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The Stimulus Argument

Josh Marshall says: “Whatever we think of the long-term or even the medium-term fate of the US auto industry, it’s hard to think of many other stiff accelerants to the downturn than one of more of the big automakers going bankrupt any time in the next year.”

To me, this is by far the most persuasive case for a bailout for the car companies. If they were facing bankruptcy amidst a period of okay economic growth, I’d be strongly inclined to spend $38 billion on direct assistance to the state of Michigan and to displaced workers, feeling the best thing for the economy would be to liquidate firms that need liquidating and help people find work elsewhere. But at the moment, no matter what you did nobody could find new jobs elsewhere. Under the circumstances, giving money to GM to keep producing cars makes a certain amount of sense just as make-work. Ideally, it’d be better to employ all those people in infrastructure projects instead but the quantity of useful “ready to go” infrastructure projects is actually smaller than the volume of stimulus being contemplated, so that can’t be done on the necessary time frame.

That said, it’s important to keep in mind that there’s a tension between bailing out GM as a jobs program and bailing out GM as part of an alleged restructuring program that leads the firm to profitability. The plan GM submitted to the congress, for example, calls for both steep cuts to its workforce and for substantial union givebacks. Reduced production of vehicles is presumably part of that picture (to match reduced demand) which, in turn, means lower orders for suppliers. That’s business. But it’s not stimulus. The logic of stimulus is that we should be making the cars whether or not they can be sold at a profit just for the sake of keeping people employed.

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