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Megan McArdle

Megan McArdle - Megan McArdle is a senior editor for The Atlantic who writes about business and economics. She has worked at three start-ups, a consulting firm, an investment bank, a disaster recovery firm at Ground Zero, and The Economist. More

Megan was born and raised on the Upper West Side of Manhattan, and yes, she does enjoy her lattes, as well as the occasional extra-dry skim-milk cappuccino. Her checkered work history includes three start-ups, four years as a technology project manager for a boutique consulting firm, a summer as an associate at an investment bank, and a year spent as sort of an executive copy girl for one of the disaster-recovery firms at Ground Zero … all before the age of 30.

While working at Ground Zero, Megan started Live From the WTC, a blog focused on economics, business, and cooking. She may or may not have been the first major economics blogger, depending on whether we are allowed to throw outlying variables such as Brad Delong out of the set. From there it was but a few steps down the slippery slope to freelance journalism. She has worked in various capacities for The Economist, where she wrote about economics and oversaw the founding of Free Exchange, the magazine's economics blog. She has also maintained her own blog, Asymmetrical Information, which moved to The Atlantic, along with its owner, in August 2007.

Megan holds a bachelor's degree in English literature from the University of Pennsylvania and an M.B.A. from the University of Chicago. After a lifetime as a New Yorker, she now resides in northwest Washington, D.C., where she is still trying to figure out what one does with an apartment larger than 400 square feet.

GM Loses Big

By Megan McArdle
Feb 12 2008, 11:35 AM ET Comment

GM has posted the largest loss in automaker history, $38.7 billion for 2007. Almost all of that is a writedown of deferred tax assets--a masterpiece of big bath accounting. On a cash flow basis, the company seems anemic, but not fatally wounded.

Once again, the company is hoping to reduce costs by offering buyouts to more of its union employees. It's astonishing how lavish these buyout packages can be, and yet still save the company money--early retirement plus $45,000 is apparently cheaper than keeping them on the line. It's a sign of something deeply out of whack in the labor market when companies are consistently this desperate to shed workers--how can the UAW swing enough clout to keep the automakers tottering in and out of unprofitability? Is it good for anyone if they push the company into bankruptcy? Yes, yes, American automakers have a lot of problems, but their labor costs are by far the biggest and least tractable ones. You can't enhance your productivity and slash costs if you have to find some way to keep tens of thousands of extra workers occupied all day.

I'm sure that conservatives will claim this is a matter of labor law, but that doesn't offer a very good explanation; most other unionized industries are nowhere near this bad, and the other one that is (airlines) has some unique pathologies due to value-claiming by multiple unions that the auto industry shouldn't display. The UAW's behavior seems irrational enough, though explicable: it's essentially a cognitive bias problem, excess loss aversion. Faced with the certain loss of tens of thousands of jobs, the union is gambling that they can push the company to the edge of bankruptcy without going over. One assumes that other sorts of public choice problems also come into play: members who are likely to get laid off are probably more motivated voters than members who aren't.

But the company's behavior seems inexplicable. All three of the automakers are crippled by their deals with the union, not just because of wage and benefit costs, but because the union tends to strongly resist productivity enhancements that might cost jobs. Yet none of the automakers has taken any sort of stand. The company and the union are like two skydivers trying to share a small parachute--locked in each other's arms as they hurtle to their death, because neither wants to be the one to let go.

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