original $44 billion. This brings the net cost per job saved down even further—to a paltry $66. Of course that number will continue to fluctuate (maybe even to the point of eliminating any cost to the taxpayers), but the point is that the true cost of saving GM and Chrysler wasn’t about the giant companies themselves; it was about the individual lives of 1.5 million people who, thanks to the big government monster, still have a job.
So before answering whether or not the bailout was worth $25 billion, maybe we need to ask each other if it was worth $66 instead. I am willing to bet Patty Patriot and her contingent would still say no.