The main justification espoused by conservatives for blocking a proposed $14 billion bridge loan to General Motors and Chrysler last week was that the United Automobile Workers (UAW) would not agree to “steep cuts in pay and benefits,” to be implemented in 2009.
During an appearance on CNN’s Late Edition yesterday, Center for American Progress Action Fund Senior Fellow Gene Sperling questioned the rationale behind the conservative demands, asking, “Why, in the middle of a recession, would you want to demand, in 2009, these type of brutal wage cuts? It’s not fair. It’s not economically smart.” Watch it:
The UAW has expressed an openness to negotiating pay cuts in 2011, when its current contract expires. Sperling is correct, though, to note that “it’s not economically smart” to cut wages during a downturn. Keeping people working — and spending — is a key component of reversing the downward trail of America’s ailing economy.
But preventing the loan entirely because there was no immediate UAW wage cut could have even more drastic consequences, if any of Detroit’s Big Three should fail. The New York Times reported today that, “With unemployment claims reaching their highest levels in decades, states are running out of money to pay benefits.” The fund in Michigan — the epicenter of America’s auto industry — has already run out.
The Times produced the following chart, showing that the states in danger of exhausting their unemployment funds are overwhelmingly in the auto-producing belt of the midwest:
The Big Three going under would exacerbate an already tenuous situation in these states. Having more workers rely on an overextended social safety net will merely make reversing the current downturn that much more difficult.