As GM goes, so goes America. Well, I hope not.
GM filed for Chapter 11 bankruptcy on Monday because of years of complacency and overextended benefits to its mostly unionized workforce. Not surprising since the auto company, which occupied the driver’s seat in the automobile industry following World War II, has been hemorrhaging customers for decades. Over the last 30 years, GM has been losing almost one percentage point of market share per year; it sold 45 percent of the new vehicles in this country in 1980, 35 percent in 1990, 28 percent in 2000 and 19 percent so far this year. Likewise, GM has been driving — brakeless — down Exorbitant Benefit Road, paved aggressively by the UAW, for too long. No wonder it finally ran out of gas.
But could the U.S. be following the same map?
Like GM, the U.S. emerged as one of the top world powers after World War II. Since then, it has faced competition from viable economies emerging around the world, causing it to lose much of its competitive advantage. Whereas U.S. dollar reserves and market capitalization share used to be 71% and 48% respectively in 1999, they stand at only 64% and 36% respectively today.
On top of that, the U.S. promises generous benefits to its “union” of sorts — namely taxpayers and voters — who consume entitlements faster than GM’s former brand, the Hummer, consumes gas. Medicare ($36 trillion), Social Security ($7 trillion) and the rest of the national debt ($13 trillion including fiscal 2009 deficit) total $56 trillion in liabilities and unfunded promises of the U.S. This grim liability outpaces total U.S. household net worth of $52 trillion. I suppose we can make up the difference by selling assets. Perhaps China might bid on Yosemite National Park or the White House.
While Federal Reserve Chairman Ben Bernanke reasons that “We [must] demonstrate a strong commitment to fiscal sustainability in the longer run” to achieve “financial stability” and “healthy economic growth,” it may not be enough to pull the U.S. off this highway to bankruptcy. We must learn from GM and make the tough choices NOW that no one wants to make.
We only have three options from which to choose: The government can raise more revenue through taxes, cut spending by decreasing benefits, or employ a combination of both. Congress and the president need to take action soon before the U.S. succumbs to bankruptcy.