David Coates

Chapter 3: Introduction

Bailing out the Auto Industry?

Also heavily in dispute throughout 2009 was the Obama administration’s limited bailout of the US auto industry. Both Chrysler and GM briefly went into Chapter 11 bankruptcy in the early summer of 2009, to facilitate a restructuring the bulk of whose painful downside was borne by the companies’ workers and dealerships. GM eliminated 21000 factory jobs, closed 13 plants and cut away half of its dealerships, while simultaneously planning to increase its overseas production capacity from 15 to 23 percent of its total output. (The deposed head of GM, Rick Wagoner, by contrast, retired with a pension worth $8.6 million over its first five years.) Chrysler too closed one dealership in four, and relocated some of its production to Mexico. The contrast with the lack of retrenchment in the bailed-out financial sector could not have been starker. The US government became a major shareholder ($50 billion, 60% of the total company) in GM as the restructuring continued. So too did the Canadian government, the two governments together owning just under three-quarters of the company’s stock. The UAW owned 17.5%, through its retiree health fund.

Alongside that auto bailout, part of the February stimulus package was used to finance a “cash for clunkers” program that gave between $3500 and $4500 to households trading in an old car for a more fuel efficient new one. That program was so popular it ran out of money ahead of time in August and closed prematurely! By November Chrysler, bouncing back from the depths of insolvency, was promising to pay back its bailout loans by 2014; and GM, paying back the first installment of its government loan as early as December 2009, had decided, after all, not to sell its European Opel-Vauxhall division, much to the irritation of the German Government, which had preferred a sell off to a joint Canadian-Russian consortium. (For the details, see The Financial Times, November 5 2009.)

Obama’s Critics

Leading sections of the Republican Party argued steadily through 2009 against the very stimulus package that originated in the Republican White House prior to the Obama election victory. The Republican Party offered its own alternative budget in February 2009 and its own alternative to the stimulus package – “The American Option”. The details of that option are given in the text. The Heritage Foundation scholars who were instrumental in its drafting claimed that a tax-cutting “American Option” would generate 500,000 jobs in 2009, 1.3 million in 2010 and a total of 18 million new jobs over the next decade (see Heritage Lectures No 1108, January 29 2009). Throughout 2009, the Heritage Foundation, the American Enterprise Institute and the Cato Institute maintained a steady stream of research papers defending a market-based solution to the economic downturn triggered by the September 2008 financial crisis, arguing that bailouts and stimulus packages only made things worse, and pointing the finger of responsibility for rising unemployment at Obama himself. (See, for example, Kevin Hassett, “Recession Will Be Less Damaging without Bailouts”, AEI website, posted November 17 2008; and J.D. Foster, “Obama Jobs Deficit a New Record, Again”, Heritage Foundation Webmemo No. 2638, October 2 2009.)

Liberal commentators, by contrast, became increasingly frustrated as the year progressed by what many saw as the double standards at play in public policy – policy that was simultaneously generous to bankers, tough on manufacturers, inadvertently savage to workers in industrial America – and by the visible failure of policy to generate job growth. Paul Krugman in particular argued that the original Obama stimulus package had been too small – not, as the conservatives would have it, too large – and that the government needed to do “much more” (“Too Little of a Good Thing”, The New York Times, November 2 2009). Krugman’s fear – expressed in conversation with Will Hutton in the London Observer (June 14) – was that without additional stimulus the US could find itself locked into the same long-term cycle of stagnation that Japan knew through the 1990s. The EPI for its part, regularly stressed the long-term damage done by unemployment, and the immediate need for active job creation policies. (See, for example, John Irons, ‘Economic Scarring”, EPI Briefing Paper, September 30 2009; and Timothy Bartik and John Bishop, “The Job Creation Tax Credit”, EPI Briefing Paper, October 20 2009). The EPI program for immediate job creation involved

  • A strengthening of the safety net and direct relief for those adversely affected by the recession
  • Fiscal relief to state and local governments
  • The creation of public service jobs
  • New tax credits to spur job creation in both the private and non-profit sectors
  • Increased spending on infrastructure, especially school construction, maintenance and repair (EPI Policy Memorandum, October 20 2009)

The clear view of Obama’s liberal critics was that “the free market is not up to the job of creating work”; and that if employment is what we need to stimulate, “only massive programs are equal to the challenge” (Mort Zuckerman, in The Financial Times, October 19 2009). As Robert Reich put it in October, “Americans are jobless and scared. The Government must spend more to kick-start our economy” (posted on AlterNet.org, October 5 2009). The battle for the ear of the Obama administration on this continued as Answering Back came to publication.

David Coates holds the Worrell Chair in Anglo-American Studies at Wake Forest University. He is the author of Answering Back: Liberal Responses to Conservative Arguments, New York: Continuum Books, 2010.

He writes here in a personal capacity.

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