Tuesday, December 16, 2008

Gotta question...

...for those who oppose bailing out the auto industry in Ontario. According to this, failing to bail out the auto industry would cost 517,000 jobs over 5 years (if all three big automakers go out of business). 141,000 jobs would be lost immediately if auto output in Canada was halved.

So, assuming those numbers are accurate projections (the article doesn't explain the reasoning, so it's one of those take it or leave it deals), that means that failing to bail out the auto industry could toss 4% of Ontario's 13,000,000 population out of work in 5 years (the first scenario), and 1% of the population immediately (the second scenario). What, exactly, justifies sitting back and watching that happen? What are we going to do with all these people?


Catelli said...

As I asked on my Blog, how does a bailout guarantee those jobs don't disappear eventually anyway.

Andrew Coyne makes a very good point.

The report, with its shock-horror estimate of 582,000 jobs lost, is founded on two premises, both of them utterly absurd. One, that all three of the Detroit-based auto manufacturers shut down all of their operations, not just in Canada, but worldwide (the study models “the impact of the Detroit Three automakers ceasing operations globally.”)

Two, that none of the other manufacturers increase production to take up the slack (”foreign vehicle manufacturers in Canada are assumed to maintain production.”)

The doom and gloom scenarios all treat this as a zero sum game. That the US Auto manufacturers are so essential, no one else will fill the void. Also, that total collapse is the only alternative to the bail-out.

If they are really that bad off, then the amount proposed in loan guarantees will amount to diddly squat.

PS, weird Captcha moment, my verification word is imourn

ADHR said...

It doesn't guarantee it, but it buys us enough time to ride out the current financial meltdown, such that the Big Three can enter Chapter 11 and restructure. It should also provide enough time that those who see the looming restructuring can transition out slowly into other employment (rather than dumping half a million people into the labour market).

That former is the essential problem. No loans are available except from governments, as the banks are also trying to scale back; so, if governments refuse, then Chapter 7 (liquidation) is the only option. So, I do think it's plausible that total collapse will follow a failure of bailout. I note Coyne doesn't explain why he considers this claim implausible; he focuses on the other one.

It's perhaps reasonable to think that other manufacturers will fill the void left by the Big Three, but I don't see what that case would be based on. Are Hyundai, Toyota, et al looking to expand North American (which is more salient than worldwide) operations? Or are they currently scaling back? It's all well and good to suppose that several million automobiles would still be wanted, but can the other manufacturers ramp up fast enough to meet that demand? Or will we just see prices increase? I don't see what the case he's trying to make is actually based on.

Catelli said...

Anyway we slice it, jobs are going to be lost. The question that we're trying to grapple with is a) How many and b) Is it forever (or near enough)?

I think its more efficient to have the money go directly to the unemployed. Keep them afloat until something arises from the ashes. If need be, make loans available to promising, relatively low risk initiatives. (In comparison, the bail-out as proposed is a high risk venture.)

The way its going, I strongly suspect we'll wind up doing both, propping up the industry and then supporting the unemployed when it collapses anyway.

ADHR said...

But how do we support the unemployed? We're considering a large number of people here, probably more than have ever been dumped on the unemployment system (so, EI, welfare, etc. for government programs, also private programs like food banks). Are we just going to give them money directly? That seems like it won't help long-term, so then we need to somehow invest in industries to create enough jobs to cover those who are let go by the auto sector.

I don't deny that this is a possible solution, but I suspect it's much more difficult than keeping the current employer alive for a little while longer and letting people transition themselves into other work.

mnfu said...

If I wanted to be cynical I'd say that the current government's Alberta base would quite like a flood of skilled workers coming into their economy to loosen up what remains a tight labour market in Calgary and Fort McMoney.

ADHR said...

Is that cynical? Or realistic...?