5 ms·

Because if the Big Three go under, a very large number of workers (folks working for the Big Three and for their suppliers) will suddenly be collecting unemploy

Because if the Big Three go under, a very large number of workers (folks working for the Big Three and for their suppliers) will suddenly be collecting unemployment insurance instead of paying taxes and they will also paid in taxes if bailed. so GM is going to become a giant money laundering operation for the IRS? cut out the middleman and put them on unemployment...then they can actually find PRODUCTIVE work

sethg 18y ago
The unemployment would cost the government more than the bailout. One could argue that it would still be better off in the long term for the government to bite the bullet and pay that unemployment money than to keep the US auto industry afloat; I am partial to that argument myself. But I'm responding to the "why should a waitress at Denny's..." question.
- yummyfajitas 18y ago
  Unemployment costs $362/week + administrative overhead. The wage of an auto worker costs from $1200/week to $2920/week (depending on whether you believe the $30/hour number or the $73/hour number floating around). http://www.michigan.gov/documents/uia/EUC_Fact_Sheet_120_240939_7.pdf http://www.michigan.gov/documents/uia/EUC_Fact_Sheet_120_240... Additionally, auto workers have an incentive to get off unemployment; it pays less than market rate. They have no incentive to stop working for GM, which pays above market rate.
  - Tritis 18y ago
    The $31/hour is the wages paid to the employee. $73/hour is the cost to GM (healthcare, retirement, etc)
  - sethg 18y ago
    If the auto companies get a bailout, then they can continue to sell cars (GM's revenue is on the order of $150B) and that revenue can be used to continue to pay the workers, the suppliers, etc. If they go under, then all the money to support laid-off auto workers has to come from the government.
- msluyter 18y ago
  Not sure why this has been modded down so much. Assume all of the big three are liquidated. What would be the total cost be to the economy? First we'd lose income tax revenues from an estimated 3M people. Let's assume an average pre bankruptcy wage of 50k/yr (a little less than 30$/hr). And let's assume a conservative tax rate of 10%, or 5k/yr. That's 5k * 3M = 15B. Assuming each employee is unemployed (on average) for 6 months, we can assume 7.5B in lost income tax revenue alone. Add in 6 months of unemployment at 362/week = 8688/person * 3M = another 26B. That's 33.5B, and we haven't even factored in all sorts of intangible costs related to the massive unemployment and deflation that would result (crime, medicare, etc...) There may be other factors I haven't counted, but on the face of it a 25B bailout is the cheaper option. I understand the argument that the same problem will just recur a year later or whatnot, and they'll need another bailout, but there are reasons to hope that at least some of these companies will have a better chance in the future: the Chevy Volt, the release of some of GM's pension obligations in 2010, Ford's 65mph diesel, etc... I quite understand the "punish them for being stupid" sentiment (and share it), but I think it's somewhat reflexive and not always the most rational approach.

sethg 18y ago

The unemployment would cost the government more than the bailout. One could argue that it would still be better off in the long term for the government to bite the bullet and pay that unemployment money than to keep the US auto industry afloat; I am partial to that argument myself. But I'm responding to the "why should a waitress at Denny's..." question.

yummyfajitas 18y ago
Unemployment costs $362/week + administrative overhead. The wage of an auto worker costs from $1200/week to $2920/week (depending on whether you believe the $30/hour number or the $73/hour number floating around). http://www.michigan.gov/documents/uia/EUC_Fact_Sheet_120_240939_7.pdf http://www.michigan.gov/documents/uia/EUC_Fact_Sheet_120_240... Additionally, auto workers have an incentive to get off unemployment; it pays less than market rate. They have no incentive to stop working for GM, which pays above market rate.
- Tritis 18y ago
  The $31/hour is the wages paid to the employee. $73/hour is the cost to GM (healthcare, retirement, etc)
- sethg 18y ago
  If the auto companies get a bailout, then they can continue to sell cars (GM's revenue is on the order of $150B) and that revenue can be used to continue to pay the workers, the suppliers, etc. If they go under, then all the money to support laid-off auto workers has to come from the government.
msluyter 18y ago
Not sure why this has been modded down so much. Assume all of the big three are liquidated. What would be the total cost be to the economy? First we'd lose income tax revenues from an estimated 3M people. Let's assume an average pre bankruptcy wage of 50k/yr (a little less than 30$/hr). And let's assume a conservative tax rate of 10%, or 5k/yr. That's 5k * 3M = 15B. Assuming each employee is unemployed (on average) for 6 months, we can assume 7.5B in lost income tax revenue alone. Add in 6 months of unemployment at 362/week = 8688/person * 3M = another 26B. That's 33.5B, and we haven't even factored in all sorts of intangible costs related to the massive unemployment and deflation that would result (crime, medicare, etc...) There may be other factors I haven't counted, but on the face of it a 25B bailout is the cheaper option. I understand the argument that the same problem will just recur a year later or whatnot, and they'll need another bailout, but there are reasons to hope that at least some of these companies will have a better chance in the future: the Chevy Volt, the release of some of GM's pension obligations in 2010, Ford's 65mph diesel, etc... I quite understand the "punish them for being stupid" sentiment (and share it), but I think it's somewhat reflexive and not always the most rational approach.