VP candidate Paul Ryan has been accused of lying when he claimed that Obama broke a promise by letting a Wisconsin auto factory close, when in fact the factory closed before Obama took office. Although that isn’t precisely what Ryan said, there is some validity to the accusation that his statement was deceptive.
But numerous Obama supporters are playing just as loose with the facts when they say that, if Obama hadn’t rescued GM and Chrysler, far more factories would have closed permanently. That is simply untrue. While news agencies have fact-checked some of the things being said at the Democratic convention, I haven’t seen any challenges of this claim.
Both GM and Chrysler were headed for bankruptcy. If they had gone bankrupt under chapter 11, most of their factories would have stayed open and they would have continued making and selling cars. Bankruptcy would have allowed the companies to avoid interest and dividend payments for a time, and to renegotiate union contracts. Under bankruptcy laws, stockholders would have lost the value of their stocks, but bond owners–who have first claim to company assets and profits–would have been paid off, if not in whole than at least in part.
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Instead of letting the companies declare bankruptcy, Obama decided to “bail them out” by taking them over. Once the administration had control of the companies, it had them file for bankruptcy, just as they would have done without the government takeover. Stockholders still lost everything, but so did Chrysler’s bond holders. Instead of renegotiating union contract, the administration gave the unions greater say over the companies. In other words, the administration didn’t bail out the companies; it bailed out the unions at the expense of (in Chrysler’s case) the bondholders.
In doing so, the administration created uncertainty in the bond market. Bonds were supposed to be safer investments than stocks. But who would want to invest in long-term bonds if the government could step in at any time and void the legal rights of the bond owners? The result is that bond sellers must be willing to pay more interest to attract buyers.
In short, the Obama auto bailout probably didn’t save many jobs (though it probably did keep worker pay uncompetitively high). Instead, it is more likely that the Obama administration’s action prolonged the recession by discouraging private investment in American industry.
Thus GM did go bankrupt, despite what many politicians say now that “GM was saved from bankruptcy”.
Also, if the government didn’t intercede, GM would have gone through Chapter 11 bankruptcy and still be in ongoing business today. But many of the union contract obligations would have been shed by the bankruptcy court.
Bailing out the 2 of the Big Three. I guess they didn’t like the backlash they received when it’s executives flew to D.C. on private jets to plead for the taxpayers money. Toyota isn’t asking for bailouts or Honda and Nissan all of whom build cars and perform engineering work here. Even BMW, Mercedes have factories here and Kia will have design centers and plants here all far removed from Detroit in the right to work states. At the same time Detroit was panhandling, Honda finished a factory to crank out more Civics in Indiana (Hyundai also has a plant in Indiana, the first zero-discharge waste facility in the U.S. ) Meanwhile The UAW even managed to create a place where long time workers who were not needed are still payed to do nothing. They’re making cosmetic concessions to give the appearance of progress. How can Detroit possibly make cars while paying all these benefits and additional stipends; Their cars show it. The upholstery isn’t as nice, the interior not as good looking, the plastic inside is all chincy. Inside and out the cars look watered down and cheap design wise. To pay all these high labor costs they use cheaper materials. Meanwhile the “foreign” cars look like works of art.
Of course the management of the Big Three is also to blame. They built cars nobody wanted. They stuck with the bread and butter of large SUV sales past the mid 2000’s. When those sales went belly up, their solution was to make underpowered versions large V6 crossovers (Traverse, Explorer, etc). It took them years to catch up with small fuel efficient models of their own like the Fiesta, the Dart, the Cruze. A majority of their factories are outmoded. Honda’s advanced technologies allows it’s plants to quickly switch models they build based on consumer demand. A bailout is Robin Hood in reverse, taking from everyone (including the rich, poor and moderate) to give to the rich. Of course no one made the exact same argument when they decided to give 700 billion to Wall Street to brokers living in Manhattan. It begs the question what is an American car, when Toyota builds over two-thirds of it’s North American lineup……..in North America.
Even the people’s car. Volkswagen now has a plant where it’s new 2013 Passat is built in Chattanooga, Tennessee. Designed to compete with Ford’s Fusion (built in…..Mexico). Volkswagen’s Chattanooga plant that produces the Passat is part of a $4 billion investment by the company in the Ú.S. market.
Maybe the more relevant question is this – have any of the “new” U.S. auto manufacturers (Honda, Toyota, Mercedes, BMW or the others) built a plant anyplace close to Detroit, Michigan where the workers might be organized by the United Auto Workers Union?
No. Nearly all the plants and factories have been built either in the American Southeast (Georgia, Alabama and South Carolina) and some midwest States like Indiana being the closest I can think of.
The Toyota Tundra is built in San Antonio.
Though it just occurred to me that Honda has a large complex in Marysville, Ohio, a state usually considered part of the so-called “rustbelt.”
Though Honda also has a large plant in (among other places) Timmonsville, South Carolina, right next to I-95 Exit 153, Honda Way.
South Carolina is not generally regarded as UAW territory.
I feel like cherry picking data and manipulating statistics is part of presidential politics. However, modern politics is moving beyond these subtleties and straight to bold face lying. This coupled with the return McCarthiestic fear mongering has been particularly troublesome.
Bankruptcy laws are a creature of the government which is a creature of the people. There is nothing written in stone in the 10 Commandments saying that bondholders are the most sacred of stakeholder interests, while everyone else should just bend over and get hosed.
Far more voters are workers at auto companies and their suppliers than are major bondholders. The political calculus wasn’t very hard, even if you don’t like it.
LazyReader:
A bailout is Robin Hood in reverse, taking from everyone (including the rich, poor and moderate) to give to the rich.
Not true. The Government printed up the money for bailouts out of nothing. No one had anything “taken” from them by taxes by the bailouts and various stimulus acts. People were just given “new” money, and in fact, huge tax cuts of “new” money from nothing were handed out to every American.
How can Detroit possibly make cars while paying all these benefits and additional stipends
The excess cost of UAW benefits and the like works out to around $300 per car +/-, as total man-hours of assembly/stmaping/etc. per vehicle are just 30-35. Labor is not a major component of vehicle costs. If you took an $60 per hour wage+benefit rate (which is on the high side), total labor costs would be around $2000 per vehicle, or less than 10% of the typical cost of the car. Development costs, manufacturing costs, and materials are by far the largest cost centers.
Remember that. The difference between autoworkers getting peanuts in the south at $15 per hour jobs vs. earning a middle class living in Michigan or Ohio as a UAW member is equivalent to a rounding error in your negotiations with the dealer, or a slight change in the local sales tax rate. This is why the German workers being paid $35 per hour in wages to make things vs. Americans being paid $15 per hour does not affect their manufacturing competitiveness, but does create a wealthier and happier populace.
We heard the same thing some months ago when the subject of making iPhones in the US came up. The actual difference in cost for an American made iPhone would be around $60 on a $500+ device if they were made in the US vs. being made by slave labor in Communist Chinese prison factories. If most lower-scale wages in the US were 50-100% higher because we had twice the manufacutring we do now at higher wages than most of it is and higher paying retail/service jobs because of fewer workers being available, prices would go up between 1% on high end goods to around 50% on low end goods like apparel, but most people would be earning far more money overall and could absorb the higher prices and still be better off because of the higher wages. Of course a handful of multi-millionaires and billionaires would have to be content with slightly smaller fortunes because they would have paid their workers for their productivity instead of keeping all the money as profit extracted from the enterprise. Do you think the Walton’s would even notice if they were worth just $50 billion instead of $100 billion?
Its amazing that people still don’t understand the economic lesson of Henry Ford’s $5 day wage or Hamilton’s economic system, or the benefit of being a high wage country where the workers can afford to shop at places besides the Dollar General, even though the detriments of our low wage economy are visible all around us in the rundown and unkempt appearance of much of America has taken on since 1980, and the shoddy dreck we now have to constantly replace in purchasing manufactured goods.
Remember that. The difference between autoworkers getting peanuts in the south at $15 per hour jobs vs. earning a middle class living in Michigan or Ohio as a UAW member is equivalent to a rounding error in your negotiations with the dealer, or a slight change in the local sales tax rate. This is why the German workers being paid $35 per hour in wages to make things vs. Americans being paid $15 per hour does not affect their manufacturing competitiveness, but does create a wealthier and happier populace.
Consider the American Capitalist Henry Ford and his idea of paying Ford assembly workers the unheard-of wage $5 per day back in 1914. Hedrick Smith of the N.Y. Times wrote a recent op-ed about this entitled When Capitalists Cared.
“Bankruptcy laws are a creature of the government which is a creature of the people. There is nothing written in stone in the 10 Commandments saying that bondholders are the most sacred of stakeholder interests, while everyone else should just bend over and get hosed.”
We have a long tradition in Anglo American law of not changing the rules mid-game, of not passing retro-active laws. And the 10 commandments have this thingy about your neighbors goods. Bonds are goods. So you are entirely wrong.
It was barefaced theft with the loot given to union cronies, and it was all too often theft from the pension funds of individuals and other unions.
The casual effrontery with which you accept the use of political power for theft astonishes me.
“The Government printed up the money for bailouts out of nothing. No one had anything “taken—. Well, except the poor dolts who had saved their money only to have it inflated out from under them, and the taxpayer when the bailout money does not get used for other government purposes for which borrowed and tax money is used and well, everybody, because of reduced economic efficiency. But that’s OK right, because we are stealing only a few dollars each from hundreds of millions of people and they can afford it, so screw ’em.
Your comments on the cost of union vs. non-union labor may even be true but you forget to mention the horrible work ethic and dishonesty of unionized labor. Lots of blame for management too, but the unions have never ever admitted their many faults, and a few hundred bucks a car does add up.
As for paying workers more than market rates, OK, sure fine, just as soon as people pay me more than market rates for my products. I buy distressed real estate, fix it up nicely and rent it out. If I have a property worth $1,500.00 per month would you step up to the plate and pay me $2,000.00 a month if I had paid my workers over market wages? C’mon, tell me another fairy tale nose stretcher about how you would, “fer shure, dude”, or evade entirely.
Fred_Z:
And the 10 commandments have this thingy about your neighbors goods. Bonds are goods.
So are stocks, manufacturing plants, and compensation contracts.
Someone may gain entitlement to ownership either by natural right or by operation of the law. Bondholders prior claim in bankruptcy is a matter of operation of the law, not natural right. Therefore, what was freely given may be freely taken away by actions by legal authorities that can modify that entitlement without such actions acquiring a specter of theft. Its not an ex post facto law either, which is criminalizes an act after it has been committed.
This is no different than claiming changes to the tax code that affect the return of an investment you made are illegitimate because you failed to forsee they might occur.
except the poor dolts who had saved their money only to have it inflated out from under them
What inflation? Can you point to the recent horrible bout of inflation suffered in the US since 2009? Where is it?
you forget to mention the horrible work ethic and dishonesty of unionized labor
That which is gratuitously asserted is to be gratuitously rejected. I’ve worked with hundreds of union and non-union workers in factories and construction and transportation. I have not found greater dishonesty or laziness in either group than any other particular group. For example, I’ve seen lazy and dishonest union electricians, and I’ve seen lazy and dishonest non-union electricians. As well as hardworking and honest ones in both groups.
a few hundred bucks a car does add up
It adds up to a few hundred bucks a car. But if more people at the bottom of the payscale were making $10 per hour more, a few hundred dollars per car would be a net economic positive.
As for paying workers more than market rates
The market rate is whatever is agreed to. The fault is businessmen looking to push their workers to accept as little as possible.
I buy distressed real estate, fix it up nicely and rent it out. If I have a property worth $1,500.00 per month would you step up to the plate and pay me $2,000.00 a month if I had paid my workers over market wages?
The value of a thing is what someone will offer, not a disinterested appraisal. There may very well be someone who will offer $2000 per month for your hypothetical situation.
However, more to the point is that the paying of fair market wages doesn’t need to drive up costs, because it should come out of existing but uncompensated improvements in productivity workers have made without being compensated for it that is presently going to profits and management compensation.
OMG! Andrew (who I’m sure is the highwayman) is one of those Democrats who support capping or banning profits.
Just come out of the closet and admit you’re a Marxist.
Claims about low wages in the US are spurious given the evidence; that is, the United States has the highest average disposable wages among OECD nations.
Frank:
Averages include the very skewed upper end of the American pay scale, and wages padded by Americans having to work longer hours than people in other nations.
http://www.irs.gov/uac/SOI-Tax-Stats—Individual-Statistical-Tables-by-Size-of-Adjusted-Gross-Income
90 million earned the full time minimum wage and up making a total of $5.5 trillion. Slightly over half this total earned $15-50,000 for a total of $1.32 trillion, and an average of $28,000. The next 30% earned $50-100,000 for a total of $1.69 trillion, an average of $62,000. The next 15% earned $100-$250,000 for a total of $1.65 trillion, an average of $120,000. The last 2.5% earned $250,000 an dup for a total of $830 billion and an average of $376,000. 80% of the wages paid go to the 50% who are doing well or very well.
And this analysis ignores another 26 million who do not even make the equivalent of the full-time minimum wage. Including them, 60% of wages go to the 20% earning over $75,000. The bottom 80% of wage earners average $27,000 per year, with a median right around $25,000.
Total bullshit, Andrew. Read my post below. Only 5% of the workforce earned minimum wage or below. According to the BLS:
Frank:
Its right out of actual tax returns filed by every workign American, not airy-fairy survey extrapolations.
Anyone can peruse the data for themselves at the link, under the Wage and Salary Income column.
“Averages include the very skewed upper end of the American pay scale, and wages padded by Americans having to work longer hours than people in other nations.”
And averages include the very skewed lower end of the American pay scale. What’s your point? Can you provide evidence that uses mode or median disposable wages? If you find such statistics, can you please explain their superiority over mean?
According to a 2008 ranking by the Organization for Economic Co-operation and Development, there are eight other OECD nations with a workforce that on average (go ahead and, without evidence, criticize the average!) that work more hours than workers in the United States.
Leisure time in the US has increased since 1965:
Don’t you ever search Google before you make up stuff? Or do you just make it up and think no one will check your unsupported assertions? Either way, time to stop making shit up.
No Frank, I don’t go Googling to find stupid articles about leisure time. Undoubtedly with fewer people in the workforce and more unemployment, people have more leisure time. From your article: “By and large, the biggest leisure gains have gone precisely to those with the most stagnant incomes—that is, the least skilled and the least educated.”
Hilarious Frank. Welfare bums, unemployed layabouts, minimum wage check-out clerks on forced part-time schedules, the homeless, and high school dropouts have more leisure time today (and there are more of them, hooray!), so we should all rejoice at our good fortune of our lives improving!
Do you read what you link to here before you make stuff up? Apparently not.
And AGI is not wages. AGI includes taxable interest and dividends; business income from partnerships, Subchapter S corporations, sole proprietorships, and farms; capital gains; taxable pension and IRA distributions; unemployment compensation; and some Social Security benefits.
We’re talking WAGES here Andrew, not INCOME. Y
Your initial statement mentioned “detriments of our low wage economy”; I have provided evidence that the United States has the highest average disposable wages among OECD nations. All you could do was criticize “average” and then go on to cite as evidence averages. You have offered nothing except unsupported assertions. Stop making shit up.
Frank:
And AGI is not wages.
No, its not. That is why I linked you to an IRS spreadsheet which breaks down all sources of AGI reported so that you can work with the individual components, and then did the addition and division myself. You know, add up the number of people reporting Wage and Salary income, and then divide by the total of the Wage and Salary income to get an average.
I take it you didn’t actually look at the link, otherwise you wouldn’t be posting the ignorant drivel we’ve just had to wade through. Please spare us your further displays of stupidity until you actually look at the IRS’s data of all actual wages and salaries paid.
You didn’t link to a spreadsheet. When I linked valid, published evidence, you responded with a link to the IRS with Individual Statistical Tables by Size of Adjusted Gross Income page. You didn’t state which table you used. Then you used an average, which you previously criticized regarding the OECD data.
Your methodology is flawed in that you are looking at gross wages rather than disposable wages, the amount people with paychecks actually get to keep.
You’re also comparing EVERYONE who reported wages, including part-time workers, rather than coming up with FTE as the OECD methodology uses.
Bottom line: I trust the OECD’s methodology and statistics and I don’t trust yours.
Frank:
Why not try the one labeled: “All Returns: Sources of Income, Adjustments, and Tax Items” for the latest year available?
Then you can select AGI brackets of returns and income, and do the division as to what the average Wage and Salary income being reported is.
Doing your own analysis is so much more interesting and revealing than regurgitating someone elses statistical foderol.
Weak, highwayman. I mean Andrew.
Oh for the love of God Frank. I am not HIGHWAYMAN.
Okay?
As Randall if you really believe that. i’m sure he can tell you we are different people.
Also keep in mind that the lowest paid workers, those who make minimum wage or less, are an underwhelming 5% of the population. Five percent.
Half are 25 and under.
Half are employed primarily in restaurants and other food services. For many of these workers, tips and commissions supplement the hourly wages received.
So the lowest wages go to teens and college-aged students. Teens usually live at home and don’t have to pay many bills, so their income is almost exclusively disposable. Additionally, teen labor is not as valuable due to lack of job skills.