The Financial Bailout vs. The Auto Industry

Hilzoy makes some points which seem to elude not only Congress, but many average Americans:

"The financial executives helped cause the present meltdown. Auto workers did not.

* The financial executives run their firms, and are responsible for their troubles. Auto workers and their union, by contrast, just got themselves a good deal by bargaining with management. That's their prerogative. I don't see that they're any more to blame for the problems of the Big Three than people who accept unduly large cash back bonuses on their new cars would be, had the Big Three miscalculated and given away more in cash-back bonuses than they could afford.

* Financial executives have just destroyed a tremendous amount of value and ruined the global economy. Auto workers have been busy creating useful things.

* In exchange for destroying value, financial executives get paid a whole lot more than auto workers. Orders of magnitude more. They even get multi-million dollar performance bonuses when their firms lose money! And their benefits are a lot more cushy: not just good health care but private jets and chauffeurs!

* Punishing financial executives helps reduce moral hazard. Punishing auto workers does not.

Honestly: what sense does it make to stick it to a bunch of auto workers while letting the financial executives off scot-free? How can Richard Shelby get all upset about the fact that some blue-collar workers have, gasp, health care, and not about the fact that financial executives, on whom we have spent a lot more money than the Big Three ever asked for, get financial planners and chauffeurs? Just imagine the furious oratory we might have heard had the UAW succeeded in negotiating benefits like the ones people get at Goldman Sachs. (I'll bet chauffeurs would help auto workers concentrate more on their jobs...)

For the reasons given above, I think that we should stick it to the bankers and hedge fund managers, and not to the UAW. However, I'd be happy with a single standard uniformly applied. rok for dean at dKos has a good idea:

"In 1950, the average pay of an S&P 500 CEO was less than 30 times that of an average U.S. worker; by 1980, prior to the "Reagan Revolution, the average pay of the S&P 500 CEO was approximately 50 times higher than that of an average U.S worker. But by 2007, the average pay of an S&P 500 CEO had soared to more than 350 times as much as that of an average U.S. worker.

This is both immoral and unsustainable in a democracy. By way of comparison, in Europe, an average CEO only makes 22 times as much as an average worker, and in Japan, only 17 times as much.

If America wants to be competitive again, we need to reduce CEO pay to a level comparable to CEO pay in Europe and Japan. I know exactly how to accomplish this feat. The UAW should agree to immediately lower U.S. union worker pay to a level equal to the level paid by their non-union, non-American competitors. In return, auto CEO’s must agree to permanently lower their compensation to only 20 times that of an average union worker.

Once this has been accomplished, Congress must move to apply the same pay standards to AIG and all of the financial institutions that took one penny of taxpayer money from the TARP fund."

And what of foreign automakers, like Toyota?

"On Monday, Toyota said it expected a loss during the fiscal year of 150 billion yen, or $1.7 billion, in its group operating revenue, the amount it earns from its auto operations. Toyota said that would be its first annual operating loss since 1938, a year after the company was founded.

The loss would also be a huge reversal from the 2.3 trillion yen, or $28 billion, in operating profit Toyota earned last fiscal year. The company, which has been neck and neck with General Motors to be the world’s largest vehicle-maker, said it still expected to eke out a narrow net profit in the current fiscal year, which ends March 31.

The company, which just a few months ago seemed unstoppable after eight consecutive years of record profits, said it suffered from plunging vehicle sales not only in North America but even in once-promising markets like India and China, which many had hoped would prove immune to the United States malaise.

“The change in the world economy is of a magnitude that comes once every hundred years,” Toyota’s president, Katsuaki Watanabe, told a news conference in Nagoya, Japan, near the company’s Toyota City headquarters. “We are facing an unprecedented emergency.”