Congress vs. Automakers: Are Both Sides Fiscally Irresponsible?

by: Diane Rogers December 04, 2008 | about stocks: F / GM    

Diane Lim Rogers

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Last week I pondered whether those of us inside the DC Beltway (aka 495) were being too hard on the auto industry. In today’s Washington Post, the editorial board doesn’t seem to think so:

[I]f the Big Three and the UAW are to have any chance of survival, there is no alternative to a swift and far-reaching overhaul of their business. Congress must continue to insist on one.

…and my boss, the Concord Coalition’s executive director Bob Bixby (in his op-ed column “Congress in a Glass House”), also doesn’t necessarily think so, although Bob does think it a bit ironic that it’s largely Congress that’s berating the auto execs about the mismanagement of their fiscal affairs:

After hearings last month to consider the plight of the Big Three automakers, Congress’s warning was clear: no plan, no bailout. It was a tough-love message, but it rang a bit hollow coming from lawmakers who have no plan of their own to avoid a fiscal debacle that could be many times more serious than anything the automakers face…

[I]t is worth asking what might be demanded of Congress by a special guardian appointed to safeguard the interests of today’s youth. A good place to start is the letter written to the automakers by House Speaker Nancy Pelosi and Senate Majority Leader Harry M. Reid…

These sound conditions [described in the Pelosi-Reid letter to the automakers] should be applied to the federal budget as well. Unfortunately, though, there is no special guardian of future generations to make such demands. That job belongs to our elected leaders. They, too, must demonstrate significant sacrifices and major changes to their way of doing business. After all, they share responsibility for the nation’s future just as the Big Three executives share responsibility for the future of the auto industry…

Taxpayers are getting fed up (and truly worried) about hearing of hundreds of billions of dollars in federal money being pumped out to an ever-expanding set of industries–where will it end, we ask?

But let’s remember that most of this doesn’t automatically translate into higher taxes for current taxpayers anyway. Most of this cost translates immediately into a higher public debt, which translates eventually into higher taxes, lower government services, and a reduced standard of living for future taxpayers (our kids and grandkids). And the federal government was already over-extended and over-committed way beyond the increment we’re currently adding to the debt due to all this “rescuing” we’re doing. That’s the sense in which it’s ironic that Congress (and the federal government in general) is scolding the automakers for asking for federal money and imposing those burdens on (future) taxpayers.

For sure, a lot of this rescuing is necessary, and the deficit will be very high for the next couple years. But acknowledging the need for deficit spending as stimulus doesn’t justify ignoring the ultimate budget constraints and acting as if we need not count costs relative to benefits.

Fiscal responsibility in a broader sense matters more than ever, which in the context of stimulus means avoiding “throwing the money out the window” and more carefully considering where we can get maximum economic bang per buck. Because each of those bucks is very precious, and the cost of each of them is actually many times a buck because of that nasty thing (for debtors) called compound interest.

See my colleague Jon DeWald’s excellent post on this point (why “fiscal responsibility” is not contradictory to short-term deficit-financed stimulus), on Concord’s “TABulation” blog.

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This article has 2 comments:

  •  
    Dec 04 01:40 PM
    "For sure, a lot of this rescuing is necessary, and the deficit will be very high for the next couple years."

    Each "rescue" of one of these "too big to fail" companies just adds to the fiscal problems. We have to stop somewhere. We have to stop talking about how we can't continue to bailout and actually stop doing it.
    Reply | Link to Comment
  •  
    Dec 04 02:28 PM
    yeah, I trust Pelosi and Reid to put together a 'successful plan' to rescue the industry..

    sounds like socialists saving socialists to me

    UAW out
    SAW in

    i'll buy a honda
    Reply | Link to Comment
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