Giving the Devil His Due

by Scott P. Richert

November 12th, 2008 • Related • Filed Under

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Over at Takimag, Chronicles contributing editor Tom Piatak has a thought-provoking piece on the proposal to extend $25 to $50 billion in government-backed loans to the Big Three automakers. Among other points completely ignored by those who reflexively shout “Let them die!” whenever the American auto industry is mentioned are, as Tom notes, that as many as three million U.S. jobs may be lost; that the “tax loss from such a catastrophe would be over $150 billion over three years”; and that over 850,000 retirees receive pensions and health benefits from the Big Three–and taxpayers are on the hook for at least some of that cost through the Pension Benefit Guaranty Corporation.

In other words, the extension of $25 to $50 billion in loans may be the cheapest way out of this mess. Predictably, though, the same people who declared that we had to bail out Wall Street have drawn the line at Midwestern Main Streets.

Tom’s thoughtful, reasoned, and fact-filled post drew a response from Richard Spencer, modestly titled “A Modest Proposal.” Alas, there’s nothing Swiftian about Richard’s post. His modest proposal comes down to this: “Give every Big Three worker a direct cash handout of $100,000, and then cease all bailouts.” He offers this alternative to loans to the Big Three because, as he writes, “arguments for saving the Big Three are arguments for saving jobs and helping out the good people who work for these massively unionized and horribly mismanaged companies.” So why not just give the money to the workers and be done with it? (And save as much as $25 billion to boot!)

Since Richard doesn’t really support this idea, it’s perhaps a bit unfair to point out what his proposal reveals about his knowledge of the economic impact of the American automobile industry and of manufacturing generally, but I’ll do it anyway. Like a good individualist, Richard instinctively assumes that all jobs and companies and industries are interchangeable. Individual wages and profits tell the entire economic story.

But they don’t. This passage in Tom’s post should have alerted Richard to that point: “The November 3 issue of Crain’s Cleveland Business reports that in greater Cleveland, where I live, 26,800 people work in the transportation equipment sector, and 100,000 jobs depend on that sector, directly or indirectly.” Here in Rockford, as recently as three years ago, 23 percent of jobs were still in manufacturing, but another 23 percent of all jobs in the area depended on the manufacturing jobs.

That’s why, even though Richard finds in Wikipedia that “there are around 240,000 people working in the American auto industry,” Tom notes that “The Center for Automotive Research has estimated that a collapse of GM, Ford, and Chrysler would cost nearly three million jobs.” Different types of occupations have different effects on the economy. Industrial manufacturing has a relatively high multiplier effect; internet punditry (to pick an example out of the air) does not.

None of this, of course, necessarily means that the proposed loans are a good idea. I, for one, would like to see a serious debate in Congress before such loans are approved–far more serious than the one held before the Wall Street bailout. (Financial services, by the way, also have a rather low multiplier effect on the economy.) And I’m heartened by the fact that some commenters at Takimag–especially Evan McLaren, “Eagle,” John Médaille, Derek Leaberry, Sean Scallon, and Red Phillips (among others)–clearly understand the issues at hand. (Others, unfortunately, cannot avoid bleating out “one size fits all” libertarian talking points.)

Some of the commenters, including McLaren and Leaberry, note the irony that paleoconservatives now find themselves in the position of trying to save America from deindustrialization, even though industrialization had many very anticonservative effects. This was a subject of one of my Rockford Files columns over five years ago. In light of this debate, that column seems relevant again, and so I present it below.

* * *

Giving the Devil His Due

Early in the morning factory whistle blows,
Man rises from bed and puts on his clothes,
Man takes his lunch, walks out in the morning light,
It’s the working, the working, just the working life . . .

One of the oddest ironies of our postindustrial age is that conservatives—true conservatives, not the various utopian progressivists who call themselves by that name—find themselves defending the remnants of the industrial system, the onset of which their intellectual and spiritual forebears viewed with dread. It is not that the crazy mystic William Blake was wrong when he wrote of the destruction of the English countryside by “these dark satanic mills”; still less Robert Burns, in his “Impromptu on Carron Iron Works”:

We cam na here to view your warks,
In hopes to be mair wise,
But only, lest we gang to hell,
It may be nae surprise . . .

Rather, conservatives, knowing that Jacobin optimism is more dangerous politically (and, possibly, even more destructive spiritually) than despair (you can, after all, repent of despair), see all too clearly that, whatever the damage wrought by industrialism, the emerging postindustrial “service” or “technology” economy bodes far worse for society.

Through the mansions of fear, through the mansions of pain,
I see my daddy walking through those factory gates in the rain,
Factory takes his hearing, factory gives him life,
The working, the working, just the working life . . .

“Factory gives him life”: Can the same be said of the job at Wal-Mart or McDonald’s or even the relatively high-paying technology positions at WorldCom or Enron? Libertarians and neoconservatives may long for the day when subsistence farming and manual labor disappear completely from the American scene, but what kind of a life can you build for your family if your continued employment—let alone the continued existence of your employer—is always in doubt?

These questions have an added urgency here in Rockford, now that Ingersoll Milling Machine has closed its doors after 112 years and filed for bankruptcy, and one of the largest private employers, Hamilton Sundstrand, is sending signals (perhaps unintentionally) that the days of its factory in southeast Rockford are numbered. (After months of negotiations, Sundstrand’s management gave the union less than a day to examine a six-inch-thick contract proposal; when the union asked for more time to examine the details, Sundstrand locked the employees out.)

Shortly after Ingersoll gave its 300 employees two hours to clear out and locked its doors forever, the local Gannett paper’s token Republican columnist opined that “Some doomsayers will predict that Ingersoll’s failure signals the end of manufacturing in the Rock River Valley.” I’ll take the bait: Yes, manufacturing is leaving Rockford—20 percent of local manufacturing jobs have been lost over the past three years. And, unlike in my hometown in Michigan—which, in the recession of the early 1980’s, successfully exploited its access to Lake Michigan to move to a tourist economy—nothing is replacing it: Unemployment in Rockford is back in double digits—its highest rate since that earlier recession. Rockford is more like Flint, post-GM, struggling to avoid bankruptcy. The major difference is that the political, media, and civic leaders in Flint acknowledge the problem.

When Bruce Springsteen wrote the final verse of “Factory,” he was describing the pain and anger of men who would return to their jobs the next morning, when the factory whistle blew once again:

End of the day, factory whistle cries,
Men walk through these gates with death in their eyes,
And you just better believe boy,
somebody’s gonna get hurt tonight
It’s the working, the working, just the working life.

That pain and anger, however, is nothing compared to the social disruption caused by the loss of those jobs. Over the past year, I’ve watched marriages end—good marriages, loving marriages, with young children—as the financial strain of unemployment, compounded by the loss of healthcare just when it is needed most, pulls families apart. Homes are lost, and the financial effects of factory closings cascade through the local economy as small businesses—from sandwich shops to metal-working and packaging plants—find themselves without customers. What does a father do when he can’t find a new job within six months, or nine months, or a year? He can “retrain” in one of the “hot new fields,” the democratic capitalist replies—but that assumes that companies in those fields are opening up in Rockford. (They aren’t.) Then he can uproot his family and move where the action is, the libertarian smugly answers. (The market has spoken.) But at what cost to his family and to Rockford? And where? And when his family arrives in the Promised Land, what guarantee will the father have that his new job won’t head south, or to China, or to India?

Yes, life involves certain risks, and most of us are here in the United States because our ancestors suffered similar economic “dislocations,” but there is a difference in kind, not simply in degree, between the farmer in 1832 who left one subsistence existence in Alsace for another in the fertile fields of Southern Indiana and the engineer in Rockford in 2003 who may eventually—and, in all likelihood, far from his hometown—find work that will pay him wages that the subsistence farmer would never see. After all, that engineer will always know the uncertainty that comes from earning your livelihood at the mercy of another man.

Comments

There Are 134 Responses So Far. »

1 Comment by Miles Gloriosus on 12 November 2008:

FTA: “In other words, the extension of $25 to $50 billion in loans may be the cheapest way out of this mess. Predictably, though, the same people who declared that we had to bail out Wall Street have drawn the line at Midwestern Main Streets.”

After bailing out Paulson and his friends, no one can make a conscionable argument against bailing out the big three; and even to argue that they should be allowed to reap the fiscal consequences of Union greed immediately falls flat when one sees the salaries in the hundreds of millions paid to executives of Wall Street brokerage houses who irresponsibly ran their firms into the ground.

If we’re going to use public monies to keep Bush’s bosom friends from ending their days peddling apples on the streets and naked but for wearing a whiskey barrel, to throw Detroit to the wolves just to stand on principle would be cynical and wrong.
2 Comment by Harry W on 12 November 2008:

The auto industry right now spends approximately $12 billion on R&D – that does not include the salaries of tens of thousands educated scientists and engineers. Here in Michigan the result is some of the finest engineering schools in the world such as the University of Michigan and the Kettering Institute. All of this is in jeopardy.

If the domestic automotive industry dies, the only auto research, development, and engineering jobs left will be the fairly small operations the inbounds have set-up. Essentially, the US will no longer contribute the development of motor vehicle development, with the exception of tanks and armored vehicles.

The auto companies, United Auto Workers, and various governments all have had a hand in the mess. Now we can watch millions of neighbors loose their jobs, loose their homes, loose their businesses, and all of us become dependent on Japan, Germany, and soon, China and India, for our transportation and technological leadership.

No matter what happens those who lead us to this state, the politicans, executives, and union leaders will not be punished.
3 Comment by J. Meng on 12 November 2008:

I would say this for what its worth and I’m probably dreaming in this dog eat dog world. Before issuing the 25 to 50 billions of dollars to bailout Detroit, the automakers would have to agree to the following conditions: a) guarantee by either carburetion or fuel injection (or other technology), a car that obtains 80 miles to the gallon with 20 gallon fuel tanks; b) reduce the number of models made (we don’t need the cutsy-wutsy she likes, or the he-man he likes; after all, an automobile is just a means of transportation); c) introduce new models every three years (to save cost in new dies and assembly set-ups); d) Unions will be allowed to bargain for new wages only if the national economy dictates it: i.e., inflation spirals, etc.
If there is not to be any requirements placed on the part of the automakers in terms of efficiency of product, then bailing them out is just playing the same game that got us to where we are now.
4 Comment by Allen Wilson on 12 November 2008:

I’m not sure I would go as far as Mr Meng, though I do like the gas mileage requirement, but I do think that requiring the big three to bring jobs back from overseas by using American sources for manufacturing components wouldn’t be a bad idea. The problem here is that it would be unwise to impose such requirements on companies already struggling for existence.

Congress should have thrown the Wall Street scum to the wolves, and now they should be turning right around and bailing out Detroit. After all, if the big three fail, they may just have a hard time finding replacement parts to put in their Limos, not to mention parts for our own vehicles. Besides, we cant afford to lose such a strategic asset.
5 Comment by Scott P. Richert on 12 November 2008:

J. Meng raises some interesting ideas, though 80 mpg is a tad optimistic. Reducing the number of models and introducing new models on a longer schedule, though, are both good ideas.
6 Comment by Daniel Maxwell on 12 November 2008:

From one Catholic to another, Scott, I understand where you are coming from. People could lose their jobs – indeed, many thousands, perhaps millions of jobs could be lost within a matter of a few years.

But when you take a step back, remember the same nonsense happened in the 1980s. Unproductive, bloated car companies – yet politically well connected ones – get a nice big fat check courtesy of the US taxpayer. UAW workers continue to receiver ridiculous goodies at their companies expense, and we repeat the cycle again in 25 years.

As Keven Gutzman said in his reply on Takimag, this is why Chapter 11 exists. The companies assets will be re-organized, and be made productive again. Painful? Yes. And in the interest of full disclosure – I work for a parts supplier for GM, and there is a good chance I too would hit by such a series of layoffs.
7 Comment by Tom Piatak on 12 November 2008:

Thanks, Scott, for your kind words, and for continuing the discussion. A collapse of the Big Three would simply devastate large swaths of the country.
8 Comment by Scott P. Richert on 12 November 2008:

Daniel Maxwell (@6):

Unproductive, bloated car companies

Except, as Tom Piatak pointed out in his post at Takimag, Detroit’s performing pretty well in J.D. Power surveys now–which was not true 25 years ago.

I work for a parts supplier for GM

Which means that you should know that your other statement:

UAW workers continue to receiver ridiculous goodies at their companies expense

doesn’t quite paint an accurate picture, either. Compared with 25 years ago, the UAW has minimal influence. The problems today run much deeper than management blithely giving in to labor demands–and they reflect fundamental problems in the American economy.
9 Comment by Tom L on 12 November 2008:

1.) If manufacturing automobiles in the USA in this day and age is an extremely uncompetitive situation compared to other countries then throwing $50 billion or more at them will basically be throwing our good money after bad and it won’t solve the problem.

2.) Note the reaction on Wall Street very recently about how the $750 billion will not solve the problems (but it will increase bonuses to senior exectutives this year).

3.) We shouldn’t assume that if three companies go bankrupt it will mean all that industry will die. The way the market is supposed to work is that buyers will come in and buy parts of the company such as manufacturing facilities and then likely try to manufacture cars themselves but with newer and better ideas and without the baggage of all the mistakes made up to now and all the debts, etc. Shareholders and bondholders may lose everything but look at how much money shareholders made during the 1982 to 2000 bull market. They will mostly be just giving back some of that.

4.) If we are worrying about the workers and pension holders then why don’t we just admit that we believe in socialism and guarantee not only the UAW workers and pension holders everything they currently have but also do so for the poor slob who had to slave away at a non-union job all his life and is just living off social security now. Why should UAW workers’ pensions be sacrosanct when other workers, excepting all government workers of course, don’t get these lifetime guarantees.

5.) I’ve seen entire industries that I have been involved with close shop and move overseas so that now no American plants are left in these industries. I travel to China to visit and buy from the companies that make these products now. Why is it that no one worried about the thousands of American workers that were left out of work permanently from the jobs they were trained for but everytime a big industry is affected everyone gets concerned. (Many more manufacturing jobs in aggregage have been lost than all the UAW jobs put together over the last decade or so.) I’ll answer my own question. The big companies have a lot of political clout and the big unions have a lot of political clout. It would make more sense for the govt. to give all USA companies a tax break rather than choose some annointed, favored industries to spend tax money lavishly on and that tax money paid by non-favored industries.

6.) I suggest we shouldn’t let media and govt. attention make us decide what should be priorities but realize that there are millions of individual stories of individuals and businesses in American and each should be treated equitably. If the govt. could give my business $1 million and 50,000 other businesses like mine the same amount it could help the USA economy much, much more that $50 billion for the automakers. But I would be opposed to giving us all $1 million each because that is not the way business should operate. Let us all, big and small businesses, stand or fall based on our own skill in our individual business arenas and keep the distorting influence of govt. out!!!
10 Comment by Tom Piatak on 12 November 2008:

Mr. Maxwell,

The other problem with bankruptcy is its effect on consumer confidence. Buying a car is not a one-time transaction, and the buyer wants to know that someone will be there to keep making parts for his car and servicing it. That is why the Big Three are very keen on avoiding bankruptcy, fearing that it would decimate sales even during a reorganization under Chapter 11.
11 Comment by Steve Berg on 12 November 2008:

If we only took the $70billion of borrowed taxpayer money that the banksters are planning to distribute to themselves as bonuses, and put it into the Big 3, we would be money ahead. But, then not all of the money would flow to Wall Street, and instead would help maintain some semblance of survival to an essential industry in the Midwest. Perhaps the UAW pension fund could pull their funds out of Wall Street and start investing in their own locales, and in the companies employing their own members. Why help your enemies?
12 Comment by Josh Cooney on 12 November 2008:

Libertarians often provide excellent insights, but they have an eery resemblance to neoconservatives and other liberals in that they possess unshakable confidence in their ideas. Do exactly as we say and everything will turn out just fine, seems to be the mantra. “Trust the market, it never fails,” “stay the course,” “yes we can.” I’m not sure bailing out the auto-industry is the right thing to do, but I give credit to Mr. Richert and Mr. Piatak, if only because they sound like real human beings, unlike the neocon and libertarian robots, or the ecstatic liberals who believe they can “change the world.” I’ll trust the conservative who isn’t so sure he’s right over the one who believes he has the cure for all the world’s ills.
13 Comment by Clark Coleman on 12 November 2008:

The $64,000 question is: How can the enormous labor-cost-per-car disadvantage of USA auto makers (compared to Japanese auto makers) disappear unless the companies go through Chapter 11 and void their contracts?

The AVERAGE hourly wage worker at General Motors gets wages and benefits that cost GM a little over $96 per hour. Benefits are eating up more than 50% of this cost. In normal American businesses, a worker who makes $75,000 a year has a benefits cost that is less than half his salary cost, but at GM he has a benefits cost substantially higher than his wage costs. This is just nuts.

A bailout is a United Auto Workers bailout, pure and simple. Chapter 11 bankruptcy does not mean that 100% of the workers are put out on the street the next day. Do Mr. Piatak and Mr. Richert even know how bankruptcy works when they release their estimates of lost jobs?
14 Comment by Clark Coleman on 12 November 2008:

Correction: Make that $96,000 per year, not $96/hour, which would be double the labor cost.
15 Comment by Clark Coleman on 12 November 2008:

One last shot at a correction and I will stop: At the end of 2005, total labor costs per hour for wage employees were $48 for Toyota’s USA employees, and $73 for GM.
16 Comment by Tom Piatak on 13 November 2008:

Mr. Coleman,

Yes, I know how Chapter 11 works. I don’t practice in the bankruptcy area, but I am a lawyer. I also know that a viable enterprise does not always emerge from reorganization, and believe that the American auto industry’s concerns about bankruptcy and the effect it would have on sales are reasonable ones. My estimates of job loss, by the way, come from the Center for Automotive Research in Ann Arbor. I linked to their report in my article.

I also know, which very few commenters seem to, that the UAW recently negotiated a new collective bargaining agreement with the industry, that, according to a very informative Associated Press story of November 8, “nearly eliminated the labor cost difference between the Detroit Three and the Japanese, shifting retiree health care costs to a union-administered trust fund,” in addition to instituting a two-tier wage structure providing for dramatically lower wages for some workers. The benefits to the automakers from this new contract are phased in over time, and many do not take effect until 2010, but the contract represented a real effort to address the labor cost differential.
17 Comment by A. Hayter on 13 November 2008:

Though I am a strong defender of private property, I’m always amazed at the propensity of free marketeers to exaggerate the alleged doom to be brought about by new statist policies. One has to discriminate between problems.

Obama’s proposed redistributionist tax hikes will not kill the economy – what is the precise mechanism by which they are thought to do so? Stealing money from those with the ability to create wealth, and redistributing it to the parasite class, certainly does not HELP the economy; but why would this put us into some kind of depression? Unless Obama jacks up tax rates on the productive so high that our best people start working less, or even emigrating, we’re merely transfering spending power from Mr. X to Mr. Y. Immoral, certainly, but hardly likely to destroy the economy.

Likewise with his stupid calls for more regulations (what we need is massive DE-regulation, privatization, and budget cuts, along with a gold standard). This will not help matters, but even Democrats are not Mugabe-like African dictators. They will not just destroy businesses overnight. The results will be more sluggish growth than otherwise – but not catastrophe.

The two procedures that really could precipitate economic annihilation are 1) more idiotic macroeconomic interventions on astronomical scales, such as the ‘conservative’ Bush Administration is inflicting upon us; and 2) hyperinflation caused by continuing Fed monetary debasement, and general calculational chaos resulting from unending micro-monetary manipulations, such as the fool Bernanke has been engaging in.

But it’s hard to derive these outcomes from what the distasteful Obama has proposed.
18 Comment by Sempronius on 13 November 2008:

Does anyone here know what the demographic break-down of auto workers is?

Specifically by age ,race,sex,ethnicity?

The more detailed the analysis the better.

Yes,in case your wondering,my mischievous mind is cogitating all sorts of cynical “impure” thoughts.
19 Comment by Scott P. Richert on 13 November 2008:

Tom L (@9):

I’ve seen entire industries that I have been involved with close shop and move overseas so that now no American plants are left in these industries. I travel to China to visit and buy from the companies that make these products now. Why is it that no one worried about the thousands of American workers that were left out of work permanently from the jobs they were trained for but everytime a big industry is affected everyone gets concerned.

I’m not sure how long you’ve been reading Chronicles, but we’ve discussed such industries and workers at great length. My own columns on the subject over the past eight years run to more than 100,000 words.

Note, though, that the point you’re making here (industries have closed up and no American plants are left) directly contradicts your previous point:

We shouldn’t assume that if three companies go bankrupt it will mean all that industry will die. The way the market is supposed to work is that buyers will come in and buy parts of the company such as manufacturing facilities and then likely try to manufacture cars themselves but with newer and better ideas and without the baggage of all the mistakes made up to now and all the debts, etc.

If “the market” didn’t work the way it is “supposed to work” in the situations you’ve been involved with, why are you so certain it will work now?
20 Comment by dwright on 13 November 2008:

Yes a collapse of the big 3 would be devastating but that does not mean by giving them loans, (we are talking loans?), that will change the inevitable. Your premise and Mr. Piatak’s seems to be that the bailout of the big 3 would actually help them rather than put us (US) on the hook for more good money after bad.

They have a lot of resources at their disposal to head this off and if they haven’t figured it out now, they never will.

I live in the Detroit area and know the pain already so please just because we don’t agree with you, we are not acting “reflexively”.
21 Comment by Scott P. Richert on 13 November 2008:

dwright (@20):

I never said, or even suggested, that everyone who has doubts about government-backed loans to the Big Three is acting “reflexively.” There are those, however, who do reflexively scream “Let them die!” at any mention of the American automobile industry.

If you’ve read all that I wrote above, then you know that my “premise” is not that the “bailout” of the Big Three will necessarily help them. That’s why I said that we need to have a serious debate on these loan guarantees–much more serious than the one on the actual bailout of the financial-services industry.

All I’ve pointed out is that many of those who don’t want to have a debate and stand adamantly against such loans do not have the first idea of the economic impact that the destruction of the Big Three would have.
22 Comment by Scott P. Richert on 13 November 2008:

Bob Trojan, a friend of Chronicles and The Rockford Institute and a manufacturer here in Rockford, has a blog called “Manufacturing 2.0″ on the website of the Rockford Register Star. Recently, he posted the entire text of the AP story that Tom Piatak mentions in comment 16. You can find it here: “Automakers Struggle to Survive Past Mistakes.”

For those who think nothing has changed in the past 25 years, the article is a must read. Among other points, it explains why the Big Three do not regard bankruptcy as a viable option; notes that Honda and Toyota have seen huge sales drops as well, and that GM and Ford were on the road to recovery before gas hit $4; and points out that the loans should indeed allow Detroit to weather the storm and return to profitability next year.
23 Comment by Rob on 13 November 2008:

Good articles all the way around.

I remember a piece in Chronicles about how men should dress formally, wearing coats and ties when they are on airplanes for example. Is this photo an indication that the Rockford Institute is changing policies?
24 Comment by Grumpy Old Man on 13 November 2008:

I’ve just returned from upstate New York State.

The sad little ghost towns are everywhere. It appears that second growth forest is replacing what once were farms, and bats inhabit what once were small and middle-sized manufacturing businesses.

Capitalism is revolutionary, with both its succeses and its failures. Consider the empty countryside of much of Scotland, and the Scottish diiaspora as just one of many examples.

The loss of manufacturing is a profound problem in many ways, not least in the destruction it wreaks on communities.

This concern doesn’t exhaust the question, however. A bailout of GM or Ford raises many questions, of which two stand out: (1) Will it work? GM has had many restructuring plans, none of which has succeeded. Lending it $25B to put a good plan in place is one thing; lending it $25B to p**s away is another. (2) “Slippery slope” and “moral hazard.” If we bailed out Chrysler, why not AIG? If AIG, why not American Express? If American Express, why not GM? If GM, why not its suppliers, and on and on? We could end up taxing everyone to subsidize everyone, with the money and the power going through the center.

I don’t have an answer, but I fear that Yet Another Subsidy may not be the answer, either.
25 Comment by Scott P. Richert on 13 November 2008:

Grumpy Old Man (@24):

Very good points, which illustrate the need for a serious debate. That said, I do agree with Tom Piatak that it’s astounding that anyone who supported the Wall Street bailout would think twice about loan guarantees to an industry whose failure will cause economic problems orders of magnitude worse.
26 Comment by Aaron D. Wolf on 13 November 2008:

Grump,

I understand the slippery slope argument, but auto manufacturers are different from insurance companies, as Scott and Tom have explained. Here in Rockford, we know all sorts of small companies whose business depends on the Chrysler plant in nearby Belvidere. (Just over the border in Janesville, the lob losses from GM are gutting the town and the area.) And these guys, who have families and children, will not be going to community college to learn to be murses or telemarketers. Instead of a slippery slope, I fear a ripple effect.

Rob,

See, that’s just proof that paleoconservatism isn’t a “movement” but a sensibility. We have no CENTCOM dictating our dress code for when we’re working, say, past supper at the Chronicles Tower and need a new picture for the website.

Me, I’m wearing Justin boots that were made in the USA.
27 Comment by Grumpy Old Man on 13 November 2008:

# 25 Scott Richert

Thanks for your kind word. FWIW, I didn’t support the bailout, which looks more and more like a ripoff and a failure every day.

JFK is supposed to have said that DC combines Southern efficiency with Northern charm.

The bailout likewise managed to combine the worst features of socialism (inefficiency, centralizaion) with the worst features of capitalism (rapacity and a tendency to monopoly).

I do have a modest proposal: for the next 10 years, the government will not hire anyone who was ever connected with Goldman, Sachs to manage the economy in any capacity.
28 Comment by Kirt Higdon on 13 November 2008:

I’m not sure who these people are who favored bailing out the banksters, but balk at the auto industry. All the media chatter I have heard is precisely the opposite. Every bailout that passes is used as justification for the next one and the line of people with their hands out gets longer and longer. And where is the money for these bailouts to come from, especially since any general tax increase is political poison? It will come from the not so hidden tax of inflation as our bankster controlled government “creates” more and more money to reflate the economy and keep people hooked on debt. The price will be paid especially by those who were prudent and responsible in handling their finances. I am opposed to all bailouts, but bailout fever now seems to be sweeping all commentators, even those of Chronicles. All I can do at this point is look forward to the looting of my few assets and try to plan for economic survival at a minimal level.
29 Comment by Sempronius on 13 November 2008:

@ 25

Yes,and I think a right important part of that debate should include just exactly WHO we’re bailing out.

As in,what sort of folks?Worthy deserving folks,or a completely different set.

For example,consider this.Imagine if a goodly portion of the jobs in jeopardy were held by moslems.I know,I know,they arent.But just imagine for the sake of argument that they were.Would THAT alter your chivalrous impulses towards the problem?

Anybody mind if I demand a closer look at just exactly who benefits from the bailout?If our mad-cap,ludicrous society is any guide,and it is,I wouldnt be at all surprised if Richert’s gallant cavalry charge results in a victory for alot of fat and smiling vermin,and a battlefield strewn with quite a few brave dead cavalrymen.

Anybody out there care to help me out on this one?Any info?
30 Comment by Tom Piatak on 13 November 2008:

Mr. Higdon:

If you wonder about who favored bailing out Wall Street but balks at bailing out Detroit, look no further than the Bush Administration, which appears to be taking precisely this line so far, or National Review, whose editor went so far as to denounce Republicans who voted against Paulson’s bailout plan as “irresponsible” but who has written a column and authorized an NR editorial against any help for Detroit,
31 Comment by Bob Trojan on 13 November 2008:

Scott;
In addition to the story on the blog, a much longer story was published in the WSJ, Oct. 25th.

As I think about this Bailout issue, GM, Ford and Chrysler should have their feet to the fire and be required to restructure their companies. The new plants that GM is building in China, Russia, Joint Ventures with Japanese companies all should be part of this.
If it were my money, I’d require them to retrench back into the North American market, stop spending money in foreign markets and get back the the core, the U.S.

Good quality cars at a profit are being made in the U.S.: Toyota, Honda, Hyundai, BMW, Volkswagon (recently announced a new US plant).

If they can do it, we should be able to also.

In addition to restructuring, energy efficient cars should be JOB ONE.

I’d also be sure executive compensation and bonuses are tied to real performance. And that includes some pretty significant concessions from the unions.
32 Comment by Scott P. Richert on 13 November 2008:

Grumpy Old Man (@27):

I didn’t mean to give the impression that I thought you supported the bailout; I apologize if my comment came off that way.

I support your proposal, as long as it’s not a modest one, but a serious one. There were certainly problems when key administration positions were held by chiefs of manufacturing, but those problems have been dwarfed by those created by the chiefs of finance.
33 Comment by dwright on 13 November 2008:

I have a sign and graphics business in the detroit area and have felt the impact of what we are talking about for many years. When things get bad and terribly slow I can’t imagine a taking a loan to help me unless somehow I can use that to renovate, streamline, advertise and what ever else I can think of to generate more sales.

If the above methods don’t help I am in deeper debt and unable to pay back the loan and deal with the original problems. So what is different with the auto companies? Do they have a plan in place, a better product ready to launch if needed funds come? If not the money just helps them float a little bit longer and delays the inevitable. If there was some things they should be doing when are they planning to do it.

I don’t want them to fail, it sickens me how the manufacturing base has been decimated by bad and wrongful trade policies and the like.

Yes, let’s have a national debate first and put all the issues on the table. This is long overdue.
34 Comment by H.F. Wolff on 13 November 2008:

Suppose when all is is said and done the US government will have poured in excess of $1trillion into various bail-outs. Furthermore, expectations are that this may become an annual event with corporate parasites trecking to Washington annually with their hands out, threatening “or else”.

There appears to be a large consensus that much if not most of this money will find its way into the pockets of the various head honchos and manipulators, with the eventual “trickle down” effect having minimal effect at the end of the inflationary rope.

Why not consider the following (and if implemented I expect full credit for this idea): $1trillion is approximately $3300 for every person in the USA. Implement a new income tax plan that would have a minimum income level such that those taxpayers that fall short of the median would have their income automatically topped up ie. would receive a cheque from the government.

Agreed that one can make many very good arguments against such a plan but, it would certainly be no worse than what is being done now with the money winding up in pockets that really don’t need it and from where it won’t get spent. With the proposed plan the money would be put into circulation very quickly and predictably.

Assuming for the moment a progressive system where half of the population qualifies for some amount of “topping up” beginning with a minimal amount for those near the median, and maximum amount for those with the least or no income, the cost to the tax payer would be no greater than what is implemented now with very dubious results.

A quick mental calculation shows (please feel free to correct this) that in the middle of the topped-up group this could amount to $6600 per person, with the most subsidized group receiving $13200 per person or over $42000 per year for a family of 4.

The beauty of this plan that it is easy to implement with existing government departments and bureaucracy, and it would remain up to the market place to determine where the taxpayer wishes to spend his money. And best of all it bypasses the kleptomaniacs and charlatans that maneuvered the world into this mess in the first place.

H.F. Wolff
35 Comment by Scott P. Richert on 13 November 2008:

Sempronius (@29):

Why beat around the bush? Come out and tell us what kinds of people you think are unworthy even to be considered for a helping hand.

And again, I’m not leading a “gallant cavalry charge.” What part of “None of this, of course, necessarily means that the proposed loans are a good idea. I, for one, would like to see a serious debate in Congress before such loans are approved–far more serious than the one held before the Wall Street bailout” do you not understand?
36 Comment by H.F. Wolff on 13 November 2008:

#34

Hmmm, make that “…over $52000 per year for a family of four…”

I do use a calculator for my paid work:-)).

H.F. wolff
37 Comment by Bob Trojan on 13 November 2008:

To my earlier point, I just received this from OEM News….

Toyota Begins Venza Production in Kentucky
$350 Million Investment Leads to New Vehicle Production at Georgetown Plant
11/10/2008

November 10, 2008 – Georgetown, KY – Team members from Toyota Motor Manufacturing, Kentucky, Inc. (TMMK) along with company officials and community leaders celebrated the official launch of the Venza, Toyota’s new, versatile five-passenger vehicle.

Venza couples the styling and comfort of a passenger car with the flexibility of a sport utility vehicle (SUV), to give customers a stylish alternative to the traditional sedan.

“It’s always exciting to launch a new product,” stated Steve St. Angelo, President of TMMK and senior vice-president of Toyota Motor Engineering & Manufacturing, North America (TEMA). “For Toyota to select TMMK as the production site is a real tribute to our team members and the experience of working side-by-side with our design and engineering groups has been very valuable.”

All aspects of Venza’s engineering and design were targeted specifically for the North American market, where it will be sold exclusively. Venza was primarily engineered at Toyota Technical Center in Ann Arbor, Mich., and designed at Toyota’s Calty Design studios in Newport Beach, Calif. and Ann Arbor. Venza will be exclusively assembled at TMMK.

TMMK has the capacity to build about 70,000 Venzas annually. The plant’s manufacturing flexibility allows the Venza to be built on the same assembly line with the Camry, Camry Hybrid and Solara convertible. More than 30 Kentucky-based suppliers will supply parts for the Venza including seats and glass components. Venza’s overall domestic content is approximately 70 percent.

TMMK is Toyota’s largest plant in North America employing about 7,000 team members with the annual capacity to produce 500,000 engines and vehicles.

Toyota (NYSE:TM) established operations in North America in 1957 and currently operates 13 manufacturing plants. In addition, new plants are under construction in Ontario, Canada and Mississippi. There are more than 1,700 Toyota, Lexus and Scion dealerships in North America which sold more than 2.9 million vehicles in 2007. Toyota directly employs over 43,000 in North America and its investment here is currently valued at more than $21 billion, including sales and manufacturing operations, research and development, financial services and design. Toyota’s annual purchasing of parts, materials, goods and services from North American suppliers totals more than $30 billion per year.

Toyota currently produces 11 vehicles in North America, including the Avalon, Camry, Corolla, Matrix, Sienna, Solara, Sequoia, Tacoma, Tundra, Venza and the Lexus RX 350. When production begins in Ontario and Mississippi, Toyota will have 15 manufacturing plants with the annual capacity to build approximately 2.2 million cars and trucks, 1.49 million engines and 425,000 automatic transmissions. For more information about Toyota, visit http://www.toyota.com.
38 Comment by Steve Berg on 13 November 2008:

The attitude seemingly expressed by many of the posters on Taki Mag is a sort of savage delight in the demise of American manufacturing companies. It is one thing to say that only the strong survive, or that the Devil should take the hindmost, but another to take great pleasure in death and destruction. I have had quite a few cars, and worn all but one of them out via long distance commuting. All but two have been Fords and GM’s. The remainder were German Volkswagens, and after what I went through with those, I will never buy another German car. I have fond memories of the American vehicles, and even if they required a fair amount of repair and maintenance, I got my money’s worth from them. Why then, is there this great glee in the problems of the Detroit car makers? If they are to die, then we should do the equivalent of shooting them in the head with a quivering hand as would befit the killing of a good old horse or a suffering elderly dog. Instead, the more libertarianly inclined remind me of the people who executed the Ceausescus, and even after killing them kept pouring magazine after magazine of bullets into their corpses. Okay, you may have owned a GM diesel or a Ford Pinto, but this is ridiculous. In fact it shows that the adherents of this particular ideology are as much a part of the Culture of Death as the Neo-Cons. What these people are saying is that we do not care about the suffering of many thousands of people. Also, we do not care about anything but the Free Market (which does not exist anywhere), Efficiency, and ultimately Mammon the All Highest. Put bluntly, creative destruction is a bunch of crap. All the new jobs are assumed, and rarely come into reality. If they do, it is somewhere else. I had a rather acrid e-mail exchange with Bruce Bartlett about this some years back. Once these industries are destroyed, they are not coming back. And, it is very unlikely that any others are going to take their place. The result will be immense human suffering, and the reduction of the Middle West to the same lofty depths of Detroit. This is creative?
39 Comment by pablo H on 13 November 2008:

Tom,

Great Column. Crazy that anyone would support giving AIG $150 billion while opposing a $25 billion bailout of GM.

And the dislike for union workers as shown by some of the comments is quite extraordinary. Evidently many prefer greedy Wall Street brokers who knowingly made billions of dollars in bad loans to auto workers who made the “mistake” of going to work at an Auto company and joining a union. As for me, my sympathy is all with the auto worker, at least he’ s producing something. I fail to see what good financial wizards at AIG or GS have done for the USA.
40 Comment by Scott P. Richert on 13 November 2008:

Bob Trojan (@31):

Good points, all, but especially about requiring the Big Three to retrench. If American taxpayers are going to foot the bill for the loans, then the focus needs to be on the domestic market.

Regarding compensation, I think it would be entirely appropriate for any loans to come with certain strings attached: No bonuses for executives during the lifetime of the loan; and tie executive compensation to some reasonable multiple of full-time employee compensation.
41 Comment by Rob on 13 November 2008:

Mr. Wolf (#26) says:

“See, that’s just proof that paleoconservatism isn’t a ‘movement’ but a sensibility. We have no CENTCOM dictating our dress code for when we’re working, say, past supper at the Chronicles Tower and need a new picture for the website.

Me, I’m wearing Justin boots that were made in the USA.”

Ack, humor does not carry over well online. But Mr. Wolf is spot on and it’s one of the joys of reading Chronicles and Taki’s Top Drawer (and to a lesser extent The American Conservative”). You can read pieces that disagree with each other without being disagreeable. I can’t say the same for the Corner and other arms of the Grand Old Pravda.
42 Comment by Tom Piatak on 13 November 2008:

I agree with the sentiments expressed by Bob Trojan. Government aid to the Big Three should be contingent on increasing domestic production and reducing executive compensation.
43 Comment by Tom L on 13 November 2008:

The key thing to remember is that a company or even industry is not economically viable then in the long run it won’t last even if we pour hundreds of billions of dollars into propping it up. The American people will never adopt the Japanese protectionist model where it costs $4 a pound for carrots in Japan instead of 40 cents a pound in the rest of the world because of the Japanese insistence to guarantee Japanese farms will not fail.

Just why aren’t our industries more competitve with all the long experience, great engineering education that we supposedly have, and what used to be called American ingenuity?

The list of idiotic decisions made by the American automakers over the last 25 years is staggering, for example paying mega billions to buy European sports car companies instead of investing in Asia. Why did they pay mult-billion dollar dividends to shareholders over the last 25 years instead of using the money to plan logically for the future? What was their plan to deal with the logical extension of the Chinese into automaking? The Ford family ran Ford going back a half century about as well as they ran the Detroit Lions.
44 Comment by Joseph Salemi on 13 November 2008:

Steve Berg @ 38
Pablo H @ 39

You both have it right. Conservatism in this country will go NOWHERE without Joe Sixpack of the white working class. He is your base, not the verminous Wall Street scum who talk about free trade and “creative destruction.” Those jerks have destroyed the Republican Party, and if we let them they will destroy whatever else of value is left.

The white working class has all the right instincts. But if you close down their factories, outsource their jobs, and bring in cheap third-world labor to take their work… well then, why the swiving hell should you expect them to vote for you?

I am sick of free traders and capitalists and short-sighted businessmen who think that they can screw over their workers in the sacred name of “enterprise” (translation: more profit). That’s not “conservatism.” That’s Ayn Rand-ism.

What did Lenin say? “The capitalists will sell us the rope with which to hang them.”
45 Comment by Bob Trojan on 13 November 2008:

One of the features of our market system is that publically traded companies are held to quarterly profit expectations. And so, the CEO’s who not only get compensated on profit performance are also measured on stock price performance.

Not so in China, Japan or even Europe. It’s what they call “for the long haul”. In some of my previous manufacturing lives, I’ve seen the approach that the Japanese took for example, when they were penetrating the US steel market or the tractor market.

Methodically, at expense greater than their US competitors would spend, they gradually won the market. We of course, want instant results.

That same thinking has crept into our way of life and in our children. We want it and we want it now!

It is this attitude that has destroyed companies and even whole industries. Instant and growing profits. Cut long term projects to show short term results.

Read my “China” and “Stimulus” blogs to see how they are spending their stimulus money. Which approach do you think will win, ours or theirs?
46 Comment by Steve Berg on 13 November 2008:

Bob Trojan #45 makes valid points. Along with others in this thread, I would also require that pay be reduced to sustainable levels, bonuses other than those granted through a Scanlon Plan mechanism be eliminated, and the entire deal/bailout be made totally transparent. Bob’s ideas on the lack of long term vision in American corporations are well taken. When I get a proxy booklet, most of it is filled with many pages of golden parachutes, and bogus short term incentive programs “to align the interests of the senior executives with those of the shareholders” which is really the job of the board of directors. In fact, I place most of the blame in the current mess on foolish and corrupt boards of directors. But then, why should they be any different from Congress? We need to require long term incentives. Peak oil is going to require some drastic changes in our lives, as well as our vehicles. GM at least, has shown that with some careful subterfuge to hide major design improvements from the top floor of headquarters, they can create efficient, long lived, and comfortable vehicles. My beloved Fiero GT is evidence of this. With the American Big 3 Automakers backs to the wall, this is the ideal time to help them make the necessary reforms and prevent a cascading avalanche of depression from engulfing the Middle West.
47 Comment by Steve Berg on 13 November 2008:

I would welcome having David Hartman’s views on this matter. Might he be enticed to weigh in on it?
48 Comment by Bill Wilder on 13 November 2008:

Chapter 11 is no solution (see Delphi.) For one thing, particularly with the current capital markets, there is no way any of the Big Three could raise the Debtor in possession financing (which would easily range in the tens of billions of dollars) necessary to operate in bankruptcy. They also would not be able to raise the further tens of billions needed for exit financing.

As Mr. Piatak (who lawyers in the same field as me, but for the other side) notes, the UAW has already made extensive changes to its collective bargaining agreements with the Big Three (as it also did with Delphi.) The significant cost is health care costs, which the UAW attempted to address with GM (at least) by creating a separate union run fund (a VEBA) with seed money from GM that would take retiree legacy health costs off GM’s books. But now that VEBA is in trouble. Adjustment of these agreements in bankruptcy would not achieve anything “transformational” in GM’s cost structure.

Finally, as Mr. Piatak points out, there is a reason auto companies don’t go into bankruptcy–they sell durable goods, including with multiyear warranties (and governed by the Magnuson Moss Act, for example.) No one will buy a good intended for multiyear use from a company that could be gone in 6, 12 or 18 months. Bankruptcy for any of the Big Three would mean effective liquidation (both for the impracticality of financing and the realities of the industry.)

As for the blather from purported “libertarians”, all they demonstrate is (again) that they are ideologues. “How the market is supposed to work”–indeed. Any one who cannot understand the notion that our automobile industry underpins our manufacturing sector should be restricted to the classroom, where no damage can be done.
49 Comment by Tom Piatak on 13 November 2008:

Excellent, practical points, Mr. Wilder.
50 Comment by Sempronius on 13 November 2008:

@35

Richert,esteemed colleague,calm down.Relax,dont get so hot under the collar my friend.

My reference to your gallantry was meant to be complimentary.I tip my hat to you sir.

Now read carefully what I said.I said that who benefits from the welfare check,oops I mean bailout ( pardon me,I’m always making that mistake ) ought to be a part of the debate you so correctly desire.That is all.

There,that wasnt so bad now was it?After all if someone asks Jones to give money to Smith,whats wrong with Jones inquiring to know a little more about who this Smith gentleman happens to be?

You see,ol’ shoe,healthy impulses such as those nobly displayed by yourself, sometimes need to be tempered with a pinch or four of cold-blooded cynicism.

Let the classic expression “heart on fire,brain on ice” be our watchword.The world of intent,and the the world of cold hard reality, are all too often two very different worlds.

Now,it is not at all out-of-bounds to discriminate between those who are worthy and those who are not.We do it all the time,and we ought to.The American populace is now composed of so many strangers,barbarians,and a passel of other unworthies of so many varieties that to help them is to hurt yourself.And I worry about fine fellows such as yourself getting hurt!

By way of analogy,imagine a dutiful paterfamilias who works hard to raise a daughter and send his little angel off to college.In so doing he lines the pockets of a whole host of parasitical academics.And that little angel,instead of carrying on the the mores of the household lares and penates, becomes initiated into the charming circle of radical feminism,not to mention other charming initiatory cults.This being a family oriented site I shall kindly refrain from detailing the nature of these cults and their initiatory rites.

Not exactly what the good ol’ pater had in mind,wouldnt you agree?Dumb conservatism of that sort is fueling the downfall of an entire culture.

What if the sort of people who benefit from the handout,oops there I go again,bailout,turn around and use that assistance not to further the cause of their benefactors,but rather to undermine it?Which of course is precisely why I’d like to know who these worthies happen to be.

You asked a bit impatiently,”Why beat around the bush? Come out and tell us what kinds of people you think are unworthy even to be considered for a helping hand.”Well, you asked for it:Blacks,Hispanics,Moslems,Feminists,and a certain type of White worker who doesnt give two figs about some OTHER mans job so long as HIS precious posterior is well covered.Yes,they are out there,and they know exactly who they are.I owe these groups nothing.

“Meanwhile Rome grows on the ruins of Alba”-Livy’s comment on early Rome is applicable to us here.Let us grow on the ruins of our enemies.

Sometimes we need to destroy our own handiwork in order to preserve things of greater value.Like Horatius Cocles at the bridge.Remember that old story?

Here’s Macauly’s poetical rendition from his LAYS OF ANCIENT ROME.”They held a council standing
Before the River-Gate;
Short time was there,ye may well guess,
For musing or debate.
Out spake the Consul roundly:
‘The bridge must straight go down;
For,since Janiculum is lost,
Nought else can save the town.’

I am no Horatius.However I AM Sempronius.Go in peace my brother.
51 Comment by Clark Coleman on 13 November 2008:

Why have some of us singled out the unions? Try reading the Manufacturing 2.0 blog entry linked from #22. Quote:

When times were good, the automakers did not take on the UAW, which the companies say drove up their labor costs to $30 per hour more than Japanese companies paid their workers. The figure includes pension and health care costs for hundreds of thousands of retirees.

When GM pushed for changes in 1998, the union went on strike at two key Flint, Mich., parts plants, shutting down the company and costing it about $2 billion in profits.

“They were making money and the union had a monopoly,” Cole said. “They’d shut them down. That’s why they had some very lengthy strikes that were very painful.”

End quote.

So, the union would only agree to changes when the manure hit the fan. Now we have a new agreement that will be phased in from now until 2010 and later. But the auto companies needed a better cost structure yesterday, not in 2010.

This is typical union behavior. Only when jobs are leaving or companies are being destroyed and they might lose ALL their jobs do they get reasonable. For that matter, jobs related to auto manufacturing have been leaving the country for decades. What was the UAW response to that?

With a labor union, the situation can always be summarized as follows: Those who still have jobs are doing very well with their above market wages and benefits, but those who don’t have their jobs any more are invisible and do not control the union.
52 Comment by Miles Gloriosus on 13 November 2008:

While it is true that giving the Big 3 money may not forestall their imminent collapse, neither has pumping hundreds of billions to Wall Street necessarily meant that the government has successfully forestalled the demise of the banking sector.

And, the bottom line remains: Bush justifying the bailout off his friends on Wall Street while arguing that American auto manufacturers should face the wolves of the free market, when his friends didn’t, won’t play well in Peioria. If the government doesn’t intervene and the industry collapses, I can hear the democrats now: “Bush and the GOP had plenty of money to save their fatcat friends, but to the Joe the Plumbers of the country all they could say was ‘Let them eat cake!’ ”

If the GOP wants to help solidify Obama’s hold on the country, let the automakers collapse, and if GOP senators and congressmen want to blame someone for their hands being forced, then they need look no further than The Oval Office.
53 Comment by Miles Gloriosus on 13 November 2008:

TomL@ 43 wrote: “The American people will never adopt the Japanese protectionist model where it costs $4 a pound for carrots in Japan instead of 40 cents a pound in the rest of the world because of the Japanese insistence to guarantee Japanese farms will not fail.”

Prove.
54 Comment by Daniel Maxwell on 13 November 2008:

Scott @8

OK, more accurately, I work for an independent parts supplier who has several GM contracts. If we were to lose our GM work, there would be a good chance I would get laid off.

Now, to your second point. I am remembering the last round of UAW-GM contract negotiations back in 05 (? I think). The contract was full of unneeded goodies (IIRC free internet service, among others). Even more appalling, UAW tried to get ‘free abortions’ in the contract. Fortunately, that part failed. But when you look at what they did get, it is not hard to see why the unions are big contributors to why these companies are failing.

To those of you who are doing the libertarian-bashing (including one who basically calls us neocons), it is easy to find grounds to oppose this without any sort of ideology. If the Big Three know they can again hoodwink the feds into a bailout when they start to fail, why bother trying too hard? But why stop there – if you’re going to support a bailout next time they fail, why not just nationalize all three of them?
55 Comment by Scott P. Richert on 13 November 2008:

Daniel Maxwell (@54):

If the Big Three know they can again hoodwink the feds into a bailout when they start to fail, why bother trying too hard?

That’s a good point, and it underscores the need to take this slowly, have a serious debate, and, if loan guarantees are to be approved, to make sure that they come with some pretty big strings attached–strings that won’t allow the Big Three to slack off.

But why stop there – if you’re going to support a bailout next time they fail, why not just nationalize all three of them?

If you think that the way to avoid nationalization is to dismiss the idea of loan guarantees, I think you’re likely mistaken. As a number of commenters have pointed out above, the Big Three (and heavy manufacturing in general) are an important component in national security. Do you think that, if GM and Ford both look likely to go under, the Defense Department will sit idly by?

Of course not. They’ll be lobbying for nationalization of one or both companies for national-security reasons.

That’s something else to consider in this debate. Loan guarantees may be the lesser of evils, preventing outright national socialist ownership of industry.
56 Pingback by Conservative Heritage Times » The wellspring of youth and the great debate on 13 November 2008:

[...] and Chronicles (unfortunately yours truly is caught in the middle). Here’s the links: 1, 2, 3, 4, . Feel free readers and editors to chime in with your [...]
57 Comment by Bob Trojan on 13 November 2008:

Why shouldn’t the auto guys be treated like us small manufacturers when it comes time to borrow money from a bank or SBA?
When I started my company 7 years ago, the bank required Personal Guarantees, which means my house was the collateral for the loan. If I were to borrow again in today’s environment, I would again be required to personally guarantee the loan even with a good track record.

Now what strings would the Government place on the executives that affects their personal bank accounts? Why should they get big salaries and bonuses and stock options and all the rest? What happens if they don’t make it happen?

Give me a break!!
58 Comment by Bill Wilder on 13 November 2008:

Mr. Maxwell,
I am happy to hear practical arguments from any, libertarians included. And I agree that a skeptical voice is necessary to a good debate.

You’re correct that there is a danger of getting intransigence and unimaginative thinking from an industry that thinks its protected. However, critics of the UAW and Big Three need to get up to date. Back in the 90s Detroit was printing money selling SUVs and they and their workers probably acted like grasshoppers . . . just like everyone else in that bubble economy. But, it ain’t the 90s anymore. The industry and economy have changed drastically. I don’t think there’s misconceptions about the severity of circumstances from anyone in Detroit.

Now that doesn’t mean they are nonetheless possessed of the ideas and leadership ability to transform this companies into profitable enterprises. I think that’s part of the practical debate Mr. Richert referred to as being necessary. I agree.
59 Comment by Scott P. Richert on 13 November 2008:

Now what strings would the Government place on the executives that affects their personal bank accounts?

Alas, that’s a problem with the whole idea of treating a corporation as a person, a legal entity separate from those who run it. Arguably, this legal fiction is one of the most anticonservative features of the American economic system.
60 Comment by Bob Trojan on 13 November 2008:

Maybe they could have a negative performance clause; if you miss targets, no bonus, less pay.

Or make the incentives a longer term program, like 5 years. If you are successful the first year, you “bank” the payment for the 6th year, if you miss on year 2, then subtract from the first year bank.

You could also withhold base pay on the same principal.

Is it practical? Maybe not, since the boards are in it together and the search firms are as well.

But, in the case of Government money, these strings should be art of the bailout.

Otherwise, get some Turnaround Specialists in there, give them 90 days to come up with a Restructuring Plan and then execute it.
Make it a”lif or death” scenario….
61 Comment by Scott P. Richert on 13 November 2008:

I think we need to get Bob Trojan down in D.C., lobbying Congress for a plan that might actually work.
62 Comment by Bill Wilder on 13 November 2008:

Here are the statements by Sen. Shelby (who lives off the teat of the finance, real estate and investment industries.)

““The financial straits that the Big Three find themselves in is not the product of our current economic downturn, but instead is the legacy of the uncompetitive structure of its manufacturing and labor force,” Mr. Shelby said in a statement. “The financial situation facing the Big Three is not a national problem, but their problem.”

And AIG and Co. differ how?

And Representative John A. Boehner of Ohio, the Republican leader, also came out strongly against the idea. “Spending billions of additional federal tax dollars with no promises to reform the root causes crippling automakers’ competitiveness around the world is neither fair to taxpayers nor sound fiscal policy,” Mr. Boehner said in a statement.

Who said there were “no promises.” Why not discuss that with the auto companies? Maybe afraid you’ll come to agreement when you’re posturing for backbenchers who’ve read too much Rand and Friedman? BTW, what promises of “reform” did Boehner and Co. demand from Wall Street?

Yech. Hand me the elephant gun.
63 Comment by Bob Trojan on 13 November 2008:

Well, unfortunately, we have the wrong bunch there to understand all this. They’re politicians, not doers. Plus the new guy is going to save Michigan. That would be a life killer, but thanks for the vote of confidence.
64 Comment by Josh Cooney on 13 November 2008:

“To those of you who are doing the libertarian-bashing (including one who basically calls us neocons), it is easy to find grounds to oppose this without any sort of ideology”

Mr. Maxwell,

I admit my comment was likely pointless to this discussion, though I did compliment the insightfulness of many libertarians. I’m not crazy about bailouts but I’m very nervous as our nation continues headlong into a purely technological, information, and service based economy. I’m not sure there is a good resolution for this particular dilemma. Any solution is likely to be a bad one. My complaint was that generally libertarians don’t consider the issues of social stability and cultural continuity when they approach a problem. Some of the thoughtful comments in this discussion from libertarian perspectives have disproved much of my created stereotype. And if that doesn’t satisfy you, some of my best friends are libertarians.
65 Comment by J. Meng on 13 November 2008:

Mr. Trojan’s remarks, with which I agree, has prompted me to apply his principles to another sphere of endeavor, the abuse of which confirms his points and shows what rubes all of us are. I am speaking of the professional sports industry. Here we have young athletes in football, baseball, hockey, and basketball being paid millions of dollars a year to perform based on hype of past performance and promises of future performance. With the money these young lads are making, one would expect that there would be hundreds of Major League Baseball golden glovers, or batters hitting at least .900 a year, or pitchers throwing E.R.A. averages of .001/annum; or National Football League quarterbacks never throwing an interception, wide receivers never missing a pass, corner backs always breaking up a pass play, line backers never missing a tackle, running backs always scoring a touchdown each time they got the ball; and so on. But, that isn’t the case. The same goes for the automotive industry. They’ve been around many years and all they have given us is a car with poor gas mileage; mostly made of plastic and ready to be traded-in within three years; dripping with high maintenance costs; a plethora of new models to distract us from what a car is: a means of transportation and not a sex symbol with which we are supposed to have a love affair; and prices that are extortionate. One would think that by this time with all the innovative technological developments we would have a vehicle that could carry us to work on a 20 gallon gas tank, 80 miles a day (round trip), for example, and we would only have to fill up about once a month. The disk brake was in use in the 1920s, that’s nearly a hundred years ago. I’ve heard that carburetion was developed by independents that could give fifty to sixty miles per gallon back in the forties and fifties. I realize that many jobs depend upon the automotive industry, but frankly, I am tired of being taken for a rube by these white collared Fagins, and unless they really start to perform, then the hell with them and their business. I mean think about it folks, we put a man on the moon, we can’t have an efficient, inexpensive means of personal transporation in this day and age? Oh, by the way, if the Ford ownership of the Detroit Lions, winless in nine games this year, is an indication of managerial skills, then I say to hell with a bailout for these incompetents. I can always walk.
66 Comment by Tom L on 13 November 2008:

One interesting effect of the Wall Street Bailout is that many conservatives now have seemingly accepted that from at least a pragmatic point of view a govt. bailout is a legitimate option. The question now seems to be which industry is more deserving than another. And it seems a cinch to be able to rate almost any industry as more deserving than wealthy Wall Street.

And so government taking many billions from one group and giving to another group continues to grow with the approval of many, even many within our conservative ranks. Their thinking seems to be that our society may unravel unless we empower government even more. And that is exactly the way my liberal democrat friends have always looked at it. The nanny state.

I’ve been out of work many times and so have many people I know and we have survived even though we didn’t know where our next money was going to come from. We need to be more self-reliant in our attititudes and do what it takes: move, sell the house, consider a new line of work, work for less money, etc. This is better than looking at our communities as some kind of potential disaster zone unless the helping hand of govt. bails out a major employer and its dependent industries. This is not hard hearted libertarian logic but determined American spirit of being a survivor and looking after ourselves regardless what happens to companies, govt, etc.

There is a growing group of new entrepreneurs in America and that is what we need more of: getting out of the corporate world and starting our own businesses, even on a shoestring budget.
67 Comment by Miles Gloriosus on 13 November 2008:

T66TomLwrote: “This is not hard hearted libertarian logic but determined American spirit of being a survivor and looking after ourselves regardless what happens to companies, govt, etc.”

Unfortunately this is precisely what Wall Street did when they decided they were going to get their pal Hank Paulson to bail them out. They were being self-reliant and did what they needed to do to save themselves and their companies.
68 Comment by Scott P. Richert on 13 November 2008:

Tom L (@66):

I haven’t seen anyone here suggest that government-backed loans to the Big Three are ideal, only that they may be best of a bunch of bad options. Everyone who is willing to entertain the idea on this site has expressed his support for making sure that these loans are indeed repaid, and that significant strings are attached that can bring about some necessary changes.

And I agree with you that individual workers need to be more self-reliant. I know autoworkers who have seen the writing on the wall and have figured a way out of the industry, even though it has meant sacrifices for their families.

But if every autoworker were to leave all at once, that would amount to a massive economic and social disruption. And to force them all to leave without having any place to go lined up–which is what would happen if the industry were destroyed–would increase the disruption exponentially.

In other words, the question of personal responsibility is different from the question of what to do about the industry as a whole.
69 Comment by Rick on 13 November 2008:

#65 I tip my hat to you sir a fine post. Those damn Yankees who I have rooted for all these years for what they are paid should win every game. I agree they should go bankrupt every new car I purchased over the last 15 years have all began to fall apart as soon as the warranty runs out
70 Comment by jack bailey on 13 November 2008:

The auto industry will get bailed out one way or another. However the imported cars will continue to undersell the domestic cars so the industry will continue existing on the verge of bankrupcy. The solution in the end will be akin to what happens in agriculture where farmers get paid not to produce. Following the auto industry, many other industries will end up subsidized in a similar fashion as they will be deemed too bog to fail. God knows where the money will come form. However I can’t wait to see what will happen when the government gets called to start bailing out all these universities that produce degrees and mentality which render their recepients unemployable. what will happen for the professariat that is ultimately responsible for the current economic and cultural crisis in the first place? Will they get subsudized not to produce as well?
71 Comment by jack bailey on 13 November 2008:

sorry for the typos
72 Comment by R. Oliver on 13 November 2008:

Those who keep saying, “Why [insert financial firm/insuance giant] and not GM?” never seem to address the arguments for why one could reasonably favor a bailout for, say, AIG and not GM. It is reasonable to conclude, yet hardly irrefutable, that if AIG were allowed to go bankrupt, we would plunge into a depression. If AIG were to default on its various obligations tied to financial derivatives, the whole financial system would be taken down taking along with it GM, Chrysler, Ford and GE, Caterpillar, and any other major manufacturer you can think of. The point is, however damaging and horrible it would be, the collapse of the auto industry would be self-contained, whereas, the collapse of the financial industry would destroy everything. I don’t necessarily agree with it, but that’s the argument, and it’s never addressed here.

Other arguments for no bailout I posted on Taki’s site:

1. Bankruptcy does not mean the end of the American auto industry. It means the end of the industry as it is currently structured. The assets are still there; the labor is still there; the expertise is still there. What would no longer be there are unions and the unsustainable liabilities that they’ve extracted from the Big 3. I’m talking about bankruptcy in which you liquidate, not reorganize, so that takes the “no one will buy without a warranty they can trust to be there” argument.

2. The loans given will not be repaid and they’ll be back for more in 6 months to a year. The economy is still deteriorating. People are not going to buy cars at the rate they were for years to come. As early as 1 to 2 years ago, GM had $20 billion in cash reserves and we’re told they will run out by the end of the year. $25 billion to GM alone would not save it. I’m quite sure the Big 3 were on the road to recovery when the debt-infused consumer driven economy that Chronicles rightly deplored was humming along but there’s been a paradigm shift and it ain’t coming back.
73 Comment by pablo H on 13 November 2008:

Sorry, R. Oliver your argument is unconvincing. There is no reason to believe AIG was the Atlas of the financial world. There is no reason to believe that AIG could not have gone bankrupt and had its assets sold to other companies and its bones picked clean just like WaMu or Lehmans, without a “depression” (LoL)

The Fed and Paulson simply decided the pain and dislocation wasn’t worth it and decided to bail AIG out. Now, they are propping AIG up as a going concern for political reasons.

Using the same logic, there is no reason to let GM go bankrupt and cause massive dislocation and panic when a bailout can solve the problem. Bankruptcy may in fact cost the taxpayers more money then a bailout – unlike AIG.
74 Comment by Clark Coleman on 14 November 2008:

I am surprised no one has mentioned the Chrysler bailout more than 25 years ago. There were a lot of predictions of how badly it would turn out, along with ideological discussion, but the company rebounded and the government made money on the deal as a result.
75 Comment by R. Oliver on 14 November 2008:

The credit markets are essentially frozen. They have been propped up by a massive injection of government capital and easy money. Without this bailout, all of these firms would have failed by now in addition to Lehman Brothers: Morgan Stanley, Goldman Sachs, AIG, Freddie Mac, Fannie Mae, Citigroup. and I doubt you’d have found buyers for Washington Mutual, Wachovia, and Merrill Lynch. (Who am I forgetting?) Without these firms, there would be no credit. Every industry, including the auto industry, is dependent at the very least on short-term lending. Without it, everything goes to hell, including the auto industry.

I picked AIG as an example. Pick any major financial firm that has swapped billions of dollars in derivatives with all the other financial firms and one’s downfall leads to all the rest. We saw that with Lehman and the rest only survived because the government bailed them out.

With that said, I was against the financial bailout–believing a relatively short horrible depression is better than a long slow decline ending with the destruction of the dollar.
76 Comment by Tom Piatak on 14 November 2008:

Mr. Coleman,

You are exactly right about Chrysler. I mentioned the success of the loan to Chrysler in my original article.
77 Comment by Tom Piatak on 14 November 2008:

Mr. Oliver,

The liquidation of the Big Three would almost certainly result in an additional three million unemployed Americans the Center for Automotive Research projects, along with near total economic devastation in a number of communities. To avoid that calamity, it makes sense to me to offer a loan to the Big Three, particularly if the loan can be used to further some necessary restructuring.
78 Comment by R. Oliver on 14 November 2008:

Mr. Piatak,

I suppose where you and I differ, then, is on whether the Big Three would in fact pay the loan back and not ask for more. I’m deeply skeptical because I see a worsening in consumer demand for cars and GM has burned through $20B in cash reserves in just 1 to 2 years.

Nor do I doubt the devastation of a bankrupt Big 3 would be horrible. I just was trying to point out that reasonable people who don’t necessarily loathe Middle America can justifiably draw the line at the financial industry because arguably the effects of the collapse of the financial industry would be far greater than the auto industry or any other industry.
79 Comment by G.L.A. on 14 November 2008:

There is no doubt the potential fall out from a bankrupted auto industry should be debated and thanks to Scott’s Richert’s article and the response to it for providing a basis for this interesting debate.
Writing from Canada, I want to mention that the ripple of a Big Three bankruptcy would flow heavily across the border. The Auto Pack, and of late, NAFTA has meant that southern Ontario has depended heavily on the American auto industry’s prescense in Canada as an economic underpinning. The Ontario economy is in a down slide (although Toyota is expanding) as it suffers the same fate as the US’s midwestern industrial belt. With good size oil and gas reserves off Newfoundland and rich reserves in Western Canada, Canada is precariously on the verge of reducing its economic status to an “oil producer”. The demise of the auto industry would no doubt push this further.

Speaking of NAFTA, my guess is that if there is an attempt at restructuring the “North American Auto Industry” the globalists (and Washingtion is now globalist) will try to bring Mexico into the formula. So one agrument against the bail out may be, “careful for what you wish for”. If you turn to Washington, remember you are not dealing with the same mentality or money interests that existed back when Chrysler was bailed out. Isn’t that what Pat Buchanan has been trying to tell us?

To pretend there is a free market economy in the US is as much of a manufactured reality as any claims being made on the left.

If a bailout is a “tool” at the hands of the Feds, it is no different than many other monetary or fiscal tools the central planners have used on a daily basis since the New Deal or even before. Except that this time the stakes are higher, the globalists are at play and the politics are more corrupted.
There really is no argument for the question where does it all end when it comes to the bailouts. The airline industry could be next, and after that the states of California and Mass. (since they can’t print paper like the Feds) are lining up (remember NYC’s pleas to Reagan). The fact that the chickens of the debt based economy are coming home to roost and are many in number is a reality but is not really an argument against doing what you can to try to shore up one or some of the cards in the American Empire’s house of cards. You do what you can do with the caveat in place that you never trust the Feds to do it right.
Finally, given the degenerate nature of the American elite and the culture it has produced, a realistic assessment of the long term chances for a recovery are slim. In all American institutions (including to some extent the chruch), the bats have gotten into the belfry and these bats are not from heaven. No nation’s economy can survive and service its citizens when its institutions have been taken over by cultural Marxists.
Auto industry related or not, if I was an American in the midWest or anywhere for that matter, I would be hoping for a bailout to buy some time and for the long term I’d start with a reading of Belloc or Father Mcnabb and begin to look for five acres and a good mule. A few good Canadian gold dollars in your pocket may also be a good idea.
80 Comment by Scott P. Richert on 14 November 2008:

G.L.A. (@79):

Thanks, Gary, for a very thoughtful comment. Much of my own ambivalence about the loan guarantees is that I think that things are very different now from 1979-80. While the Big Three are making better products, are more efficient, etc., and while the UAW has made concessions that no one would have dreamed of a quarter-century ago, the climate in Washington is much worse.

That’s why your warning to be careful what you wish for is perhaps the most persuasive pragmatic argument against federal loan guarantees.

Even those who don’t look for five acres and a mule should start reducing their own consumption, producing something (even if only a few vegetables in a backyard garden), and start thinking seriously about whether the neighborhood and city in which they live is viable in a postindustrial society.
81 Comment by H.F. Wolff on 14 November 2008:

The Financial Times yesterday had an analyst present his opinion that the massive bail-out of Wall Street is having unintentional consequences (from memory) because of the mis-use of the funds by the bailee:

1) increase dividend pay-out
2) continue bonuses for the kleptomaniacs at the helm
3) hold as reserve to cover “gambling” exposures
4) deposit these funds with the FED which will now pay interest on these deposits!
5) nary a dime for Main Street where it is needed and for which these funds were intended.

In an earlier post I tried to make a case that these funds would have had a better and quicker effect on the economy if they had been used to fund a minimum income plan administered through the income tax administration.

In my opinion this plan would have been no worse, and in timing and effect much better, than the present plan.

H.F. Wolff
82 Comment by Derek Leaberry on 14 November 2008:

Dr. Charles Krauthammer, David Brooks and dozens of the children over at Free Republic are against the auto bailout so it must be a good thing. Perhaps Governors Grandholm and Strickland can persuade President Obama to muscle an auto relief measure through next year. Trite as the saying is, political circumstances can make strange bedfellows.
83 Comment by pablo H on 14 November 2008:

Even if the initial bailout of AIG at $85 billion in Sept was needed, the additional $60 billion is not. Wall Street has friends in the Bush Administration which accounts for the way the bail out has proceeded, how who got what. Many responsible economists and politicians were against the bailout in the form presented.

As Derek states, its funny how the usual East Coast neo-con suspects are now railing against the possible Auto bailout. Of course, the same gang of course approved the $700 billion bailout of Wall Street.
84 Comment by Bill Wilder on 14 November 2008:

Those who believe bankruptcy (or outright failure of any of the Big Three) forget the substantial pension liabilities that would then be placed on the federal gov’t through the Pension Benefit Guaranty Association. Those liabilities would be astronomical as they would apply to all current retirees and all future retirees (both blue and white collar.)

Self-sufficiency is, of course, a good instruction. But it’s a bit late to encourage that after more than a century of corporate capitalism (which not only discourages it, but prevents it.)

The Unions are also a convenient whipping post, but inaccurate. Wages in Japan are akin to those in Detroit. The comparison to Japanese plants in the US is that those workers are nonunion and their localities lured in the Japanese through a combination of tax giveaways and lower wages and benefits.

Finally, the notion “innovation” is the issue is similarly inaccurate. Japanese cars are not hallmarks of design innovation. The Japanese “innovation” was quality, not design or performance. And the consumer (far from being deprived of innovation by Detroit) resisted Detroit innovation–Saturn, anyone?

And if a criticism of my viewpoint is that it is based on a sober appraisal of actual circumstances and likely outcomes–rather than what one would desire–I plead guilty.
85 Comment by Sean Scallon on 14 November 2008:

As I’ve said, this is tough debate because sides have good points to make. Aside from personal attachment to the auto industry, the bottom line is you’re dealing with a business that ties into a lot of the U.S.’ manufacturing, technological and financial infrastructure. This is real wealth instead of the phony paper wealth created by the financial industry we’re currently bailing out because cars and the components that go into them are real things. To lose that capacity would be staggering loss to our economy far more than the loss of AIG, who was rescued because it owed $25 billion to Goldmann Sachs. Lets be clear about this.

At the same time, we must acknowledge that the Big Three find themselves in this position because of badly misreading the market and being caught flat footed as the price of oil rose. They also ditched the electric car and tried to turn puck-up trucks into gas guzzling passenger vehicles. No profits coming in meant no money to pay the generous union contracts. To give them a bailout without any kind of restructuring of their senior management and engineering staffs and restructuring UAW contracts is like pouring money down a rat hole. They have to change and re-tool and accept new standards even if they are kept out of bankruptcy or else they’ll be like AIG, continually asking for bailout money after blowing through much of it and becoming a welfare case.

Do some paleos have attachment to the auto industry? So what if we do? Paleoism at its essence is about place and many of us grew up in stable, middle class communities because of the auto industry or know people who worked for it. Is that a crime? I’m sorry we didn’t grow up in Galt’s Gulch. And we’ve seen what happens to those communities when such an industry goes away either overseas or dies completely: devastation both economically and culturally. We don’t wish to see this continue to happen in the places we live in. And before anyone cries that’s it not the Government’s job to bail out the Rust Belt, I would remind you it’s also wasn’t the government job to build all the Levittowns, all dams in the TVA, and all the irrigation projects out West so people could live in the desert and all the military bases across the South and Southwest. My tax money and the tax money of my parents and my family was sucked right out our pockets in Wisconsin so people could live in Florida, Arizona and Nevada when they retire. Don’t talk to me about wealth redistribution.

However, I must also say that not everything that was good for GM was good for the U.S. It was GM that lobbied cities to get rid of their trollies in favor of smog-belching GM-made buses. It was GM that lobbied hard for the interstate highway system that hurt a lot of small towns and tore urban areas apart which created that taxpayer parasite-land known as Suburbia. Unfortunately GM put itself in a position to benefit from a government that clearly went out of its Constitutional bounds by being too cozy with the powers that be. Obviously GM, like any American business, was looking to make money for itself and its shareholders to stay in business. And to be fair, in the immediate postwar period, the terms “car culture” and “urban sprawl” hadn’t been invented yet. Planners back them were looking to alleviate population density, taking people out of crowded urban slums and putting them in areas of space on underdeveloped and unused land (and if you really want to see the joys of population density go visit Mexico City, Karachi, the Gaza Strip and Calcutta). They viewed the automobile as the best way to do this and tried to accommodate it. They could not forsee paying $4 per gallon for gas nor the fact the U.S. would be a net oil importer rather than exporter.

As with everything in the U.S., we always overdo it. We can never find the right balance because of shortsighted greed and lack of responsibility. And looking for that balance between saving our manufacturing base, but also not rewarding bad behavior and stupid decision making must be the balance we have to find as well, otherwise we all lose in the end, both our communities and the free market.
86 Comment by Lucius on 14 November 2008:

There would not be a complete liquidation of the big three. There would simply be a declaration of bankruptcy, a restructuring, and a down-sizing. Some jobs would be lost, but not even close to all. Cars would continue to be produced, and management would proceed more prudently knowing that a bailout would not be there to protect them against bad decisions.
87 Comment by Scott P. Richert on 14 November 2008:

Lucius (@86):

You might want to read the remarks by Tom Piatak and Bill Wilder above on why bankruptcy is not an option.
88 Comment by Robert C. Cheeks on 14 November 2008:

Scott’s correct, a great deal of discussion and debate is required. However, if the management of the Big Three isn’t changed and UAW wages and benefits brought in line with reality the bail out is destined to fail.
89 Comment by R. McCabe on 14 November 2008:

Man, this is a tricky issue.

I think Mr. Scallon finished up nicely in the final paragraph, after sort of losing his footing in the previous sentence. No one anticipated $4/gallon gasoline, but that is not an issue either. It is a weak excuse (if it is being offered), and it weakens the argument for a government loan.

Some parts of this debate are not confusing. It is clear to me why so many elites were for the financial bailout but are against the Detroit one. For 30 years now, we have been brainwashed into believing that the financial “industry” is actually leading our economy, and that manufacturing stuff is not a necessary component. Peter Schiff has outlined some of these things very clearly. In the late 70’s, the U.S. was the world’s largest creditor nation. Now we find ourselves as the world’s largest debtor nation.

How the swing? Because we have been following the model that only profits matter. So called capitalists have been trading expensive labor for cheap labor, dropping prices only enough to destroy the stubbornly righteous and pocketing the rest, providing a financially virtuous cycle in their eyes.

So it is no mystery at least to me why now that broken, repeating record is still playing the same tune.

I would like to know where all the capitalists are though. I am not a libertarian, but I do believe in the power of free markets. Am I losing my mind? Are markets at these levels so sticky? Where is Warren Buffet and his billions? Why not buy one of the three, turn it around, tenfold his money and become a national hero in the process? Because he’s lazy, and he hasn’t risked a dime of his money in his life. But there must be others…

“American” auto makers have been making crappy cars for a long time, way before gas got expensive, and have been relying upon market inertia to stay around. Some people buy Buicks their whole lives no matter what. I worked for Enterprise Rent-A-Car over 10 years ago, and at that time the most American-MADE car, barring the Cadillac, was the Honda Accord. When I asked my friends, mostly from small towns, why they insisted on buying crappy American cars just to support American CEOs, they had no good reason — they were ill-informed suckers and denied reality for 3 decades, as did the American corporate and union CEOs. If GM, Chrysler, and Ford claim to be about ready to turn the corner, I do not believe them for a second, regardless of the 3 million honest people out there who are about ready to get screwed. I apologize for not opening the JD Power link, but I can only assume it’s like it’s been recently, winning impotent categories like “Best in Initial Quality” or best in “Customer Satisfaction.”

I apologize if my frustration shows through.

And to the great and decent people who run this place (as well as commenters), please steer clear of any philosophical arguments behind this (you have mostly). This is all about practical arguments because the philosophy fails here and does nothing but create hypocrites.

How I wish the pen were mightier than the clank of steel.
90 Comment by R. Oliver on 14 November 2008:

Mr. Scallon,

I have no idea if AIG in fact owed Goldman $25B but as you say, let’s be clear about this. If it did owe Goldman $25B and defaulted on that obligation, it would’ve taken Goldman with it, who in turn would’ve taken JPMorgan, Citigroup, Morgan Stanley, etc. and maybe even Bank of America, the only one with a decent balance sheet. The hedge funds and mutual funds would have imploded next. Where would that have left us? Who then would’ve purchased GM debt? Ford debt or Chrysler debt? The only companies left would’ve been those with strong cash flows and sources of liquidity (e.g., mining companies and oil companies).

My point is that it’s not a persuasive argument to simply say or imply that Wall Street is in bed with Washington. If you’re concern is the survival of the auto industry and you have only contempt for the financial bailout, then you must successfully argue how the the auto industry would’ve survived without bailing out the financial industry.

(By the way, I don’t like that our economy is as dependent on the financial industry as it is, but it’s simply a fact. By letting everything go under, we would’ve had the opportunity to go in a different direction, but, alas, we’ve just kicked the can down the road.)
91 Comment by Steve Berg on 14 November 2008:

Much of what problems we face in both the financial and auto manufacturing areas are the result of too much consolidation. In the financial realm, once the federal reserve system was foisted off onto a hapless public, the result was concentration of financial power in New York City. During the last Depression, this concentration of financial power tried very hard to destroy or bring to heel the rest of the country’s banks and finance operations. They almost succeeded. Now, with the help of Paulson’s seemingly endless bailouts of his old cronies, they are trying to finish the job. The same thing happened in the auto industry. At one point, there were hundreds of auto manufacturers spread all over the country. Many of these were quite innovative, but had limited resources. Once General Motors started annual models, only a few could match the necessary expenditures, and all but a small number fell by the wayside. At that point, the control of auto manufacturing was centered in Detroit. During this same period, political power was concentrated in Washington D.C. although it can be argued that this, too flowed from NYC. What is common in all of these scenarios is the consolidation of power, and a consequent loss of innovation and a commitment to customer or citizen service. Now, we are faced with tottering institutions, all of which are deemed to big to fail, and are also too big to bail out. It seems to me that what needs to be done is to break up these giants, perhaps through bankruptcy, or via anti-trust actions, and politically (Professor Wilson will like this) secession. What really needs to be done now is to find the best way to buy the time to get this accomplished. I suspect that decentralization will be fought fang and claw, but it will probably happen regardless. What is needed is to salvage as much as possible through this process. This is why I favor loans with suitable conditions for all of these faltering firms, along with transparency, to help maintain the necessary order during some very trying upcoming times.
92 Comment by John Willson on 14 November 2008:

@24 Grumpy
Returned from where in “upstate NY?” I find that most people have no idea about New York State, including many who live there. If one talks with folks from NYC, they consider “upstate” to be Westchester County; others think “upstate” is Albany. To us real New Yorkers upstate is the mountains, central New York begins at Utica, and the real New York is from Syracuse west. The richness of this big state is in the Finger Lakes, and in the Great Lakes that most people mistakenly equate with the upper midwest, where I live now. “Upstate” means nothing unless you are a New Yorker.
93 Comment by Lucius on 14 November 2008:

Scott (@ 87),
The arguments of Mr. Piatak and Mr. Wilder against bankruptcy are:
1. A reduction in consumer confidence which would make survival impossible;
2. Impossibility of raising financing to survive bankruptcy.
Well, if those points are true, GM is clearly not viable in the reality of today’s market. Wouldn’t dumping money into it just delay the inevitable? Wouldn’t the inevitable be made worse as we would be effectively reducing the funds available for more profitable investments?

I must say, though, that I find it hard to believe that all those manufacturing assets could not be put to some profitable use in the current market reality. If there is wealth-building potential there, it will be picked up by private enterprise. If there is no wealth-building potential there, then it’s nothing more than an elaborate welfare scheme.
94 Comment by Lucius on 14 November 2008:

It is obvious in the case of a subsidy that the taxpayers must lose precisely as much as the X industry gains. It should be equally clear that, as a consequence, other industries must lose what the X industry gains. They must pay part of the taxes that are used to support the X industry. And customers, because they are taxed to support the X industry, will have that much less income left with which to buy other things. The result must be that other industries on the average must be smaller than otherwise in order that the X industry may be larger.

But the result of this subsidy is not merely that there has been a transfer of wealth or income, or that other industries have shrunk in the aggregate as much as the X industry has expanded. The result is also (and this is where the net loss comes in to the nation considered as a unit) that capital and labor are driven out of industries in which they are more efficiently employed to be diverted to an industry in which they are less efficiently employed. Less wealth is created. The average standard of living is lowered compared with what it would have been.

– Economics in One Lesson, by Henry Hazlitt
95 Comment by jack bailey on 14 November 2008:

Correct. The auto industry cannot be saved within its present business model. However such an analysis is not complete without the analysis of the social costs involved. It may very well be that these costs would be lower if the industry was allowed to go completely bankrupt but the argument is being made here that the social costs incurred too high.
96 Comment by bob trojan on 15 November 2008:

I mentioned @31 an article in the Oct. 25th WSJ. It’s too long for this blog, but here are his concluding “what now” comments. Written by Paul Ingrassia, former Detroit bureau chief for The Wall Street Journal. He is writing a book about America’s car culture.

“What now? Cerberus is trying to sell Chrysler. The most logical buyer would be Nissan, India’s Tata or some other profitable foreign car company seeking to expand in the U.S. But desperation doesn’t breed logic, which is why General Motors might become the buyer. It’s difficult to see how this deal would make any sense for GM, which already has too many brands (eight) and must cut billions from its cost base. Adding more brands (Chrysler has three) and more costs would be charging headlong in the wrong direction, and distract GM’s management from putting its own house in order.

GM is bleeding cash so quickly that it likely will run out next summer without a sizeable transfusion. Selling assets, selling stock or adding debt will be enormously difficult for the company. But unless one of those things happens it’s either a government bailout or bankruptcy for General Motors.

Ford’s cash position is somewhat better than GM’s, and the company seems to have more options. Its Volvo subsidiary and its 33% stake in Mazda are valuable assets that could be sold. But Mr. Kerkorian’s apparent about-face on Ford is unsettling. It’s possible that the blue-blooded Ford family is just as happy to see the Las Vegas billionaire cash in his chips, but his move could shut off a potential source of additional investment that Ford might need in its quest to survive.

But to thrive, instead of just survive, Detroit will have to use the brains of its workers instead of just their bodies, and the UAW will have to allow it. Two weeks ago some automation equipment broke down at the Honda factory in Marysville, Ohio, but employees rushed to the scene and devised a temporary solution. There were no negotiations with shop stewards, no parsing of job descriptions. Instead of losing an entire shift of production, Honda lost just 150 cars. The person overseeing Marysville’s assembly operations is Brad Alty, still with Honda after nearly 30 years. These days, instead of a Gremlin, he’s driving a Honda Pilot — made at a Honda factory in Alabama.”

Here is the part referencing his earlier comments about Brad Alty…

“On Aug. 20, 1979, 18-year-old Brad Alty, fresh out of high school in Mechanicsburg, Ohio, was driving his Gremlin to work when the car broke down. He was two-and-a-half hours late to his first day on the job at a new motorcycle factory that Honda Motor was opening in central Ohio.

For the next few weeks, Mr. Alty and his 63 co-workers did little but sweep floors and paint them with yellow lines. Then they started building three to five motorcycles a day. And at the end of each day they would disassemble each bike, piece by piece, to evaluate the workmanship. Mr. Alty hated it, and he kept getting grief from his older brother for working for a Japanese company. “I thought I had made a mistake by going to work there,” he recalled recently. “It was like, ‘What the heck am I doing here?’ ”

But Mr. Alty stuck with it, and Honda stuck with him. Honda’s real goal was to build cars in America, but the motorcycle plant allowed it to test the mettle of American workers for a modest investment. The workers passed the test. Honda started building Accords in Ohio in November 1982. Ironically, some U.S. Honda dealers actually protested that they wanted to sell only Accords made in Japan. But the quality of the Ohio-made cars was soon confirmed.”
97 Comment by pablo H on 15 November 2008:

Last time I looked, AIG was an insurance company not a bank. The idea that AIG’s bankruptcy would have caused a financial collapse is interesting but unlikely and unprovable. AIG has assets and these assets could have been sold or exchanged for any defaulted debt.
But its impossible to convince fantasists of their unreasonable assertions.

Presently there was no reason to keep AIG as a going concern. We’ve now loaned them $150B with no end in sight. They should be sold off and the taxpayers reimbursed.

In other news, AmEx and 4 other insurers have declared themselves “banks” and have requested bailouts. Looks like GM and Ford should just follow suit. Buy a small thrift and demand a piece of the pie.
98 Comment by Miles Gloriosus on 15 November 2008:

Derek Leaberry wrote: “Dr. Charles Krauthammer, David Brooks and dozens of the children over at Free Republic are against the auto bailout so it must be a good thing.”

Beyond being cannon fodder for their wars of conquest, whyever should a good neo-con care the least about anyone who can’t tell a chardonnay from a chablis? A cabernet from a merlot?

Let them drinking Rolling Rock.
99 Comment by R. Oliver on 15 November 2008:

Pablo,

Insurance companies are not banks, but they are financial institutions. They take your premiums and invest them in things like toxic financial derivatives. The effect of a collapse of AIG would not be unlike the collapse of Lehman Brothers because AIG is as inter-connected with the rest of the financial industry through financial derivatives as any other major financial firm.

The ability of AMEX and insurers to convert to bank holding companies only proves my point: i.e., they are financial institutions. To convert, they had to have some significant interest in a bank (i.e., an institution that takes deposits). And bank holding companies cannot engage in any activities that are non-financial in nature, or, if they do, they must divest such interests within 2 years of becoming a bank holding company.
100 Comment by ural haines on 15 November 2008:

GM is a de facto bank. Their GMAC financial division had been their only money-making holding for years. However, since they were heavily involved in selling bad mortgages in recent years (GMAC owns Ditech – seen any of their TV commercials lately?). So GMAC is a wash now too. GM even wants to be reclassified as a bank (the joke a few years ago, when they were giving away thousands of cars through dealer-sponsored contests and their profits were all coming from GMAC was “they’re a bank that gives away free cars” instead of toasters). But as the poster @#99 notes, they would have to sell off their automotive division to qualify for that status, and any subsequent Treasury Dept. bailout they received. Face it, either way GM is doomed.
101 Comment by TJF on 17 November 2008:

One stray thought: I have supped with dozens of neoconservatives and only two of them–the exception that proves the rule–who liked good wine are not real neocons at all. People who only eat power breakfasts, power lunches, and power dinners cannot actually appreciate good food or wine any more than they can appreciate a good novel or honest work of history. What matter is getting a good price on what impresses other people as expensive. Where everything–wine, poetry, love, neighbors, citizens–is a commodity, as it is with neocons and libertarians, nothing has any real value.
102 Comment by Joseph Salemi on 17 November 2008:

As someone mentioned on one of these threads recently, paleo-conservatism isn’t so much an ideology as a sensibility. Yes, we have certain ideas about how government should function and how society should comport itself. But above all we are loyal to a tradition, an aesthetic, and a code — all of which manifest themselves in a seamless garment called being a Western man.

Neocons and libertarians are totally clueless about things of this nature.
103 Comment by Bill Wilder on 17 November 2008:

As if to illustrate the real issue in debate re: this auto company bailout, is this story in today’s NYT

If Detroit Falls, Foreign Makers Could Be Buffer
By LOUIS UCHITELLE

Experts say the foreign carmakers could take control of the industry and its supplier network more quickly than is understood.
http://www.nytimes.com/2008/11/17/business/economy/17impact.html?partner=rss&emc=rss

Can we seriously contemplate placing our economy even further in the dependent state of Mexico and Canada? And how will the neocons and the rest of the “strong defense” crowd support their sexy military without an auto industry. (See Wesley Clark’s–I know, I know, “Wesley Clark?!”–recent op-ed piece on the dependence of the Army on the auto industry.)

Too support a “foreign-owned” auto industry in the US is to deny both economic reality and even the appearance of fealty to the country. It would laughable except that it apparently seriously considered an alternative.

(I would also point out that Tom Piatak’s figures on the current number of jobs dependent on the auto industry reflects only the current state of the US industry; which follows substantial downsizing. If one considers the historic economic signifance of the industry, it is even larger. The notion that the country would have the economy it has today except for the driver of Detroit is simply unfounded.)
104 Comment by Tom Piatak on 17 November 2008:

Mr. Wilder,

You are exactly right. People who are content to be economic colonists of a foreign country have a a mentality completely alien to my own.
105 Comment by Derek Leaberry on 17 November 2008:

Off topic to a great degree, in all the post-mortems that the neo-conservatives have written since O-Day of November 4, none mention the effects of the debacle in Iraq on the electional decline of Bush, McCain and the Republican Party. For instance, in yesterday’s Washington Post, Tod Lindberg pointed fingers(in many cases validly) at the causes of the Republican/conservative electoral retreat without mentioning the fools errand of Iraq. Sam Francis would skewer the neo-cons if he were still alive; I hope someone else in the Chronicles orbit is up to exposing the wicked ways of the neos.
106 Comment by Bob Trojan on 17 November 2008:

If the foreign car companies were to “fill the gap” as in the NYT article in #103, it would be even more serious than just realigning suppliers. The designs for these cars are typically done outside the US, so if we were to lose all/most production to the foreigners, we would also lose the creative talent that currently designs cars for GM/Ford and Chrysler. Without these jobs available, why should students study engineering? We would lose more youth that chose not to study engineering, thus we lose our creative, engineering resource.
We have to retain a US auto industry for more than factory jobs.
107 Comment by Lucius on 17 November 2008:

Mr. Piatak (@104),
If we’re subsidizing the auto industry, then are we not already economic colonists of a foreign country? The solution surely is to build a real wealth-producing asset, rather than maintain a liability and the illusion of strength.
108 Comment by Scott P. Richert on 17 November 2008:

Lucius (@107):

If we’re subsidizing the auto industry, then are we not already economic colonists of a foreign country?

Only if the country in which you live is foreign to you. I know some libertarians (though by no means all) regard themselves that way on principle; real people do not.
109 Comment by Eagle on 17 November 2008:

I tried to post on Mr. Spencer’s blog also…but Takimag does not seem to be allowing me at the moment…

I don’t understand why this discussion went in the direction that it did. The major points are NOT whether the auto-workers or auto executives “deserve” a bailout or not. The points rather are whether the auto manufacturing industry is important to the US, in what ways, and is it worth “saving”…the paths to “saving” being open to debate.

Additionally, people seem to have a taken a black and white / good guys – bad guys view of the executives and workers to an absurd length. Here’s my perspective. (And for what it is worth – I am a Detroiter, first generation to go to college, former automotive engineer, uncles in union jobs in the industry, and a refugee from the sinking industry.) The individuals that comprise the UAW are neither as good nor as bad, nor as different from the general culture, as they are being made out to be here. Many are decent, hard-working folks and, yes, there are some lazies as well. But they are to a great degree pawns in a game that high-ranking union leadership plays with high-ranking executive leadership. The executives themselves are a varied lot. Believe it or not, many have stayed on in the industry (because of roots to locale, loyalty to company, interest in cars, etc) at the expense of higher paychecks in different geographies and different industries.

Further: does everyone realize that white collar workers are now organizing in order to protect their jobs from the effects of “globalization”?

As to Mr. Spencer’s argument in the above piece: Though you started a good argument in the first piece, this one here was abysmally bad coming from a writer such as you who is normally well-reasoned. Mr. Wolf said what needed to be said about the utterly useless example of telegraphs. Let me help you make your argument with one simple point as a rebuttal to the “save the jobs at all costs argument”. Some – some, not all – jobs will naturally be lost due to the productivity gains made both by technology and improvements in process. Just like the number of people it takes to produce agricultural products (and other products) shrinks away over time, so too will the auto labor force. This is a natural sign of healthy economic developments.

This, however, is not to argue that we should not care if the auto industry collapses. We most definately need to care for the numerous reasons people have outlined: technological innovation on the home front (people who argue that there is no innovation that comes from or derives from the Big 3, simply do not know the basic facts even as measured simplistically by patent issuance, R&D dollars spent, etc), multiplier effects, national economic security, national physical security, etc.

Further: yes, we should have “saved” the electronics industry and perhaps save the agricultural sector for many, if not all, of the same reasons.

None of this is to absolve any individual lazy workers or negligent executives. HOW TO MANAGE a large American corporation with a complex product and complex value chain is indeed an improtant topic. How to best use the carrots and sticks of taxes, tariffs, and government-backed loans – if at all – is also a valid discussion. However, while related, this discussion is apart from the general importance of the sector to the economy of individual states and the nation collectively.

Once we can (I hope) establish that the auto sector, and industrial manufacturing in general, is important, then we can discuss issues – complex issues – such as the breaking up of oligopolies, incenting long-term planning & investing, and, perhaps most difficult, how we devolve back somewhat from an ego-driven individualistic work culture to more teamwork orientation which proved effective in the past (and today proves effective in places all over Asia and Europe).

Apologies for the long post. I will copy to Mr. Richert’s post on Chronicles also.
110 Comment by Eagle on 17 November 2008:

I want to also make a reference to a word that has for curious reasons become a pejorative: protectionism. Let me ask folks this:

1. Why in non-economic discussions is “protection” a positive word and in economic terms a negative one. If it were possible to in net economic / efficiency terms “protect” more of the GDP of our country, why would we not desire to do so? Why should this be “off the table” for ideological reasons?

2. How many of those folks railing against tariffs realize that the very companies in countries “kicking the Big 3’s butt” benefit from their own – dare I call it what it is? – TARIFFS/value added taxes/border adjusted charges??

3. Is or is not the word “protect” in any way related to “conserve” something?
111 Comment by Scott P. Richert on 17 November 2008:

Regarding Eagle (@109), just to make it clear to readers, starting with the paragraph where he refers to “Mr. Spencer’s argument in the above piece” and continuing on for at least the next two paragraphs, Eagle is not referring to the piece posted above but to a piece by Richard Spencer at Takimag.
112 Comment by Eagle on 17 November 2008:

One more post on the meaning of “private sector” to address those bemoaning loans…

As some have argued, we do need MORE of a private sector. How do we get one back is the key question (and the answer may not be as simple as immediately stop all regulations…private does equal totally deregulated)?

Along with short-term government-backed loans, our representatives (our board of directors, if you will), the US House in Congress, should step in and stipulate that in order to create more of a private sector (vis-a-vis the auto sector AND banking):

1. the oligoplies be broken up
2. VATs be established at the borders to “even the playing field” against companies backed by the government’s from the home country
3. corporate taxes reduced as compensation for a break-up and as inducement for more investment
4. foreign producers be re-assured that their production plants are still welcome, provided the appropriate VATs are paid on the design and engineering and sub-assembly production done overseas

This will INCREASE competition to the level of a real market that IS sustainable in an economy as large as that of the US.

Also, in order to ensure that we the underwriters for ALL loans and bailouts, same said House should MANDATE that we the taxpayers make a PROFIT on our loans and on the equity stakes bought on our behalf. Then later, after an appropriate period, we can ask for our “dividends” and “profit sharing” via tax reductions and REAL refund checks. BUT this time, those of us that actually PAY the taxes get the profit sharing.

We could just end up “saving” the auto and the bank sectors, increasing the size of the private sector pie over the long-term, and ensuring more competition which is necessary to a healthy private sector.

If we had representatives….

What was said about taxation and representation?
113 Comment by Eagle on 17 November 2008:

Yes – sorry, Scott. I should have amended that portion. I was intending to post originally to Mr. Spencer’s Takimag piece and then copy here. However, Takimag was freezing me out (and not for length either, I could not post anything). Perhaps they shut down posts on that particular piece.

Just for the record, I believe the topic at hand deserves debate and I hope that any counterpoints or criticisms made (of Mr. Spencer and others) will be viewed for what they are intended: constructive feedback.

I will admit I have some personal ties to the Midwest and to the auto sector which can make me emotional about the topic, but I hope that I have utilized my background from inside the industry and as a Corporate finance and tax worker in my next life to illuminate some points here. With that, I will once more apologize for my verbose comments.
114 Comment by Scott P. Richert on 17 November 2008:

Eagle (@112):

All very good ideas. Thanks for contributing them to the discussion.
115 Comment by Lucius on 17 November 2008:

Scott (@ 108),
An appeal to patriotism is a clever way to avoid answering the question. Let me ask it another way: how much of our GDP should be devoted to propping up the auto industry?
116 Comment by Scott P. Richert on 17 November 2008:

Eagle (@113):

No need to apologize for verbosity. Your comments have been quite illuminating, and my point in starting this post was to have a serious debate, which I was afraid was not going to happen elsewhere.

And unlike our libertarian friends who want to spin out abstract principles and then apply them coldheartedly to their fellow countrymen, we should recognize that personal ties are not only inevitable but welcome in such debates.
117 Comment by Eagle on 17 November 2008:

Lucius – wrong question. Right questions:

1. Is the sector worth “propping up” for long-term economic benefit to US citizens?

2. By what mechanisms should it be “propped up” and will this help make it healthy over he long-run?

3. If tax-payer funds are electd to be used by the tax-payer representatives (US House) acting on behalf of tax-payers, at what profit margin and what timelines will said loans/bailouts/etc be returned?

4. If the federal budget is short of the necessary funds, how can the House Budget Committee (the Finance Committee of our federal board of directors) re-prioritize spending in other areas (i.e., make cuts of items deemed less important, like war, etc) so as to dampen or eliminate any negative inflationary consequences that might arise from additional debt-driven spending.

Patriotism is a fuzzy curtain far behind these hard-headed objective questions that need answering.
118 Comment by Scott P. Richert on 17 November 2008:

Lucius (@115):

Changing the question is a clever way to avoid answering it. Do you regard the country you live in as foreign to you?

$50 billion (the high end of the loan guarantees being sought) is 0.38 percent of the U.S. GDP of $13.13 trillion (in 2006, the last year I could find). And again, these are loan guarantees; they are expected to be paid back, with interest.
119 Comment by Eagle on 17 November 2008:

By the way, because Prof. Gutzman brought up the issue of legality and constitutionality of any potential economic actions by the federal government, I am making a case for what I believe to be the only legal body empowered to use our treasury in any of the suggested manners. The US house is the ONLY body I believe qualified to do so. I am explicitly stating that the President, Treasury Secretary, and other administrative officials are just that, “adinistrative” officials tasked with executing the wishes of the superior body.
120 Comment by Scott P. Richert on 17 November 2008:

Looks like current forecasts for GDP are running about $14.5 trillion.
121 Comment by Lucius on 17 November 2008:

Scott (@118):

I don’t regard the country I live in as foreign to me. That’s beside the point. If my brother is hemorrhaging and near death, how is it cold-hearted to recognize that a blood transfusion is futile?

As for the possibility of the US taxpayer actually making money with a loan guarantee, if such were a real possibility, wouldn’t a lender in the private sector have stepped in already? The market seems to recognize that this is a losing proposition.

In answer to Eagle’s questions (@117):

1. If there were a benefit there, the private sector would have recognized it already.

2. Any mechanism entails a weakening of other more hopeful sectors.

3. Again, if there were any hope of making money on the deal, someone would have stepped in already.

4. I’d be happy to cut back on government waste. I don’t see how switching from one wasteful program to another produces a net gain.
122 Comment by Scott P. Richert on 17 November 2008:

Lucius (@121):

I don’t regard the country I live in as foreign to me. That’s beside the point.

If it’s beside the point, why did you write this?

If we’re subsidizing the auto industry, then are we not already economic colonists of a foreign country?

I’m just trying to see the logic.

wouldn’t a lender in the private sector have stepped in already?

Perhaps you haven’t paid attention to the credit market lately. The reason GM is asking for the loan guarantees is to provide incentive to private lenders in a market that is more than naturally tight at the moment. Which is precisely the problem with this:

The market seems to recognize

Pace libertarian economics, “the market” does not “recognize” anything. Economic actors–human beings–do, and their assessments of risks and potentials are subject to many factors, some real, some imaginary, some overblown, some not given proper weight.

if there were any hope of making money on the deal, someone would have stepped in already

Lucius is quite familiar with our friends at the Ludwig von Mises Institute. About seven or eight years ago, I had a day-long e-mail exchange with Lew Rockwell about Microsoft, in the course of which Lew kept trotting out that same idea as proof that the criticisms of Microsoft for making shoddy products were unjustified. The market has spoken! Microsoft’s market share proved it!

Yet it didn’t, and today, Lew is an Apple fanboy (and with good reason). The trouble is that some of us were using Macs back when Lew was consigning them to the dustbin of history on the basis of market share.

Again, “the market” is the result of human action. That’s a point that Misesians should understand, yet they somehow seem to fall back, more often than not, on economic determinism.

(EDITED TO ADD: I’m not talking out of school about my exchange with Lew; at the end of the day, I asked him for permission to send it around, and he agreed.)
123 Comment by Lucius on 17 November 2008:

Scott (@122),

You’re using product quality and market viability interchangeably. I don’t know about your debate with Lew Rockwell, but it seems obvious to me that percentage of market share does not necessarily translate to better quality product. McDonald’s has a larger market share than the diner on the corner, but that doesn’t mean they make better burgers.

The diner on the corner is able to make better burgers, and find a market for them, charge more, and survive as a business. Apple survives as well. But would you suggest a bailout of Apple (should it come to that) on the basis that, in your judgment, they make excellent computers?

The term “the market” is shorthand for all the economic actors in play–human beings. No economic actor can make sense of a loan to GM. The money is there–it’s the likelihood that GM will pay the loan back that’s the question. If the government steps in, it will be by borrowing money from the Chinese (turning us into economic colonists), or by printing more money (i.e., robbing taxpayers, weakening the dollar, etc.)
124 Comment by Scott P. Richert on 17 November 2008:

Lucius (@123):

If the government steps in, it will be by borrowing money from the Chinese (turning us into economic colonists)

Ah–thanks for clarifying that. Suffering from a head cold, I wasn’t making the (rather obvious) connection. I apologize if my questions above seemed out of line.
125 Comment by Scott P. Richert on 17 November 2008:

Oh, and by the way–Lew has on many occasions defended the quality of McDonald’s burgers, too. Including once in the pages of Chronicles, which just goes to show how open-minded we are.
126 Comment by Tom Piatak on 17 November 2008:

Lucius,

If the Big Three fail, the government is going to be robbing the taxpayer and inflating the dollar a lot more than the amount of the loan being requested; not only will $150 billion in tax revenue be lost, but those thrown out of work will be getting unemployment compensation benefits, those who lost retiree medical care will be drawing funds from Medicare, and those who lost their pensions will be getting money from the Pension Benefit Guaranty Corporation.
127 Comment by Lucius on 17 November 2008:

Tom (@126):

I agree that there will be dire consequences should the big three fail. I’m just not convinced that the Big Three will succeed with a bailout. The government is going to pump money into those companies, they will fail anyway, and we’ll still be faced with reduced tax revenue, an increase in unemployment comp, an increase in Medicare costs, etc. etc. etc.
128 Comment by Lucius on 17 November 2008:

Scott (@125),
Lew’s on his own if he wants to defend the quality of McDonald’s burgers!
129 Comment by Eagle on 17 November 2008:

Lucius,

The private sector may not be funding the industry with its own loans because the market place operates in different and extreme manners when oligopolies and monopolies are in effect. Basically the monopolist gets everything he wants or nothing, with little inbetween.

If you apply the anti-trust measures as written on the books, break up the auto oligopolies, and simultaneously apply more thoughtful VATs, then I suspect you’d see a much different market reaction.

Though, consider the current cash crisis these behemoths face in a recession…the argument is for loans to “keep them afloat” with the above changes being made basically simultaneously.

You can’t look at the issue in a vacuum…but I might add that it would be foolish to theorize the situation too much at the same time. THings I am proposing here were the conditions which allowed for a prosperous sector in the past.
130 Comment by Tom Piatak on 17 November 2008:

Lucius,

They may fail anyway, but there is reason to believe they won’t. The new collective bargaining agreement contains substantial concessions and largely eliminates the labor pay differential, and GM and Ford are poised to introduce cars that consumers looking for good gas mileage will snap up–a version of the Ford Fiesta that already sells very well in Europe and the Chevrolet Cruze, with a 45 mpg rating for highway driving. And if gas prices contiue going down, the Big Three are alredy making SUVs and trucks people enjoy driving. To me, it makes sense to avoid the massive costs, both economic and social, that would accompany the collapse of the Big Three.
131 Comment by Andrew G. Van Sant on 17 November 2008:

Regarding discussions concerning PCs vs Macs (and the importance of market share):

1. I was ready to buy my first business computer (to move up from a home computer – more on that below) when I read in Byte Magazine that Apple was going to make an announcement on the rumored Mac computer. I had been on the verge of buying an IBM PC clone, but decided to wait a little longer. When the announcement came, Jobs or Wozniac was quoted as saying that 128K RAM was all anyone would ever need. I thought they were smoking too much dope and, next day, bought a clone with 256k RAM (expandable to 640K) for about $3K.

2. Prior to purchasing my first business-class computer, I owned a TI-99/4A home computer. The 16 bit chip in the TI was superior to the 8 bit chips in the Apple, Atari and Commodore computers. However, the TI computer failed in the market place because of market share, or lack there of. (Software vendors were put off by the closed architecture of the TI. Software availability determined market share, not inherent quality of the computer.)

3. The clone that I purchased was a Seequa Chameleon. The Chameleon was one of the first suitcase-style computers and it contained both a Z80 and an 8088 processor, so it was capable of running either CP/M or the early MS-DOS operating system. It came bundled with DOS-based business software. It was a hit with those who wanted to transition from CP/M to MS-DOS. It, too, failed in the market place.

4. In the early years of Seequa, which was located in Anne Arundel County, Maryland, the county government had some “extra” federal money. The county council voted to give Seequa a $250,000 grant to help the company expand market share. I remember one of the council members responding to criticism about giving tax money to a private company, saying that it was federal tax money so the county could take more risk in using it than it could with county tax money. (That, in my experience, is typical thinking. The state, counties, and cities think of federal revenue as some kind of bonus that they can be more careless with.) Seequa eventually failed in the market place.

5. I’ve also owned eight-track tape players, a beta video camera, and companion beta tape player. All of these were at least slightly better than the competing technologies (for example, the eight-track format gave easier access to the various songs on a tape because you could switch tracks with a push of a button), yet they lost in the market place. (Such was my reputation that my friends always checked to see what I bought so they could buy the competing product.)

6. One can only conclude that although market share is critical to success, it is not necessarily determined by superiority of the technology or product features. Many factors come into play.
132 Comment by R. McCabe on 17 November 2008:

I’ve enjoyed reading this back and forth. I know most people are keeping an almost entirely practical perspective — even the people making libertarian-esque arguments may just be arguing that the track record of Detroit shows no real improvements to compete that would make an intervention worth it. Others are arguing they are. ANd lots of people are coming up with great ideas for running an auto company. If I had the cash, you bet I’d be stepping in right now.

But could someone clarify for me how the very consistent thread guiding the voting debates earlier that basically said, “The GOP is an ideological, neocon evil and should be destroyed, in spite of it being the lesser evil of two practical options.” Yet, now so many same seem to be saying go ahead with the lesser of two evils because these guys are our friends or look like us.

I do not know if I believe the 3 million man march would happen if we do nothing. Although I believe in the incalculable loss our manufacturing industry has left in our country, without reforming our government, our tax policy and our borders (iincluding border taxes and immigration), I fail to see how any bailout would be a practical success.

If it came to war, could we not as easily comandeer Toyota’s and Honda’s plants and workers here? They’re Americans too, aren’t they? The free market is a dangerous thing to be argued against vehemently and acted against, for it works in spite of our efforts — replacing union workers with non-union workers (nothing to do with the workers themselves) and American CEOs with Japanese ones.
133 Comment by Lucius on 17 November 2008:

Tom (@130):

“To me, it makes sense to avoid the massive costs, both economic and social, that would accompany the collapse of the Big Three.”

You mean: it makes sense to bet with federal money that we may avoid the massive costs, etc. It makes sense to take a risk that no bank is willing to take.
134 Comment by Tom Piatak on 17 November 2008:

Lucius:

Yes, I meant that it makes sense to try and avoid those massive costs. I didn’t mean to suggest that the federal loan is guaranteed to work.

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