If Americans love anything, they love cars. January light vehicle sales were just over 913,000, an increase of 11.4 percent from last January. This is a good thing. The now maligned auto bailouts were proposed in December 2008, when Ford shares were selling for under $3.00 and GM was bankrupt. Ford now sells for more than $12 a share, an increase of at least 400 percent, and GM has annual revenues of $149 billion. A stimulus, indeed.
But a stimulus for whom? That seems to be the central question of the Republican candidates’ bailout skepticism. Last week, Mitt Romney wrote an opinion editorial for Detroit News. In it, he argued the auto bailout was designed to return kickbacks to auto union bosses and pensioners. The key to his logic is that union costs, healthcare and retirement costs are “$2,000 baked into the price of every car...” These added costs, by Romney’s logic, were paid for by taxpayers.
And he has a point. Bloomberg Markets magazine did some in house calculations to show that banks, collectively, made around $13 billion income from Federal Reserve loans offered at below market rates. This point is, or should be, this is far more controversial than the auto bailout program because the loans were made in secret, and they amounted to between $669 billion to $1.2 trillion, depending on calculations.
Around $1 trillion was loaned to the largest banks in the world through what can be easily characterized as backdoor secret deals. This is part of the reason Ron Paul wants to dismantle the Federal Reserve. His argument is often marginalized, focusing on purely the secrecy aspect, but his broader theme is that Federal Reserve intervention unfairly distorts markets. Paul’s critical point is that the U.S. dollar has lost 95 percent of its value since 1913, because the Federal Reserve systematically increases the money supply.
Such inflation stokes Republican bailout skepticism. The bailouts create obvious wealth for auto companies and banks, yet rapidly increasing the money supply could further destroy the value of the dollar. That’s why all of the Republican candidates, save Romney and Rick Santorum, want the U.S. to return to the gold standard or, as Newt Gingrich suggests, any policy that links the dollar to hard assets. Their impression is that a fixed money supply will create a stronger dollar, which will somehow improve the economy.
The candidates asking for the gold standard are right that it will create a stronger dollar, but they’re wrong assuming that very rigid monetary policy will have magic effects on American quality of living. Neither Romney nor Santorum advocate the gold standard because they understand that as the population increases, money supply must increase as well.
But alas, questions remain. Republicans are generally against bailouts for the same reasons they’re against a growing money supply: There are too many opportunities for the money to benefit the wrong people, and if poorly executed, inflation will rise. The candidates are right that more transparency is needed, but those arguing for inflexible monetary policies are wrong.
Expanding monetary policy has a purpose. Without it, January auto sales would have been nil.
Reach the columnist at whamit@asu.edu
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