Automaker Bailout Bad, Aid to Unemployed Good

The much-discussed bailout for US automakers is a terrible idea.  Bailing out a company with taxpayer money only makes sense if the underlying business is sound, but has been temporarily negatively impacted by calamitous events, and is for some reason too intertwined with the American economy to be allowed to go through bankruptcy.  And the bailout needs to wipe out existing equity holders (like a bankruptcy) and give debt holders a haircut (also like a bankruptcy).  But the underlying business model of the US automakers has been failing for years, and it's not clear that their bankruptcy would have a huge impact on the rest of the economy.

Instead, we should let GM et al. declare bankruptcy and restructure their debts in court.  This probably means reducing their commitments to their unionized employees, both in terms of pensions already promised and benefits to be earned in the future.  And that sucks.

But if the government provides GM with taxpayer money in the form of guaranteed loans or a capital infusion, what is really happening?  Taxpayers are subsidizing (a) GM shareholders/debtholders; (b) salaries and benefits for GM executives; and (c) salaries, benefits, pensions for GM rank-and-file employees.

I think everyone can agree that taxpayer subsidies of (a) and (b) are an inappropriate use of money.  How about (c)?

I like unions, and I think they're good for the country and need some degree of government-provided protection.  But the average hourly cost for a current GM employee, including all benefits, is $78.21.  That's $166,400/yr .  For a normal job, without a defined-benefit pension plan, benefits are about 25% of the base salary, so that would translate into a $133,120 annual salary.

They're getting paid really well.  So why should my tax dollars go towards propping up their exceptional employment arrangements?  I'm all for helping the needy, but wouldn't government dollars do much more good being given to people living below the poverty line (where a few hundred dollars can make a huge difference) than to people making $133k/yr?

Additionally, a government bailout is a really inefficient way of helping out rank-and-file GM workers who would lose their jobs without a bailout.  If there's no bailout, a bunch of compensation for existing employees gets cut, debt costs are substantially reduced in court, and a bunch of employees are laid off.  If there is a bailout, taxpayer dollars go to (a) keeping everyone's compensation at the same level; (b) paying the original (higher) debt costs; and finally what's left goes to (c) keeping those employees employed.  

How about we do no bailout and instead channel a big chunk of the money that would have been used in the bailout to benefits (healthcare, tax rebates, unemployment) for the people who lose their jobs?  Then taxpayers don't have to pay for (a) and (b)!  We could spend less money and achieve the same benefit.