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Recipe for Failure? The Auto Bailout and the Failure of the New Deal's Economic Recovery Program

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Headlined to H1 3/29/09

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With the economy tanking and unemployment skyrocketing you'd think the Obama administration would be doing all it could to save jobs. But if its auto bailout plan is any indicator of its current direction, we're on our way to losing a lot more jobs.

Why is that?  Because President Obama and his advisers are repeating the central mistake of Franklin D. Roosevelt's New Deal-contradictory programs that undermined economic recovery in his time. While the Obama stimulus package creates jobs elsewhere, its auto bailout will eliminate more than 500,000 jobs. Americans need an overall federal government recovery plan that stops job loss and starts job creation.



To rescue and revive the auto industry, the bailout must be linked to other vital American interests. We have spare workers and empty auto factories; they can be used to solve American problems of oil dependence, pollution and greenhouse gas emission reduction. Only through this kind of linkage can the Obama administration avoid the New Deal's failure to generate a self-sustaining economic recovery.

Today's Republican critics charge that government spending is why the New Deal couldn't get the nation out of depression. The real problem was that the New Deal lacked a coherent recovery plan. Its programs often worked against each other. Some, like the Works Progress Administration (WPA), created jobs for the unemployed, while others, such as the National Industrial Recovery Act's industrial policy, helped cut demand for labor.



Much like the current auto bailout plan, the New Deal's industrial policy set production to low levels of demand. Production cuts were generally successful in pushing up prices, profits and, to a lesser extent, wages, but hours worked and production lagged.

The overall result was that industrial employment did not drive recovery during the New Deal. While Roosevelt's programs did push down unemployment from its 1933 record of 25 percent, unemployment remained high -- 17 percent in 1939 after six years of the New Deal -- and recovery was elusive.

The Obama administration is repeating Roosevelt's mistakes. While its stimulus will increase industrial jobs, its auto bailout will lead to the elimination of production jobs, and close 14 factories and more than 1,000 dealerships. Despite these cuts, the auto makers and parts manufacturers say they still need about $48 billion more from the government.  

Because each auto manufacturing job generates spending that supports about four other jobs, these layoffs and dealer and plant closings are going to ripple through the economy with devastating effect. A chain reaction of bankruptcies will sweep the auto parts industry, resulting in even more job losses and business closures.

Spending taxpayer billions to this end is a very bad deal. A much better investment is a smart and equitable federal policy, quickly applied, to restart the auto industry.

Here's how it can be done:

<LI type="disc"> Use already appropriated Federal government bailout funds to make $15 billion of investments in auto manufacturer and parts supplier stock. This will keep the auto industry afloat for the next four months.

<LI type="disc"> Require banks receiving bailout money to use 10 percent of the "aid" -- $4 billion to date -- to generate new auto and truck loans for the purchase of fuel-efficient vehicles.

<LI type="disc"> Add $15 billion to the factory conversion grant fund legislated by Congress in 2007 to convert existing auto plants and auto supplier factories to manufacture highly fuel efficient cars, trucks and buses and their parts. Require the government to distribute these grants within three months.

<LI type="disc"> Create a $5 billion grant fund to help poor and high-unemployment school districts and municipalities purchase hybrid buses and vans for mass transit. Impose a 120-day "use it or lose it" requirement on these funds.

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Dr. John Paul Rossi is a associate professor of American history at Penn State Erie, The Behrend College. He writes on business and economic history, and has co-authored ENTREPRENUERSHIP AND INNOVATION IN AUTOMOBILE INSURANCE: SAMUEL P. (more...)
 
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You're right about the New Deal not working. U... by Darren Wolfe on Sunday, Mar 29, 2009 at 11:16:16 AM
Darren, How effective government is depends on bo... by John Paul Rossi on Sunday, Mar 29, 2009 at 12:44:14 PM
John, I'd like to reply to your second parag... by Darren Wolfe on Sunday, Mar 29, 2009 at 5:05:12 PM
  Hmmm... just by the title I can alread... by ConSion on Sunday, Mar 29, 2009 at 12:58:50 PM
Magnetic generators are expected to replace the ... by Mark Goldes on Sunday, Mar 29, 2009 at 3:09:02 PM
Magnetic generators are expected to replace the ... by Mark Goldes on Sunday, Mar 29, 2009 at 3:09:23 PM
Let's hope someone who can, will take them to ... by John Sanchez Jr. on Sunday, Mar 29, 2009 at 3:10:23 PM
John, That is the trick. We need to find and s... by John Paul Rossi on Monday, Mar 30, 2009 at 11:49:07 PM
I agree that more more auto loans and better fuel ... by Arktig Silver on Sunday, Mar 29, 2009 at 3:59:36 PM
Arktig, I agree that the U.S. needs a strong manu... by John Paul Rossi on Monday, Mar 30, 2009 at 11:28:51 PM
Some vital questions that require serious attentio... by CB Brooklyn on Sunday, Mar 29, 2009 at 5:24:30 PM
I am not sure that comparisons with the New Deal a... by Richard Wise on Sunday, Mar 29, 2009 at 6:20:42 PM
The End of the US Piano Industry http://mises.org... by Darren Wolfe on Sunday, Mar 29, 2009 at 7:04:00 PM
The Jeffrey Tucker article is noteworthy but, no m... by Richard Wise on Monday, Mar 30, 2009 at 3:23:11 PM
Richard, See Arktig's and my discussion above... by John Paul Rossi on Monday, Mar 30, 2009 at 11:47:38 PM
Your article is exactly on point.  Without re... by WML on Sunday, Mar 29, 2009 at 6:43:26 PM
NOt sure if you have heard this one yet but the ce... by Randy Schaad on Sunday, Mar 29, 2009 at 8:44:58 PM
Randy, If GM's board was doing its job, which i... by John Paul Rossi on Monday, Mar 30, 2009 at 11:54:27 PM
"President Obama and his advisers are repeati... by Perry Logan on Monday, Mar 30, 2009 at 5:59:08 AM
Please see: An Economy On Life Support Is Not R... by Darren Wolfe on Tuesday, Mar 31, 2009 at 9:12:27 PM
USA: The Iron Fist of Fascism (General Motors)http... by Darren Wolfe on Monday, Mar 30, 2009 at 9:51:57 AM