A Philosopher's Blog

GM

Posted in Business, Ethics, Politics by Michael LaBossiere on June 3, 2009
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In a bit of a flashback, the government bailed out GM to the tune of about $20 billion dollars. Despite shoveling this much cash into the dying company, it still died. Or rather died a financial death on the form of bankruptcy. Now the state owes 60% of GM, a company that has a rather impressive negative net worth. Or unworth, to borrow a bit from the notion of the undead. Of course, that is something of an apt term-just as the undead are formerly living beings that continue to move around after death, GM is a formerly profitable company that continues to move around after its financial death.

While people are calling GM “Government Motors” and getting fired up with rhetoric about socialism, I am going to bypass all that for now. Instead, I’ll do a bit of math.

The logic behind dumping about $20 billion into GM was that it would help save jobs and save the economy. Now, if we just took $20 billion and hired people at $40,000 a year, we could hire 500,000 people for one year. Or hire 50,000 for ten years. Or, …well, you can do the math. Alternatively, we could have put that money into starting up new businesses and, in all probability, created many viable new companies that would hire people.

While I do believe that the state has an obligation to protect the citizens, this should be done in an effective manner. That is, the action taken should get the most for our tax dollars. This has clearly not been the case with the Bush and Obama administrations’ handling of the crisis.

But the money wasn’t spent that way. Rather it was spent to try to save GM, which failed anyway. Of course, the folks in the government are trying to put a positive spin on it: GM will shed its bad components and re-emerge as a leaner and profitable company. However, this is something of a serious gamble. GM’s track record has been one of more or less unrelenting failure and bad decisions for years. Pouring money into a company with that sort of track record seems to be a rather bad risk. If GM fails to arise like a phoenix from its ashes, then we (the taxpayers) will be, to use the technical term, screwed once again.

But, suppose that GM does rise out of the ashes like a mighty fire bird? What will that do for the taxpayers? Will we get a slice of the profits? Will we each get a new car? Will we sell off GM for a small percentage of its worth to some friend of who ever happens to be in office when that happens? Whatever might be said now, we have to wonder what we will get out of this. The more cynical might say “screwed again.” Perhaps.

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Banks & Cars

Posted in Business, Politics by Michael LaBossiere on March 30, 2009

The Obama administration recently began holding at least some corporate leaders accountable for their failing companies. Of course, by “some” here I mean “one”, specifically Rick Wagoner of GM.

The fact that the Obama administration requested that Wagoner step down has struck some as a bit odd. While it is sensible and ethical to remove a failed leader, it seems a bit odd to single Wagner out. After all, while GM has taken some taxpayer money in the form of loans and GM is not doing well, the company seems to have had no roll in the massive economic meltdown. Strangely enough, the corporate folks who bear the greatest responsibility for the meltdown have been untouched by any punitive actions. In fact, some of these folks have been paid bonuses (although some decided to return the money).

Naturally, there is speculation about why the Obama administration has not been as severe with the financial folks as it has been with the (once) Big Three US automakers. The more cynical have suggested that the key difference is that the financial folks bought the politicians. For example AIG seems to have donated generously to both Obama and Dodd in the past. While the Big Three (especially GM) once wielded considerable influence in Washington, those days seem to be over. Perhaps it is because the Big Three no longer have the money to give generously to the politicians. A truly cynical person might see the folks in government acting a bit like a mob: “pay us, and you’ll be fine; don’t have the cash for us…well, some things might get broken…”

It has also been suggested that some of the folks in the Obama administration are just a bit too closely connected to the financial folks that are being bailed out. This, one might contend, would bias the Obama administration. This is, of course, well worth considering. For all the talk on the right about Obama’s administration being socialist, they all seem well connected to capitalism. But, I could be mistaken about this.

Of course, perhaps it is the case that the Obama administration is yielding to the public desire for CEOs to be punished and Wagoner just happened to be th unlucky fellow to be dragged up on the alter to be sacrificed. But, this merely raises questions as to why he was selected.

Utilitarianism & Bailing Out the Big Three

Posted in Business, Ethics, Politics by Michael LaBossiere on November 18, 2008

As the world economy continues to stagger about, the American government is considering whether to bail out the big three American automakers (Ford, GM and Chrysler). Like many business, they are running low on cash and are apparently in danger of bankruptcy or outright failure. While this is of great economic and political concern, this discussion also raises philosophic concerns as well.

From a moral standpoint, the question is whether the state should help out the Big Three on moral grounds. As usual, the easiest way to argue for this is to use a utilitarian approach. Making the case is simple enough: estimate the harms done to Americans (or the world if you want to expand the scope of the relevant beings) by not helping out the Big Three and the benefits that will come from helping them out. 

The best estimate at this point are that 2 million Americans depend on the Big Three for their health insurance and that 1.4 to 1.7 million jobs would be lost if they failed. While the Big Three make vehicles, they also buy parts, purchase advertising and so on and these tie the companies into the overall American economy.  If this figures are accurate, then many people would be harmed if these companies failed. Assuming that the proposed $25 billion (US) bailout would prevent them from failing, then serious harms would presumably be avoided. If the harms prevented are worth at least $25 billion, then a bailout would seem to be the right thing to do.

Of course, there are also other factors to consider. Laying aside the practical concerns about whether the bailout would save the day or not (after all, the Big Three could still fail even with all that extra cash), there is also the obvious concern that the money could be better spent elsewhere. In utilitarian terms, the question is whether there are other ways to use the money that would create greater utility than bailing out the Big Three. In terms of pure numbers, if spending $25 billion elsewhere could help more people, then that is what should probably be done instead. Of course, political spending tends to be decided more by lobbying power than by what would add the most to the general good.

Another concern is to look beyond the more immediate consequences to the long term consequences. After all, the harms generated by bailing out the Big Three must also be considered. One consequence well worth considering is that such a bailout will encourage large companies to engage in more risky behavior. After all, their leadership might reason, if they are “too big or too important to fail”, then Uncle Sam will be there with a bag of cash if they start failing. As such, that anticipated rescue cash will become part of their planning, thus leading them to take more risks. But, even the United States cannot keep dumping taxpayer money into failing companies and this could lead to yet another economic disaster (or a continuation of the existing one).

Moving away from utilitarian concerns, there is also the other moral question: do the Big Three have a moral right to such a bailout? After all, many experts have argued that they are in such dire straits because of leadership failings and poor decision making. If this is true, then it would seem they have no right to expect cash from the state. After all, while the state is supposed to protect the citizens from enemies, the state does not seem to have an obligation to protect citizens from their own bad choices. After all, if I started a business trying to sell books many people did not want to read, then I should hardly expect a check from Uncle Sam when my business fails.