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
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.
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
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.
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.
Paul is a Republican member of Congress from Texas.