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Posted on 11/22/2008 7:32:47 PM PST by rabscuttle385
Before the U.S. House of Representatives, November 21, 1979
Although I was not in Congress when either the Lockheed or the New York City bailouts were enacted, I would have opposed both of those actions, as well as the proposed action regarding Chrysler, for many of the same reasons. Let me explain those reasons.
In a nation that is sinking in a sea of debt, it is irresponsible for this Congress to be considering a measure that would add billions to that debt. The expansion of credit is one of the primary forms of inflation. It is not merely inflationary in its effects; it is inflation itself. If this $1.5 billion is created by the federal government, it will ripple and percolate through our banking system, and because of our fractional reserve system, the ultimate growth in the money supply will be far more than $1.5 billion. The standard multiplier is six; that means an infusion of $1.5 billion will eventually result in a $9 billion increase in the money supply. In his testimony before the House Banking Committee, the former Chairman of the Council of Economic Advisers, Alan Greenspan, stated that
Loan guarantees, insofar as the issue of inflation is concerned, are virtually indistinguishable from on-budget financing, and that the major cause of inflation into this country has been an excessive amount of credit preemption, largely in the area of guarantees, which . . . has created excessive monetary growth and is the base of inflation in the system.
A vote for the Chrysler bailout is, simply put, a vote for further inflation.
Some may argue that the inflation is necessary in order to avoid unemployment, echoing the now repudiated idea of A.W. Phillips, that less inflation means more unemployment and vice versa. The past few years of our experience with inflation and unemployment should convince everyone that high inflation and high unemployment can exist side-by-side. I believe the connection is even closer: Inflation causes unemployment – perhaps not immediately, but in the longer run – and we are now in the longer run of our past inflationary policies. It follows that a vote for aid to Chrysler, because it is a vote for inflation, is also a vote for more unemployment.
Such unemployment may not be obvious, but it will nonetheless be real. One of the things that bothers me most about this entire discussion is that it centers around only what is obvious. Saving 100,000 jobs at Chrysler is obvious; losing 100,000 jobs, one by one around the country is not obvious, but they will nonetheless be lost, should aid to Chrysler pass.
Let me explain why I believe this to be so. If this aid takes the form of loan guarantees rather than direct loans (and, I add parenthetically, that over $1 billion of the New York City loan guarantees has been converted into direct federal loans by the Federal Financing Bank) it will be tantamount to an allocation of credit to Chrysler. That means that Chrysler will get capital that would have gone to other more efficient and more profitable businesses. Because this capital will be diverted by these loan guarantees to a less efficient business, it is highly probable that more jobs will be lost through invisible unemployment than would be were Chrysler to fail. I hasten to point out that this will result in all the increased costs to the government that the proponents of the bailout so loudly declare they wish to avoid. Of course, the costs will not all be centered in Michigan; unemployment checks, welfare checks, food stamp benefits will increase nationwide, in big and small towns, urban centers and rural America. Rather than a few localities suffering noticeably; many will suffer almost invisibly. Workers who have nothing to do with Chrysler will lose their jobs or pay the taxes and higher prices caused by this bailout. The average industrial worker earns half of what the average Chrysler workers earns, and under the UAW contract, the Chrysler workers will be receiving a $500 million pay and benefits rise over the next three years. I have always thought that businesses in trouble cut costs; the Chrysler workers will receive far more in wage increases alone over the next ten years than this bailout amounts to. That (and other facts) would indicate to me that the Chrysler workers have not made any sacrifices and that they hope, through federal aid, to maintain their relatively high wages at the expense of the lower-paid workers in this country. We are being asked to shift the burden from the relatively well-off workers at Chrysler to the relatively worse-off workers throughout America. A Chrysler bailout will be a shifting of burdens that should be borne by those involved.
Do we in Congress have the authority, either moral or constitutional, to cause this suffering? I can find no provision in the Constitution authorizing Congress to make loans or loan guarantees to anyone, let alone to major corporations. Nor have I yet seen a valid moral argument concluding that we, as representatives of all the people, have the right to tax the American people – most of whom receive less in wages and benefits than Chrysler workers – to support a multibillion-dollar corporation. What right have we – and I pose a serious question that deserves an answer – what right have we to force the American taxpayers to risk their money in a business venture which private investors dealing in their own funds have judged to be too risky? Chrysler paper is now classified; that means that any private investor who is handling funds for his depositors, shareholders, or clients may be judged as violating his fiduciary responsibilities should he invest in Chrysler. Don’t we have a trust equally important from the American people? Are we not betraying their trust by voting for a Chrysler bailout? I believe so.
Rather than supporting this patchwork and temporary "solution," we should be addressing those factors, over which we have control and for which we are responsible, that have brought Chrysler to the brink of bankruptcy. In his testimony before the House Banking Committee, President Iacocca listed three factors that caused the troubles at Chrysler: (1) government regulations; (2) inflation; and (3) the gasoline allocation system that caused last spring’s gasoline shortages. Please note that all three factors are the responsibility of the Congress. We wrote the regulations or gave some bureaucrats a blank check to write the regulations. We are responsible for inflation through our mismanagement of the monetary system. And we empowered the Department of Energy to create a gasoline allocation system that brilliantly achieved what I had heretofore thought impossible: gasoline shortages in Houston, the oil capital of the United States.
It is our responsibility to diagnose the Chrysler disease accurately. Instead, we are acting like political quacks, prescribing potions to treat symptoms, while the cause of those symptoms rages on unabated. Chrysler is not unique; it is merely the prototype, the harbinger, of crises to come. Dr. Greenspan testified that the most likely sequence of events, in his view, would be federal loan guarantees followed by a Chrysler failure anyway. Unless the disease is correctly diagnosed, the potions we prescribe will kill the patient.
I would urge this Committee and the whole Senate to act with more deliberation than the House has acted. This form of welfare for corporations must end. Just because it was extended to Lockheed does not mean that it should be extended to Chrysler. Bad precedents should not be followed, and these precedents are particularly bad. Because Lockheed, a large corporation, New York City, the largest city, and now Chrysler, the tenth largest corporation in the country, are the three institutions to which aid has been or will be extended, one can conclude that there is an obvious pattern of discrimination in the action of this Congress.
Last year there were 200,000 bankruptcies in this country, according to U.S. News & World Report. Yet we have selected only the largest for our aid. This is discrimination of the crassest sort. We ignore the smaller victims of this government’s policies simply because they are small. Only the largest, those with the most clout, the most pull, get our attention. This aristocracy of pull is morally indefensible. What answer can be given to the small businessman driven into bankruptcy by government regulations when he asks: "You bailed out Chrysler, why not me?" No justification can be given for this discrimination between the powerful and the powerless, the big and the small.
It is an axiom of our legal system that all citizens are to enjoy the equal protection of the laws. That axiom is violated daily by our tax laws, and now by this proposed corporate welfare plan for Chrysler. Apparently some citizens are more equal than others. That is a notion I reject, and I hope you do, too. I urge you to reject this proposal for all the reasons I have stated.
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as i drive the 91 freeway through riverside
i see 10 year old vehicles bearing ron paul stickers.
It LANDED!
Please stop. I wrote a 30 page paper on this in college. I will have nightmares:0).
Does it bother you that millionaires who are invested in every sector of American industry drive 10 year old cars.
not at all.
but i seriously doubt that these people are millionaires.
they look like they’re just getting by.
What money supply growth? Inflation is far, far better understood now than it was back then, and the Federal Reserve, for all its faults, doesn’t operate as badly as it did then. When Congress spends money, it comes from the Treasury, from existing money.
And the multiplier effect he’s talking about has to do with the velocity of the money supply, and they take that into account in their calculations (now) at the Fed.
That said, if instead of handing out money, the Congress creates credit that *acts* as money in the economy, then yes, that can lead to inflation. So if anything, they should just give them cash, rather than giving them credit. Of course, they shouldn’t do either, but this is politics.....
A friend of mine has a beautiful herd of Black Angus. Him and his wife live in their original home, a little 700 sq ft house on a small lot in a little hick town in CA. His old truck looks like something that a junkyard dealer would drive. It’s a 60’s something Dodge.
Unless you knew him for as many years as I have you wouldn’t think he had an extra $20 a month to spend. Wasting money on fancy cars isn’t something he does. His old truck runs like a sewing machine and he’s quite happy with it especially since he had the seat re upholstered.
Fred and his beautiful wife of 58 years are worth a little over four million. Living a lifestyle to impress others just isn’t their way.
Some one wrote a book on them... “THE MILLIONAIRE NEXT DOOR”
Can I borrow your copy?
If I still have I’ll send it with Pete on the back haul. Pass it it around...
I knew that you’d have a copy. hehehe
An American businessman was standing at the pier of a small coastal Mexican village when a small boat with just one fisherman docked. Inside the small boat were several large yellow-fin tuna. The American complimented the Mexican on the quality of his fish.
“How long it took you to catch them?” The American asked.
“Only a little while.” The Mexican replied.
“Why don’t you stay out longer and catch more fish?” The American then asked.
“I have enough to support my family’s immediate needs.” The Mexican said.
“But,” The American then asked, “What do you do with the rest of your time?”
The Mexican fisherman said, “I sleep late, fish a little, play with my children, take a siesta with my wife, Maria, stroll into the village each evening where I sip wine and play guitar with my amigos, I have a full and busy life, senor.”
The American scoffed, “I am a Harvard MBA and could help you. You should spend more time fishing and with the proceeds you buy a bigger boat, and with the proceeds from the bigger boat you could buy several boats, eventually you would have a fleet of fishing boats.”
“Instead of selling your catch to a middleman you would sell directly to the consumers, eventually opening your own can factory. You would control the product, processing and distribution. You would need to leave this small coastal fishing village and move to Mexico City, then LA and eventually NYC where you will run your expanding enterprise.”
The Mexican fisherman asked, “But senor, how long will this all take?”
To which the American replied, “15-20 years.”
“But what then, senor?”
The American laughed and said, “That’s the best part. When the time is right you would announce an IPO (Initial Public Offering) and sell your company stock to the public and become very rich, you would make millions.”
“Millions, senor? Then what?”
The American said slowly, “Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take a siesta with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos…”
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