Friday, December 12, 2008

A Moral Hazard Monster

People, please believe me when I say I feel bad for the employees of the Big 3. I have been a factory worker and a union member and I am not anti union. In my view the problems with the Big 3 are not mainly or even substantially due to the UAW.

Instead, I ascribe them to horrifically bad management and the history of government meddling / subsidy / intervention that apparently created a moral hazard monster.

It's probably good to remember that the vaunted $73 /hr labor cost of the Big three does not measure the wages and benefits of current workers.

However, I do not favor this bailout and I am happy it failed. I can also find ironic humor in statements like those made by the mayor of Lansing MI, Virgil Bernero:

"Due to this colossal failure by the U.S. Senate, now it's up to the president and the Treasury secretary.."

"Working Americans will appreciate the president stepping in — and pull us back from the precipice, pull us back from the economic cliff."

People, the big 3 auto industry and its political henchmen never believed the government would actually let them fail. That's moral hazard and that to me is a big part of the story of why these firms were run so incredibly and horribly into the ground.

They are not in this position because of the crisis so much as they are here because of 20+ years of bad behavior. For some simple evidence supporting this claim see this post. That is the real colossal failure and it was aided and abetted by the government but not in the way that mayor Bernero thinks.

All this said, I think there is a decent chance that the Bush administration WILL do something to bail out GM and Chrysler thus moving itself even further up (down??) the list of worst presidencies ever.


MaxSpeak said...

Innocent question: how can you be not anti-union plus libertarian?


P.S. I luv this site, though I disagree with everything in it.

Angus said...

Hi Max: a union is (in theory at least) a private organization. If the workers want to get together and try to raise their pay, why not?

The other possibility is that I am not actually a libertarian.

Anonymous said...

IMO the threat of a strike and the strike itself, including the practical albeit illegal option of preventing others from working in the interim, is the chief asset for a union. I would have thought this is anathema to a libertarian, though please pardon me if I have mistaken your views. -- Max

Angus said...

I am not in favor illegal union activities, but I am not intrinsically anti-union. I don't see anything anti-libertarian about a legal strike.

In my posts, I have just been saying that I don't think the UAW is the Big 3's main problem.