There have been some discussion threads and entries about the pros and cons of assistance to the Big Three (This one for you Mark).
This got me thinking, at first blush, I am against a "bailout" (it is bad business planning and poor decision making, the company(s) do not deserve to be bailed out), and that is the fiscal conservative republican side of me. After all, if we bail out the auto industry, what is next, every struggling company will line up with the palms extended upwards (sometimes holding a bucket). Where do we draw the line?
Then there is the socially liberal side that looks at the impact to the people, the workers and families that were simply doing their jobs, and they may have to pay the ultimate price. How do we address that issue, do we bailout the companies, do we provide increased welfare and job training, do we do a packaged bankruptcy with government backing???
I can see, understand, and empathize with both perspectives. So, I decided to look at the business case perspective; what is better for the average taxpayer. Some facts/assumptions:
- One Million workers potentially impacted.
- Average weekly unemployment benefit is $359/week (assume 20 weeks)
- Assume average salary is $60K/year, and that workers will be out of work for a year.
What is the burden to the taxpayer if do not provide some assistance? The unemployment benefits will cost $7.18 Billion. The lost tax revenue, assuming a 25% rate, will cost $15 Billion in lost taxes. So, without even considering downstream costs to other local businesses that lose sales, and without considering job training and placement assistance, we are at a greater than $22 Billion impact if we do nothing.
So, I say that some assistance package is necessary, for the good of the impacted workers and their families, as well as for all tax payers. I think that some guarantees of repayment (so the assistance is more like a loan) and harsh realities for the executives (no bonuses, reduced pay) are definitely in order. Longer term, we need to consider reduction in manufacturing in other countries, retooling for renewable technology, and some union concessions are in order to ensure the viability of this industry in our country.
I think that whenever we are faced with such a dilemma, we need to run the numbers, figure out what the business case is, and make our decisions based on facts, not emotion. When the number of impacted employees is around a million, the numbers do not lie; when the numbers are in the thousands, it is much harder to make the case.