News Story

Did the Auto Bailout Really Save One Million Jobs?

The Center for Automotive Research (CAR) released a study concluding that the U.S. government’s $80 billion bailout of the auto industry saved more than 1.14 million jobs.  CAR is located in Ann Arbor.

David Littmann, senior economist with the Mackinac Center for Public Policy, gave his thoughts on the study’s findings.


The very concept of a "taxpayer-forced bailout saving 1.14 million jobs" is ludicrous and does great violence to the genuine workings of a market-system. It appears to be political advocacy at its crudest level, rather than a legitimate economic analysis. The study is ridiculously biased and sentimental, rather than economically-rooted in basic principles or financially objective.

For example: What's the economic impact (private sector investment and spending) of wiping out bond holders?

Without the uncertainties created by government interventions and a fiat-money-created "stimuli," how much additional real spending, investment, and employment would have occurred?

Had GM been forced to confront a normal Chapter 11, at what fortuitous prices might their firm have been acquired, their most productive capital and labor absorbed, and a credible long-term (moral-hazard-free) environment have been created, and without a future fraught with coercions of profit-killing labor contracts and strikes? 

Truly, the best proxy for opportunity costs is the comparison of employment in the auto industry between RTW (right-to-work) states and Michigan. 

And that doesn't even directly capture the monumental capital inflows to RTW states. This becomes the seed corn for future growth in population, income, auto demand and spending, investment, venture capital funding, wealth formation, and employment. 

These are some of the dynamic, long-term adjustments sponsored by a competitive market-system's adaptations to economic exigencies. 

CAR provides comparative static guesstimates. They fail to evaluate either the full long or short-term costs, such as where the bailout money comes from or the long-term (all-in) costs inflicted on the taxpayers who are subsidizing a failed firm. No proper accounting of opportunity costs is shown. 

What would the alternative value of lower prices, taxes, and uncertainty have been, especially if the adjustments had been achieved sooner? 

How much firmer would the business climate of the auto industry and nation be today had another "too big to fail without subsidies" crutch not been inserted?

The market would have successfully transferred only the most productive of GM's assets to the wiser, more consumer-accepted automakers throughout the U.S. I have tracked this process of market share transfer since 1978.  It is the most consumer-friendly (and workforce-productivity augmenting)  process on earth.  An economic system can only be ratcheted downward in its fiscal or competitive status when government removes or temporarily overrides the market threat systems operating on labor and management.


Mr. Littmann received the 2003 Lawrence R. Klein Award for Blue Chip Forecast Accuracy. This is one of the most prestigious and long-standing awards in the profession. It recognizes the best four-year economic forecast in the nation. In 2004, Littmann was honored by the state Chamber of Commerce as Michigan’s man of the year for outstanding leadership and contributions. His research articles on the causes of inflation were published in Business Economics, the professional journal of the National Association of Business Economists.

More of his bio here.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.