About the Author

Patrick Buchanan has been a senior advisor to three Presidents, a two-time candidate for the Republican presidential nomination, and was the presidential nominee of the Reform Party in 2000. He has written ten books, including six straight New York Times best sellers: A Republic, Not an Empire; The Death of the West; Where the Right Went Wrong; State of Emergency; Day of Reckoning; and Churchill, Hitler and The Unnecessary War.

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As GM Goes, So Goes the GOP

by Patrick J. Buchanan

November 17th, 2008 • Related • Filed Under

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Understandably, Republicans are seething. When Hank Paulson demanded $700 billion to haul away the trash in the dumpsters of JPMorgan Chase and Goldman Sachs—assuring us we could hold a garage sale of the junk—they rebelled. They acted as the nation, by 100 to one, demanded. They killed the Wall Street bailout. The Dow quickly sank another 1,000 points, and, charged with criminal irresponsibility by the elites, the GOP buckled, reversed itself, rescued the bailout—and was wiped out on Nov. 4.

Now we hear from Paulson that the $700 billion Congress voted will not, after all, be used to buy up all that rotten paper on the books of the big banks. Some banks are using the cash to buy other banks.

So Republicans are right to be enraged. They are victims of the biggest bait-and-switch in political history. But they are now about to do something terminally stupid. With GM, Ford and Chrysler teetering on the brink, they are turning a cold stone face to Detroit and are about to follow the counsel of that quintessential Bushite Dick Darman, who said of our computer chip industry, “If our guys can’t hack it, let ‘em go.”

America responded—by letting George H.W. Bush and Darman go.

Are Republicans aware of what they are about to do?

When workers, execs, engineers, dealers, salesmen and suppliers are all factored in, the Big Three employ 3 million people who contribute $21 billion a year to Social Security and Medicare, and $25 billion in federal income taxes. Add in all the businesses that depend on the auto industry, and we are talking about one-tenth of the U.S. labor force.

As columnist Tom Piatak of Chronicles and Takimag.com writes, 850,000 retirees, and their families, depend for pensions and health care on the Big Three. If they go under, the burden falls on us.

And to let the auto industry die is to write America out of much of the economic future of the planet.

In a good year, like 2005, Americans buy more than 17 million new cars, and West Europeans as many. Tens of millions in Eastern Europe, Russia, China, India and Southeast Asia are now moving into the middle class each year. These folks will all need or want one or two family cars. If we let the U.S. auto industry die, that immense and burgeoning market will be lost forever to America, and ceded to Asia.

“Who cares?” comes the free-traders’ reply. Japanese and Koreans are setting up factories here. They can pick up the slack.

But that means Americans will work for and depend on foreign companies for a necessity of our national life as vital as the imported oil and gas on which our cars and trucks operate. All the profits of the mighty automobile industry in America will be sent abroad.

Before Republicans follow this free-trade fanaticism to their final interment, they might study the results of a poll by Peter Hart:

—Seventy-eight percent of Americans believe the U.S. auto industry is highly or extremely important. Three percent think we can do without it.

—Ninety percent of Americans believe the death of the U.S. auto industry would do great damage to our economic future.

—By 55 percent to 30 percent, Americans favor federal loans to save it. And by 64 percent to 25 percent Americans back President-elect Obama’s resolve not to let the U.S. auto industry go under.

If the GOP blocks these loans, and the industry dies, the party can forget about Ohio, Michigan and the industrial Midwest. For the Reagan Democrats will never come home again. Nor should they.

By the choices we make, we define ourselves and reveal what we truly care about. Thus, consider:

We bail out the New York and D.C. governments of Abe Beame and Marion Barry. We bail out a corrupt Mexico. We bail out public schools that have failed us for 40 years.

We bail out with International Monetary Fund and World Bank loans and foreign aid worthless Third World regimes.

We bail out Wall Street plutocrats and big banks.

But the most magnificent industry, the auto industry that was the pride of America and envy of the world, we surrender to predator-traders from Asia and Europe, lest we violate the tenets of some 19th-century ideological scribblers that the old Republicans considered the apogee of British stupidity.

Nancy Pelosi is talking about tying loans to a restructuring of the industry. But Congress is not competent to do that.

What needs to be restructured is the U.S. tax-and-trade regime.

Dump globalism. Instruct Japan, Canada, Korea, Germany and China that if they wish to sell cars here, they will assemble them here and produce the parts here. And we shall have the same free access to and same share of their auto market as they have of ours.

To accomplish this, use the same import quotas and tariffs Ronald Reagan used to save the steel industry and Harley-Davidson.

Reciprocal trade. Even Democrats like FDR used to practice it.

Comments

There Are 117 Responses So Far. »

1 Comment by roho on 17 November 2008:

Exactly!……………Great Points Mr. Buchanan.
2 Comment by Joseph Salemi on 17 November 2008:

“Terminally stupid…” Yeah, that about sums up the Republican Party of today.

If The Republicans let the free-trade ideologues win this debate, then let the damned Republicans go the way of the Whigs.
3 Comment by Allen Wilson on 17 November 2008:

The country certainly would be far better off with a Ford and a GM and a Chrysler, but without a GOP and Wall Street plutocrats. Also without the Democrat party.
4 Comment by John Rutowicz on 17 November 2008:

As a Michigander I want the auto industry saved. As a Paleo-con I think Pat Buchanan, Tom Piatak, and Scott Richert have been right on this issue.

The Republican Party’s only future is to win over the Great Lakes States. See Steve Sailer’s article on the subject over at VDARE.
5 Comment by Mark Higdon on 17 November 2008:

So the key to saving the GOP is premised upon the justification of saving the US auto industry on the US taxpayers’ tab. The argument in favor runs something like this: all those other bailouts had no merit, but this one does.

Let me turn this around. If this one does, then what argument is there against any or all the others? Or against bailouts in general. Or against total nationalization of any and all US industries?

Sorry, Pat, this dog won’t hunt. It follows the “logic” of the cynical old political saw “Don’t tax you, don’t tax me; tax that fellow sittin’ under that tree.”

I’ve been urging you for quite some time to finally declare your independence and shed your Republican shackles. Unfortunately, you continue to wear them by choice.
6 Comment by Tom Piatak on 17 November 2008:

Unlike the phonies who have occupied the White House since Reagan left, Pat Buchanan is a real American, who actually cares about this country and its people. If Buchanan had made it to the White House, the American auto industry would be much better off, as would the rest of us.
7 Comment by Brock H. on 17 November 2008:

Tom Piatak @6:

You’re right, Tom, but I think Mark Higdon @5 has a point. Pat is forgetting the one thing that is supposed to set us paleocons apart from the establishment: consistency. Our policy should be the one created for us by the U.S. Constitution: that the federal government does not possess the authority to provide $$$ from the Treasury to fund ANY private and for-profit corporations or businesses. This practice, last time I checked, is called fascism.
8 Comment by Kirt Higdon on 17 November 2008:

No surprise to see the old Nixonite Pat Buchanan leading the charge for socialism with a Republican face. But it’s hard to know whether to laugh or cry at what so-called conservatism has come down to – conserving the auto industry. The automobile probably ranks ahead of the television as the invention with the most devastating impact on traditional American life. But I guess “conservatives”, even paleocons, now join old Marxists in considering state organized industrialism as the ideal economic arrangement. So we are all socialists now, right Pat? But wait, the purpose of this latest proposed bailout is actually to save the Republican party, except the Republicans are too stupid to recognize it. Yeah right.

The money for these multiple bailouts will come from people like me in the form of having our meager financial assets wiped out by inflation. But I suppose I deserve it – I’ve been a bad American. I haven’t purchased a new car in 12 years and have no debts other than a home mortgage I can easily afford to pay on a house that is actually increasing in value. People like me deserve to be looted for the benefit of the banksters, the two branches of the American socialist party, the auto thieves, and who knows who else. The candidates for bailouts keep lining up.
9 Comment by Brock H. on 18 November 2008:

Kirt Higdon @8:

You and Mark, whom I assume you are kin to, bring up good points. I don’t know what it is about Pat that makes me keep believing that he truly has disconnected himself from the American political establishment, because he constantly seems to wax romantic and nostalgic over it, just at a different period in time. The rise and spread of the auto industry in America back in the 20s, backed by the protectionist trade policy which protected it from foreign competition, was just one phase of the takeover of the corporate elite over the U.S. economy, NOT some perfect time when the country was YET to be influenced by the corporatist political establishment, as Pat might have us believe.

He has also fallen into the trap of vigorously supporting the economic vision of that partisan Federalist Party Yankee hack Alexander Hamilton, a dangerous vision for American
“conservatives” to embrace. Look to Hamilton’s ideological opponent Thomas Jefferson for an economic outlook that authentic conservatives will support and advocate.
10 Comment by nikopiko on 18 November 2008:

Why would the American auto industry disappear if no bailout was given to these big three? Do not use scare tactics, Pat. You are sounding a lot like your colleagues back on capitol hill.

Let all fail, who have not kept their business in order. It is the only way things can get better. It is the same with an individual, a family, a village or a hot dog stand or GM. It does not matter.

Building from the bottom up is not so bad. We may be able to build a better foundation. To build atop this weakened structure we are on is only making for a bigger crash to come and the fall out then will be devastating.(Mark my words.)
11 Comment by travis on 18 November 2008:

I think Colonel Sartoris had the proper attitude toward automobiles when he prohibited their presence in the the town of Jefferson.
12 Comment by jack bailey on 18 November 2008:

Again, there is nothing contradictory in what Pat says. Free enterprise works. But some bankrupcies cause much higher social costs than others and this is where the bailouts come in. American car industry cannot survive foreign cometition so the bailouts will not work. As far as Republican party is concerned, it is doomed in Ohio, Michigan etc. regardless. So is the country economically. The real crisis has not started yet. The real crisis will start once the US goverment, ever-present law firms and all the useless universities start going broke.
13 Comment by John Bivens on 18 November 2008:

I’ve always admired Buchanan, but he needs to inform the reader of an apparent conflict of interest. He works for MSNBC which is owned by GE. How much wiil GE receive from any proposed bailout? There is a story out there that the company may/will receive fifty billion. What say you Pat?
14 Comment by MarkB on 18 November 2008:

While there are forceful arguments against the bailout of the Big3, reading to the end of the column one finds the heart of the argument. Much of the US trade difficulty is the result not of free trade, but predatory trade. An insistence, from the outset, upon trading on equal (not protectionist – just equal) terms would have avoided much of the current imbalance. This is the heart of Pat’s prescription. Our industries face incredible hidden taxes that their competitors often don’t. When entire country targets a specific industry, some response other than “let ‘em go” seems appropriate.
15 Comment by dwright on 18 November 2008:

We are talking two things here, saving the auto industry and the republican party. The latter can pound sand.

Okay, I give in. I support the bailout but I want the money back from the credit bailout to do it.

What’s interesting to me as I type this is, why do most of us (especially me) argue these points? My influence is zero and my political power is the same.
16 Pingback by Washington City Paper: City Desk - Loose Lips Daily: Whither Peter Nickles? on 18 November 2008:

[...] Buchanan makes a good point, sort of: “We bail out the New York and D.C. governments of Abe Beame and Marion [...]
17 Comment by Jerry Cline on 18 November 2008:

Bivens13:

Are you seriously suggesting that Pat Buchanan’s opinion regarding the proposed bailout may be influenced by what MSNBC’s parent company might get out of it?? Reread Pat’s articles and books on trade matters published over the last 20 years. I assure you, there is no “conflict of interest.” Pat’s position on this matter was cemented long before he ever joined MSNBC. What GE may or may not receive has no influence whatsoever on his opinions.

As for saving the auto industry, I am much more inclined to waste taxpayer money on bailing out that industry than on all of the other unconstitutional bailout schemes the feds have concocted, including all of the wasteful foreign aid and the recent 700 billion dollar con job.
18 Comment by Scott P. Richert on 18 November 2008:

In all of the threads on this debate, I keep seeing some variation of this argument:

Building from the bottom up is not so bad. We may be able to build a better foundation.

Almost invariably, it comes from people who also point to foreign automakers in the United States as proof that it can be done.

Yet I haven’t seen a single person point to a successful start-up. Not one. The successes that they point to are foreign companies that were already successful in their home countries. And every one of those companies was also supported by the government of its home country–not simply during trying times for the company, but throughout the company’s entire history, both by direct subsidies and by tariffs or border-adjusted VATs.

If it’s so easy to start an auto company from scratch in 2008 (without government support) and so self-evident that such a start-up will succeed (without government support), then those who make this argument should be able to provide us with numerous examples. Since I’m feeling generous, I’ll settle for one.
19 Comment by Chuck Hicks on 18 November 2008:

“If The Republicans let the free-trade ideologues win this debate, then let the damned Republicans go the way of the Whigs.”

Mr. Salemi (#2), the Republicans ARE the Whigs and have never accomodated a free market. The difference between then and now is that protectionism serves no further use to the plutocracy; the managed trade agreements hammered out by the GOP-Democratic axis include suppressed, sub-market wages for foreign workers and lost jobs for domestics, all in the service of the politically-connected. That’s called “crony capitalism.”

Thank you, Brock H (#9), for your insightful comment.
20 Comment by J. Meng on 18 November 2008:

@ dwright, #14
You make a good point regarding the futilility of arguing the points. However, it may bring us a certain measure of relief through intellectual catharsis. As for me, I agree with the points made by Mark and Kirt Higdon. I’ll even take the risky step and advocate a general downfall of the artificial economic system that oppresses us. I say let us be rid of centralized government and centralized business and return to small town government and economics. The foundations are still in place, a bit unused, but still existing. As Thomas Jefferson advocated an agrarian society, I say: yes! We live in an artificial social construct within which we have forgotten why we were created: to save our souls. Most of us are too busy chasing after things that the factories constantly spew out, and through what I call despicable and demeaning advertising, make us think we need the crap produced. Planet earth is not our permanent home. Let’s put God, family, and local community, first, and let the rest of the world chase after illusions. Now, that was a pleasant catharsis. Thanks for your patience.
21 Comment by Steve Berg on 18 November 2008:

Was the Louisiana Purchase constitutional? How about the annexations of the Republics of Texas and California, and also of the Kingdom of Hawaii? Was the purchase of Alaska Constitutional? I agree with Joe Sobran that the Constitution is not perfect, but it is better than what we have now. But it looks like Constitutional fundamentalism has already been dead for a long time. This being obviously the case, what is best in terms of public policy in dealing with the crisis in our faltering heavy manufacturing firms? Scott Richert makes a valid point. If there is a market for better built American made vehicles, why are there no start ups? The Big 3 are catching flack for building large pickup trucks, and sport utility vehicles which are not as fuel efficient as an econobox passenger car, but the free market decided that was what many people wanted, and the manufacturers obliged them. The speculators bid up the price of oil to ridiculous heights, and the Big 3 did not see this coming. Neither did most other people. Now that these yuppie hedge funds are going belly up, the prices for this and other commodities are dropping like anchors. What bothers me is this savage glee in wanting to destroy corporations, unions, and millions of our fellow Americans because there was too much institutional inertia involved for them to pirouette like a ballerina and suddenly start producing battery powered roller skates? I do not like bailouts. I, too live a modest life with minimal debt. I do not even have a mortgage. So, I do not like to have to pay more in taxes to bail out greedy folks who have not been as prudent as my humble self. But, the precedent for this has been set long ago, as Pat and others have pointed out. How to best help out my neighbors, and my fellow citizens, then is the right question to ask, now. I have seen the results of globalism, corporate greed, union stupidity, and destruction of manufacturing personally. It is very ugly. If this continues, even the parasites in the financial realm will perish with the loss of their hosts. So, how do we fix this mess as best we can. Looking forward to dancing on the graves of American manufacturing companies is not a worthwhile goal for adults.
22 Comment by Bill Wilder on 18 November 2008:

Scott @ 18

You are prescient. See this article in today’s Washington Post about the failing of a hybrid startup, Tesla Motors, in Silicon Valley.

http://www.washingtonpost.com/wp-dyn/content/article/2008/11/17/AR2008111702942.html

Gee, even with all the “right business model” from Detroit’s critics viewpoint (hybrid technology, nonunion workforce, lots of “smart people” who aren’t “shackled to Detroit”), this Company is failing and cannot remotely produce a competitive product ($109,000 for a hybrid?)

I understand the points about the apparent contradictions of paleocons supporting the auto industry (doubtless recalling Kirk’s denunciation of the auto as a “jacobin.”) But if Kirk’s thoughts on “prudence” have any meaning and if you are a Burkean who supports organic change, then (without offense to Wendell Berry) the notion that you allow an essential manufacturing sector to fail because of old hostilities and fealty to agrarianism (or worse, ideological bromides about “the free market”) is the real contradiction.

The resuscitation of small towns and life on a human scale has to happen in localities, particularly with zoning laws, and individuals patronizing local businesses. Letting the domestic auto sector fail will do nothing for that (except further undermine numerous small towns and communities dependent on that sector for employment–how does that factor into the “small town” concern?)
23 Comment by Tom Piatak on 18 November 2008:

Mr. Berg,

You are exactly right.
24 Comment by Lucius on 18 November 2008:

Scott (@18),

If you are right that no auto company has ever existed without subsidies, I don’t see how that proves your case. Could one not argue in return that those peoples who were forced to subsidize their auto industries were thereby impoverished?

There are plenty of companies in other sectors that start up without government protection and do very well. Why shouldn’t we have more of those?
25 Comment by Tom Piatak on 18 November 2008:

Mr. Wilder,

Excellent points, as usual. In my initial piece, I suggested “prudence and patrioitism” as reasons to favor a loan to the Big Three.
26 Comment by Scott P. Richert on 18 November 2008:

Lucius (@24):

It doesn’t prove the case that a bailout is necessary; it disproves the starry-eyed libertarian belief that the market will provide.

Then the question becomes, Is it desirable to have an auto industry at all? I’ve raised that question before (”Giving the Devil His Due” was about that question broadly applied to manufacturing). I’m a Luddite at heart. My wife and I have seven children, and we have one automobile. For most of our married life (16 years), we’ve only had one automobile. We purchased our current house so that I could walk to work year-round.

But what’s possible for me isn’t possible for everyone else–at least not today. I have no doubt that, in the long run, this country is moving toward conditions that will make individual auto ownership both less likely and less desirable. But part of that adjustment will include other things that you wouldn’t like (but might already take advantage of), such as the public financing of mass transportation.

So, right now, this is the question that those who think that an auto industry is necessary (even as a stop-gap measure) are faced with: Will we have one or not? Recent history gives us no example to suggest that, in 2008, the market will provide.
27 Comment by Scott P. Richert on 18 November 2008:

By the way, if there is any publication that has printed more about the destructive effects of mobility–made possible, in large part, by the mass production of automobiles–than Chronicles has, I don’t know it. I’ve written at length myself on Russell Kirk’s (quite correct) denunciation of the automobile as a “mechanical Jacobin.”

Yet Dr. Kirk did not refuse to set foot in a car, because he was not an ideologue. And we need to consider right now what is best for the country, without falling back on an ideological insistence on abstract principles.
28 Comment by Bill Wilder on 18 November 2008:

Mr. Piatak,

And we are not by those arguments necessarily denouncing those opposed to a “bailout” of the auto sector as unpatriotic (admittedly, I think they are imprudent.) It is not so simple as asserting that (recalling John Randolph) all monies for internal improvements are unconstitutional. Nor are all “bailouts” created equal. One can support a bailout of the auto sector on prudential grounds while opposing the financial industry bailout (not least on the grounds that no one understood the legislation; a point made clear by the fact that Paulson has now wholly changed the plan approved by Congress.)

The loans to Chrysler in 1979 (I think it was) do not comport to a strict reading of the Constitution. But it was prudent in that Chrysler survived (thrived even) and paid back the loans early. I do not equate that event to the present contemplated policy because the circumstances of the industry and economy have obviously changed substantially. But I do raise to make the point that one cannot equate all such governmental interventions. The circumstances and propriety of such actions will differ.

To Lucius’ point in 24 above, the complexity of the tax code I think makes it very difficult to assert that there are sectors that startup “without governmental protection.” I will point out, however, that enhancing market entry is not necessarily a good thing for an industry. The airline industry has seen some 200 startups start up . . . and promptly fail. The result has been (some 30 years later) only cheaper airline tickets. By any measure the quality of the product offered by all participants (including the favorites Southwest and JetBlue) are worse than the product offered prior to deregulation. And the increased level of traffic has degraded the infrastructure of the industry.

Economics is not (contra the libertarians) reducible to immutable laws. Nothing that is ultimately the sum of human action ever is. The variability and complexity defy such “laws”–including that assets are always directed to their most efficient end.
29 Comment by Scott P. Richert on 18 November 2008:

Bill Wilder (@28):

Economics is not (contra the libertarians) reducible to immutable laws. Nothing that is ultimately the sum of human action ever is. The variability and complexity defy such “laws”–including that assets are always directed to their most efficient end.

Amen. Any Christian who believes in free will (which should include all of those Catholic libertarians attached to the Mises Institute) should understand this.
30 Comment by Lucius on 18 November 2008:

Scott (@26),

You do not disprove the thesis that the market will provide. All you have shown is that many of the cars currently on the market are sold at a discount thanks to wealth diverted from more productive sectors.

Bill (@22),
Tesla hasn’t failed yet–the CEO seems optimistic. If it is truly failing, do you suggest subsidizing it so we can build up an “essential sector”?
31 Comment by Lucius on 18 November 2008:

Scott (@29),
To which immutable laws contradicting the doctrine of free will are you referring?
32 Comment by Scott P. Richert on 18 November 2008:

Lucius (@30):

If the market will provide, why hasn’t it? If the answer is that government intervention has prevented the efficient operation of the market, then that will likely continue after the Big Three fail, because the foreign automakers will continue to be subsidized directly and indirectly by their governments.

And if you’re going to reduce this to “many of the cars,” then that means that some of them currently on the market have not benefitted from direct or indirect government subsidies. Again, all I’m asking for is one example.
33 Comment by Bill Wilder on 18 November 2008:

Lucius @ 30

Tesla certainly is failing (I did not state “failed.) I don’t doubt its CEO is optimistic. Hopefully, his optimism will be justified. I have no reason to want the enterprise to fail and did not cite it for that purpose. Rather, I cited it to refute the deterministic notion (that I frankly infer from your comments) that all that is required is the right “business model” and all would be well with the US domestic auto industry. That simply is untrue as the auto market is subject to substantial governmental intervention on behalf of foreign producers.

No, I would not support a bailout for Tesla as there is no prudent reason for bailing out a company whose failure will not have a measurable impact on the broader economy/society.

And let’s also be clear neither I (nor others advocating a similar position as I read it) have advocated particular terms to any support for the domestic US industry. As Mr. Richert has made clear, there are legitimate grounds for criticism of “Detroit” and may be innovative terms that could be attached to any such support for enhancing the competitiveness of Detroit.

No, the only debate here is the abstract question of whether such support should be given. Your position has made clear that (irrespective of the impact of failure on our country and irrespective of the result produced by a “bailout”, good or ill) you are opposed. That is arguing from abstraction (as Mr. Richert argued against.) And it is the prescriptive notion that any bailout, in any form and with any good result is improper, that I dispute.
34 Comment by Scott P. Richert on 18 November 2008:

On November 14, the Mises Institute’s “Daily Article” was “Checkernomics: The Game Is Solved” by Gary Danelishen. (You can find the article online here.)

Here are just two quotations from the article:

Like checkers players who now face an unbeatable opponent, politicians also face an infallible and timeless foeeconomic law.

Economic law is immutable; it will have its way for better or for worse. Politicians would do well to align public policy with what is natural, true, and unbeatable.

Think about this for a minute. If “economic law” “will have its way for better or for worse,” why exactly does it matter if politicians “align public policy” with it? The answer, I suppose, is that the failure to do so results in certain inefficiencies or even outright pain while the “economic law” is undoing the effects of the public policy. That makes a certain sort of sense.

And yet–the libertarians also conveniently dismiss every piece of evidence that the markets aren’t working exactly as their “economic law” predicts by saying that government intervention is distorting the market. In other words, even though “Economic law is immutable,” it can be overcome, at least in the short run. (And none of this, of course, even begins to address the fact that the “economic law” that is “immutable” applies to an economic system that is a relative newcomer in human history.)

If “economic law” is unbeatable, libertarians have nothing to worry about, and, frankly, they have no excuse when their “unbeatable” law doesn’t end in the predicted result.

If, however, they think that government action can consistently thwart their “immutable,” “unbeatable” “economic law,” then perhaps they should consider that the principle in question may be neither “immutable” nor “unbeatable”–not to mention that it may not be a “law.”
35 Comment by Lucius on 18 November 2008:

Scott (@32),

What do you expect the market to provide? If other countries are diverting their wealth from profitable sectors to their unprofitable auto sectors, why should we do the same? What we should do instead is use the money we’re saving on discounted automobiles, and invest it in competition against foreign industries that are being bled.

I said “many of the cars” because of the Tesla example (I’m assuming it’s not receiving a subsidy). I also assumed, perhaps incorrectly, that there were some luxury vehicles out there (like Lamborghinis and Ferraris), and some micro-producers, that were not subsidized.
36 Comment by Sean Scallon on 18 November 2008:

Will the last Republican in the Upper Midwest please turn out the lights?
37 Comment by Scott P. Richert on 18 November 2008:

Lucius (@35):

Tesla has shipped 70 cars. At an average price of $109,000. True, that means that not all of the auto industry has received government subsidies, but I think that it goes a little further toward supporting my point than toward supporting yours.

What we should do instead is use the money we’re saving on discounted automobiles, and invest it in competition against foreign industries that are being bled.

Tell me–you must know plenty of people who’ve bought foreign cars. Assuming that they’ve saved money on those cars, where did the savings go? Was it really “invest[ed] it in competition against foreign industries that are being bled”? Or was it spent on more foreign-made goods, albeit at further “savings”?

Consumer debt figures and negative savings rates indicate that the latter is more likely.

So tell me: Where, in this cycle of saving money on foreign goods so that we can buy more foreign goods, does the investment in domestic industry occur?
38 Comment by Bill Wilder on 18 November 2008:

Lucius you continue to dwell on abstraction. “What do you expect the market to provide?” You continue to invoke the market as if it were a thing that existed.

There is no evidence that auto industries are “unprofitable.” It is, rather, clear than the benefits (”profits” for a materialist) of an auto industry go beyond a balance sheet. That is why, for example, the Chinese are assiduously expanding there’s and why the auto industry led the way for the “Asian tigers.”

And, please, lets avoid framing this debate as if Detroit’s situation exists in a vacuum. As Steven Pearlstein in the WaPo (very much a globalist) noted this week: “With the events of the past few days, it’s become clear that even the strongest players, the biggest companies and the richest investors are facing serious financial challenges. The speed at which things have come unraveled is breathtaking. Only a few months ago inflation was the big worry and some analysts were suggesting that the U.S. economy might avoid a recession. Now, the fear is of deflation and a global depression.” Are all these other actors similarly “unprofitable”, “antiquated”, “failed managers”, etc., etc.?

I guess it’s all “immutable laws” that no one (not even the market actors) can either predict or affect. Interesting, since if there is a “law”, it ought to be identifiable; and if it’s “immutable” it ought to be predictable.
39 Comment by Scott P. Richert on 18 November 2008:

Oops–looks like Tesla has dirty hands, too: “But the past two years have been rocky for Tesla, which first announced it would build a big factory in New Mexico, then said it would instead build in San Jose after California dangled incentives to stay in the state.”
40 Comment by Bill Wilder on 18 November 2008:

Mr. Scallon @ 36,

Just so! Funny how winning the Midwest/Upper Midwest (which still has a substantial number of electoral college votes) doesn’t factor into the NR/Beltway Right calculation for electoral success. Of course, by their present course, in which they allow phonies like Jon Kyl of Arizona lead the way in denouncing Detroit, they’re ensuring they won’t have to figure how to win an election–they’ll have no chance at all.
41 Comment by Bill Wilder on 18 November 2008:

Scott Richard @ 39

I figured I’d let that part of the story go unstated under the “give ‘em enough rope” theory. As I said, between the tax code and state/local gov’t tax bribes, the notion that any industry is “unprotected” is dubious.
42 Comment by Scott P. Richert on 18 November 2008:

Bill Wilder (@38):

That is why, for example, the Chinese are assiduously expanding there’s and why the auto industry led the way for the “Asian tigers.”

Very good point. I’ve often brought this up to people who tell me that Americans should be happy to see industry go, so that we can do something “less dirty” and “more productive”: Why, if industry is so undesirable, are other countries so happy to take the industries that are fleeing ours? And why are the economies of industrializing states growing at rates much faster than those of deindustrializing states?
43 Pingback by “Anus Randius” by itself is worth the price of admission « Thewashingtonwitness’s Blog on 18 November 2008:

[...] 18, 2008 There have been plenty of brainy commentaries about the bailout from various sources, but for my money there’s nothing better than the bailout elucidated as a dialogue between [...]
44 Comment by Lucius on 18 November 2008:

Scott (@34),

The obvious example against your point is the Soviet Union. Their leaders did not align public policy with economic law–they “thwarted” it–and their people suffered materially as a result. What’s happening nowadays is not quite so radical; however, it should be fairly clear that any centralized decision-making hampers the effective distribution of material goods. Misesians do not predict any specific outcomes other than that a free market (the sum of all economic actors, exercising their free will) leads naturally to the most efficient allocation of scarce resources.

(@37)
Surely you agree that people should be saving their money, and not spending themselves into oblivion? Money goes into a bank which then lends it out to entrepreneurs.

(@39)
Perhaps Tesla’s hands are dirty too. Still doesn’t prove your point. It is possible to start up a company without subsidies as it would be impossible for every company to get a subsidy.
45 Comment by Sean Scallon on 18 November 2008:

For right now Bill, the GOP is more worried about holding onto the Big 3 of Idaho, Utah and Wyoming.
46 Comment by Scott P. Richert on 18 November 2008:

Lucius (@43):

Surely you agree that people should be saving their money, and not spending themselves into oblivion? Money goes into a bank which then lends it out to entrepreneurs.

Of course I agree. Yet you have to agree that that is not what’s happening. And libertarians who are always jabbering on about “consumers” are part of the reason why it doesn’t happen. Convince people to think of themselves primarily as consumers, and they will consume, not save.

It is possible to start up a company without subsidies as it would be impossible for every company to get a subsidy.

So, since it is possible and yet isn’t happening, we should draw the conclusion that “the market” has spoken, shouldn’t we?

In that case, perhaps we can finally drop back out of the realm of abstraction and start talking about whether there is a pragmatic reason to desire the continuation of the American auto industry in some (restructured, reorganized) form.
47 Comment by Bill Wilder on 18 November 2008:

Lucius,
I think Scott’s point in raising the subsidies to Tesla is that invoking the “market” in regarding at least the auto industry is a chimera since no such “free market” unaffected by state intervention exists in that industry (if it indeed exists anywhere) even for small niche producers. (And the foreign luxury makers you identified benefit, at the least, from VAT rebates from their governments for exports.)
48 Comment by Lucius on 18 November 2008:

Bill (@38),
The term “the market” is shorthand for the sum total of all economic actors, human beings, using their God-given free will to decide how to allocate their scarce claims on wealth (i.e., money). It’s not an abstraction, and it most certainly does exist.

You’re right that Detroit’s situation does not exist in a vacuum. It is suffering the bitter consequences of policies which violated economic law (inflationary monetary policy; forced lending to people who couldn’t afford mortgages; etc. etc.). The results were predicted.
49 Comment by Lucius on 18 November 2008:

Scott (@45),

Misesians (if that’s what you mean by “libertarians”) do not jabber about consumers–Keynesians do that. Misesians encourage savings and investment, and discourage debt.

Of course there are companies who don’t receive subsidies–perhaps not auto companies, but there have to be some companies generating wealth out there. How on earth would it be possible for everyone to be receiving a subsidy? The money has to come from somewhere.
50 Comment by Bill Wilder on 18 November 2008:

Lucius,
There are direct and indirect subsidies. Permitting mortgage interest to be deducted is arguably a subsidy to homeowners by nonhomeowners, for example. Given the vast size of our economy (approaching $14Trn) the ability to manipulate laws to benefit individual actors is substantial.

I assumed that was what you meant by market. If that is the case (as it must be) then there cannot be “immutable laws” of the market except the law of unintended consequences (which I think is about the only immutable economic “law.”) The number of actors is too vast, their motives and interests to numerous to be “predicted.” I understand that’s heresy to economists (with their “game theory”, “public choice” theory, and myriad other, often conflicting, theories of “immutable laws.”)

Moreover, if you recognize the market is the sum of numerous independent actors, the notion that you can “expect” them to produce some predictable “thing” (your question to Scott) seems to me a nonsense. Those individual actors will doubtless act first in their self-interest, but even that you cannot define immutability; one actor may define his/her self-interest quite differently from another.

And, at least from my point of view, if we are really speaking of individuals, then there is a substantial element of irrationality to their conduct that will defy prediction. (In my view, humands are at least as much irrational as rational–again, I understand that’s heresy to an economist.) That is not to say the actions are wholly beyond prediction, but that such predictions are limited in their accuracy.

Ultimately, though, we are speaking past one another, as you are asserting the debate must occur on an abstract level irrespective of reasonable outcomes, while others are looking to the practical effect of acting or failing to act. I suspect you also have a view on the practical effect of acting that influences your viewpoint–I’d be more interested to hear that than invocations of the market and what’s “possible” but is not.
51 Comment by Scott P. Richert on 18 November 2008:

Lucius (@48):

Sorry, but I do read the Mises blog and Lew’s daily page. Here’s a link to a search on the word “consumer” confined to the Mises blog:

http://blog-admin.lewrockwell.com/mt-search.cgi?IncludeBlogs=5&search=consumer

Yes, some of those references are to Keynesianism; most, though, are positive statements of the benefits of lower prices to “consumers.”

Of course there are companies who don’t receive subsidies–perhaps not auto companies, but there have to be some companies generating wealth out there.

But the issue at hand is auto manufacturers. This is the state of the domestic auto industry (including all foreign manufacturers in the United States and all imports, because of border-adjusted VATs).

It wouldn’t really add anything to the conversation to point out, for instance, that The Rockford Institute and Chronicles do not receive, and never have received, a single penny of state, local, or federal government funding. That tells us nothing about the current condition of the American auto industry, and it provides no guidance for actions concerning the American auto industry.
52 Comment by Scott P. Richert on 18 November 2008:

I suspect you also have a view on the practical effect of acting that influences your viewpoint–I’d be more interested to hear that than invocations of the market and what’s “possible” but is not.

I second this.
53 Comment by Tom Piatak on 18 November 2008:

Mr. Richert,

Thanks for your many excellent points.
54 Comment by J. Meng on 18 November 2008:

As this thread is dabbling in the abstract, which I really enjoy, apparently, there is a concrete reason to believe that if the auto industry receives a government loan it won’ save Detroit, according to an article written by Anthony Mirhaydari, titled, “Why Bailout Won’t Save Detroit”. It can be found at http://www.msn.com. Mr. Mirhaydari argues that the problem is vehicle density in the U.S. There are too many vehicles to sustain the Big 3’s current production levels. He says there are 981 cars for every 1000 people of driving age in America compared to 613 in the United Kingdom and just 24 in China. This would result in less need for vehicle production and the consequences would be plant closures and layoffs. Any thoughts on the validity of this argument?
55 Comment by Lucius on 18 November 2008:

Scott (@50):
Your reading must be rather superficial, as the importance of savings is a basic tenet of the Misesians. Here’s Hazlitt’s chapter “The Assault on Saving” from his book “Economics in One Lesson”
http://jim.com/econ/chap24p1.html

Bill (@49):
No one predicts what the actors in the market will do. Nevertheless, there are immutable laws, such as: if the government prints more fiat money, the value of a dollar goes down. Surely you don’t dispute that law. Another immutable law: a dollar cannot be in two places at once. If it is out helping the auto industry, it is taken away from some other activity.

Scott (@51):
I believe the practical effect of the bailout will be a merely temporary improvement in the auto industry, but an overall loss of national wealth.
56 Comment by Scott P. Richert on 18 November 2008:

Lucius (@54):

Sigh. I have repeatedly pointed out, here and elsewhere, the contradictions of the Misesians (and other libertarians). One such contradiction is that, yes, they will say that savings is essential. Yet they constantly use the term consumer, and when someone attacks consumerism or consumer culture, they will then come roaring back in defense of the “consumer.”

Here’s Jeff Tucker launching his attack on Rod Dreher: “Dreher follows in a long line of writers dating back to the Industrial Revolution – and a certain strain of post WW2 conservative writers – who loath consumer culture.”

Here’s J.H. Huebert defending the use of credit cards and arguing against restriction on them: “The Fed’s latest efforts to regulate credit card issuing banks (and card holders) do nothing but distract from the real source of our economic woes. The Fed doesn’t need to restrict consumer choice — it just needs to restrict itself.”

I could multiply these ad infinitum, but it won’t make a difference. Hazlitt says otherwise!

This is precisely like the arguments I’ve had with our mutual friend Tom Woods. On the one hand, Tom will deny that Misesians believe in economic laws that are akin to natural laws. On the other, he will write things that only make sense if he believes that economic laws are “immutable” and “unbreakable.” Then, when you point out that he’s done that, he falls back on the first position.

It must be wonderful to have it both ways. It gets awfully tiresome, though, for those of us who are trying to have a reasonable discussion, rather than attempting to win an argument on points.
57 Comment by Scott P. Richert on 18 November 2008:

Frankly, I wish that our Misesian friends actually acted as if they believed in their theory of subjective valuation. If they did, they would be willing to admit that it leaves room for forming the conscience–for shaping the way we subjectively value things. What follows from that is that a sea change in the subjective values that people place on things leads to radically different economies and societies.

I’d almost be willing to accept Austrian economics, if the Austrian economists of my acquaintance actually began acting as if they did as well. Then we could spend our time more fruitfully, discussing the aims of human life.
58 Comment by Derek Leaberry on 18 November 2008:

I am more interested in the social element of allowing American industry to wither on the vine. The agricultural world and the industrial world are, relatively, socially conservative. The post-industrial world is soft and feminine and leads to what Dr. Paul Gottfried referred to as the therapeutic state. In my own experience as a small businessman, I have found the computer geeks and IT boys to be unmanly in the extreme, the sort who just voted the callow Barack Obama into office. The only future conservatism has in a post-industrial world is as a remnant.
59 Comment by Scott P. Richert on 18 November 2008:

Derek Leaberry (@57):

Very true. Of course, when I mentioned this at Takimag, Richard Spencer immediately jumped it and pointed out that the industrial Midwest voted Democratic in this election. I think that for many who instinctively oppose these loan guarantees–including many of the House Republican leadership who’ve spoken up about it–there’s a sense that “these aren’t our people.”

But again, as I pointed out to Richard, these people are the Reagan Democrats. And some of us know why Reagan captured them, and why successive Republican candidates have lost them.
60 Comment by dwright on 18 November 2008:

Wow, nobody else gets a pat on the back but Mr. Richert?
Well, I never…
61 Comment by R. McCabe on 18 November 2008:

This tit for tat is losing traction.

PaleoCons are missing their chance by failing in a couple of ways. Mr. Buchanan’s article says nothing new (plus the actual legislation mentions nothing about buying toxic debt, so I consider the shift in policy at face value an act of prudence). The general scenario of social harm estimated by the PaleoConsensus is a guess and not too far from the same fear-arguments used to support the Financial Bailout. So some numbers have been supplied, I have no idea if they are reliable. Furthermore, the attitude is that the situation at Big 3 D-day + 1 will be permanent in our country, which it won’t. The idea that if the market would provide, then they would have provided by now is not proof of anything other than things take time. Perhaps the market would provide after the Big 3 go down, and the CEOs “retire” and Union collective bargaining agreements leave the books. Mr. Buchanan also makes a weird comparison to 40 years of bailing out failing schools. So either he is saying schools are less important than car makers or that our car makers have not been failing as long. Not sure. I’m sure an argument for the social harm of letting schools fail would be next… but less important?

Lucius, you need to step back and examine the conditions for free markets to exist. I believe there is this notion that firms are price takers. If a firm uses exogenous profits or subsidies to lower prices of specific goods beneath local market rates to push out local competition, that is not the free market at work. And the free market cannot compete with that either. This is how Wal-Mart moves into small towns and destroys the local lumber yard. However, the paleocons have failed to produce any shred of evidence that this is currently happening with Toyota or Honda. Subsidies that may have happened in the past make sense in such industries because they are industries of scale and can’t become profitable until they get big enough.

ALso, Lucius, there is a notion that people have access to perfect information. As is evident by this “debate” not even some of the smartest conservatives around have perfect information, let alone all “consumers”.

Show me that the Japanese are unfairly competing, show me that the Big 3 can compete and put a loan to good use (the ‘79 Chrysler loan is evidence *against* another loan, not for one — they’re still in trouble 30 years later in spite of paying them back!) and show me that the social harm would be proportionately worse than the social harm of the financial collapse (since so many were against that but for this, on practical arguments), and I will wholeheartedly back a bailout.

Otherwise the inconsistency of these philosophical arguments is leading to circular discussions and lack of progress.

Besides, if Mr. Buchanan is correct, then isn’t another nail in the coffin of the GOP what y’all want anyway?
62 Comment by Daniel Maxwell on 18 November 2008:

Scott,

Libertarians and some others on the right are just to have to agree to disagree. Our position should not be surprising, considering the history of internal improvements > corporate welfare.

I read an article in the Dayton Daily News a couple days ago that went something like this, “UAW head: No more concessions!”. None? So GM and the other companies (as well as UAW) who made poor decisions shouldnt have to pay for their mistakes? Just take the money and run and forget the whole thing never happened? That seems to be what Pat and some others are saying.

Like I said on my past reply on this topic, nothing will change at any of these companies. Business as usual, and in 25 years, rinse and repeat.
63 Comment by Scott P. Richert on 18 November 2008:

R. McCabe (@60):

However, the paleocons have failed to produce any shred of evidence that this is currently happening with Toyota or Honda.

Toyota and Honda benefit from a sheltered market at home. Japan has a border-adjusted value-added tax that makes it essentially impossible for U.S. manufacturers to compete there. That results in higher profits for them at home, which functioned as exogenous profits that allowed them to enter the U.S. market (and could, even today, be said to help make it possible to continue to compete here, even as the gap between their labor cost here and the labor cost paid by the Big Three narrows).
64 Comment by Scott P. Richert on 18 November 2008:

Daniel Maxwell (@61):

Like I said on my past reply on this topic, nothing will change at any of these companies. Business as usual, and in 25 years, rinse and repeat.

So you’re saying that these loan guarantees, in your opinion, will buy the Industrial Midwest another 25 years? If so, that’s time during which changes can be made–and outside forces (the financial crisis, rising fuel costs) will provide more impetus than in the past.

To me, you’ve just made the best argument that could be made for extending the loan guarantees. My fear is that they wouldn’t buy us 25 years, but only five. Still, five may be better than none.
65 Comment by Lucius on 18 November 2008:

Scott (@55),

It sounds like the statements you’re cherry picking are about the Misesians’ defending a certain brand of individualism. That doesn’t change their basic defense of savings applied to prudent entrepreneurial investments (in contrast to Keynesian emphasis on debt spending).

I don’t understand the point you’re trying to make about there not being any such thing as economic laws. I’ve named two of them–surely you don’t deny them, they’re simple common sense.

As for subjective valuation, what’s the problem with it if you’re talking about brown shoes versus black shoes? or corn flakes versus truffles? Do they have an absolute value?

As for the more important things in life, I agree with you that there are absolute values, and that our governors have a duty to exercise their authority to a certain degree in deference to them. The prudential question with respect to the big three is: are we doing more harm than good?
66 Comment by Derek Leaberry on 18 November 2008:

Although I do not have voting information available to me at work, I think it is easy to surmise that Ronald Reagan did much better in industrial counties in the MidWest than did John McCain. If memory serves, Reagan battled Jimmy Carter and Walter Mondale to draws in places like the county which holds Flint and its suburbs, Summitt County. Yes, Reagan was a free-trader in philosophy but was open to protection when needed. Remember the car quotas he negotiated with Japan or the Harley-Davidson protection? With party leaders like George W. Bush and John McCain with their ideological free-trade blinders compacted into their cheeks, is it no wonder that the industrial heartland is giving the Republican Party a thumbs down? Political fealty must be earned.
67 Comment by Scott P. Richert on 18 November 2008:

Lucius (@64):

As for subjective valuation, what’s the problem with it if you’re talking about brown shoes versus black shoes? or corn flakes versus truffles? Do they have an absolute value?

You’ve misread me (or I’ve failed to make myself clear). I’m not saying there’s a problem with the theory of subjective valuation; I’m saying, instead, that it should allow, say, a Catholic who believes it to understand that those who follow Catholic social teaching (for instance) would value certain things more or less than those who don’t. And if enough people began to follow Catholic social teaching, that would then make “the market” a very different beast from what it is today. (This, by the way, is how I’ve always read Rerum novarum, etc.)

But instead, the Catholic Misesians of my acquaintance argue that Catholic social teaching, rather than being allowed to change “the market,” must give way to the “immutable” “unbreakable” “economic laws.”

Yes, the prudential question is, “Are we doing more harm than good?” Tom Piatak has explained in concrete terms why he thinks the loans will do more good than harm; I tend to agree, if only because of the social harm that is likely to result from a relatively quick collapse of the Big Three.

And I’ll freely admit that my assessment of the harm that may occur is influenced by my lack of faith that “the market will provide.”
68 Comment by Bill Wilder on 18 November 2008:

Lucius,
I agree with this question: “The prudential question with respect to the big three is: are we doing more harm than good?” The difficulty is in identifying the harm that would attain from providing loans or other support to the auto industry. I think some opponents of such support believe that there would not be the more easily identifiable harm from denying support; believing that the auto companies could enter Chapter 11 and only one (probably Chrysler) would fail.

As I indicated earlier, I am skeptical of the utliity of Chapter 11. (I am generally skeptical of Chapter 11 and am not aware of a empirical examination of the effectiveness of Chap.11–i.e. how many debtors are successfully reorganized 5 or 10 years latter–if any know of one, I’d appreciate a link if you have it.)

To Mr. McCabe, I think the difference with the financial bailout is the nebulousness of the “frozen credit markets” that were identified and whether, in fact, the bailout made a difference. None of the commenters at the time could actually identify for me how these credit markets were “frozen” (I did here a piece on NPR with the CFO of a company who claimed he was not able to access short-term markets.) But have those markets unfrozen? (It does not appear so.) And while Paulson’s shift to equity injections may be prudent (at least a better idea than buying toxic assets) that at least indicates that the legislation was flawed and should have been rejected.

I’m not sure how you quantify that a GM/Ford/Chrysler failure would be worse than the consequences of refusing the financial bailout. I can quantify job loss, loss tax revenue, lost GDP, etc., for the automakers, but what would we be quantifying for the financial markets? And, again, has that harm actually been ameliorated by the “bailout”?

Finally, I don’t relish this sort of bailout. It’s obviously the repercussion of a variety of factors, including mismanagement in Detroit. But I don’t think that removes the practical question.

P.S. Getelfinger’s comments on “no concessions” may be two-fold–first, the UAW has already given concessions, including assuming liability for retiree health care in 2010, wage cuts, and a lower new hire pay scale (Delphi has similarly seen dramatic pay cuts); second, it allows him to exhaust the process and, if/when more cuts come, he can tell his members he did exhaust every avenue. You have to get collective bargaining agreements ratified and there is an element of politics to that.
69 Comment by Scott P. Richert on 18 November 2008:

Derek Leaberry (@65):

I don’t have the numbers in front of me, either, but Reagan won both Macomb County (Detroit area) and Genesee County (where Flint lies) handily in both 1980 and 1984. It wasn’t a draw in either place; at least in the latter election, it was two-to-one.

Reagan paid fealty to the free-trade philosophy, but he was a pragmatist.
70 Comment by Scott P. Richert on 18 November 2008:

By contrast, here are this year’s results for Genesee County:

Obama: 65.5%
McCain: 32.9%
Other: 1.6%
71 Comment by Lucius on 18 November 2008:

Scott (66):

“But instead, the Catholic Misesians of my acquaintance argue that Catholic social teaching, rather than being allowed to change “the market,” must give way to the “immutable” “unbreakable” “economic laws.””

Which Catholic social teaching do they say should not be allowed to change the market? Rothbard talks about the theater-loving fellow who is happy to pass on buying furniture for his apartment in order to be able to afford theater tickets–not sure why the same shouldn’t apply to the things Catholics value.

Perhaps we’re getting into questions of separation of Church and state. Personally, I’m opposed to the separation, and I look forward to the day when a majority Catholic population amends the constitution to recognize Christ the King as head of state, and bans all but essential commerce on Sundays.
72 Comment by Miles Gloriosus on 18 November 2008:

14Mark B wrote: “Much of the US trade difficulty is the result not of free trade, but predatory trade. An insistence, from the outset, upon trading on equal (not protectionist – just equal) terms would have avoided much of the current imbalance. This is the heart of Pat’s prescription. Our industries face incredible hidden taxes that their competitors often don’t. When entire country targets a specific industry, some response other than “let ‘em go” seems appropriate.”

And in response, Queen Jorge Antoinette, ever concerned that her friends on Wall Street will be unable to pay the mortgage on their vacation homes but indifferent to the real hardship his policies have caused middle-class Americans can only drawl: “Let ‘em eat cake!”
73 Comment by R. McCabe on 18 November 2008:

Mr. Richert @62, to the extent that your statement is true, then I would assume as a condition for supporting a bailout would be a reform of our own tax laws regarding conducting business across our national borders. I would support this wholeheartedly, not just in the auto industry, but in all business breaching our borders. The cost to maintain our economic sovereignty and national security should be borne most by those profiting from crossing it.

However, your point masks another point and a further condition for the bailout argument. Namely, there are intrinsic factors within the U.S. auto manufacturing industry that prevent us from competing even here! Those would also have to be removed as a condition for a bailout loan to be supported. If not, then it remains a debate whether it would just be cheaper for our country to support these people on the dole rather than support them via the auto industry. That is a simplistic argument, I always believe in the value of work to a man, but I hope you get my gist.

Those two conditions would satisfy my skepticism, that our automakers are truly ready to compete at first here, and secondly that our national politicians are willing to fight fire with fire in terms of regulating the terms of these so-called ‘free markets’.

Mr. Wilder @67, you address my point of “proportionality”. It seems logical and consistent to be against the financial bailout if one thinks the cost is greater than the prospective social harm of inaction. Extending, if one is for this auto bailout but was against the financial bailout, they must have some belief that the direct cost is worth it in this case but not the other. I am truly ignorant in this, but I do not understand how 240,000 auto workers spills over into 3,000,000 U.S. total workers. That is a 12 to 1 ratio, and it assumes that the harm done as a result of inaction will be static, that these 3 million people (if accurate) would never recover in any way. I have not been convinced of that permanent damage, so I see a sort of hypocracy in the argument. At the very least, I see it as equally nebulous.

That said, I agree with you that the financial bailout arguments were completely nebulous. However, all the friends I talked to in the financial industry said it was necessary — their asses were on the line. The fact it has not worked yet is not surprising, is it? I don’t think any of the initial 350 billion dollars have been spent as is evident by this change of course.

Otherwise, if you search through the legislation, which can be easily found on the net (I searched through the ~450 page .pdf file for the word “review”), I don’t think you will find any wording in the legislation that “earmarks” the way the monies would be spent. It consistently said that the discretion was totally with the treasury secretary or his agents and that he only act in teh best interest of the tax payer. Although there are many flaws with that bailout plan, the points made by Mr. Buchanan miss the mark.

Prove that the bailout is an investment in our country and I’m for it. Otherwise, I think it is wellfare, and there might just be better ways to spend it than all of us trying to run a car company from here. For example, a direct $10 billion over 5 year plan for the autoworkers and related hurt workers might be enough to get them through. Meanwhile, let the companies die and in an act of creative destruction see if we can’t restart some auto companies in the same 5 years without the unions and brain-dead CEOs. If you are continuing to argue that all of the sudden the unions are straightening out and will stay that way, I think you will lose that argument.
74 Comment by Clark Coleman on 18 November 2008:

I am on the fence on this issue. It might help if someone would address Jim Manzi’s arguments in detail as seen at

http://corner.nationalreview.com/post/?q=NGE4MGEwMTkwMzE3MGE1NWI4MGJkYTA4M2NkMTIwZmU=

In summary, the arguments about how the Big 3 are getting much more efficient have been heard constantly for 30 years, but they never catch up with the Japanese. And the discrepancy is not all based on taxes in Japan.
75 Comment by Scott P. Richert on 18 November 2008:

R. McCabe (@72):

Those two conditions would satisfy my skepticism, that our automakers are truly ready to compete at first here, and secondly that our national politicians are willing to fight fire with fire in terms of regulating the terms of these so-called ‘free markets’.

You’ll get no argument from me on the second (Chronicles has, for 20 years, been pointing out the need for this); on the first, I haven’t seen anyone supporting the loans (or even leaning toward support of the loans) who hasn’t acknowledged the need for substantive change in the American auto industry. Congress could force such change by approving the loans with appropriate strings; but if the Republicans refuse even to consider the loans, then the Obama administration might push them through without any strings, or with the wrong kinds of strings.
76 Comment by Scott P. Richert on 18 November 2008:

Meanwhile, let the companies die and in an act of creative destruction see if we can’t restart some auto companies in the same 5 years without the unions and brain-dead CEOs.

And yet, I’ve still to see anyone offer a single example of a startup that has done so. If the argument is that it won’t/can’t happen until the Big Three are dead and gone, doesn’t that require a leap of faith that’s even greater than that of those who think the loans might work?
77 Comment by Etienne Gervaise on 18 November 2008:

Republicans are right to be enraged. They are victims of the biggest bait-and-switch in political history.

That’s why Sam Francis called them the Stupid Party. I’ll be glad to see the back of them, because they seemed to go out of their way to marginalize pro-lifers, limited government types, and assorted Christian moralists. They only wanted us to donate money, do lit drops and put signs in our yards for their marginal candidates. Ron Paul could have used some party support, but instead the machine puked out McCain, whose toadies then spat on Gov. Palin when the doomed candidacy failed. Nationwide, 7 million voters stayed home who had voted in 2004.

And in your home Commonwealth of Virginia, we got rid of a phoney liberal senator and replaced him with a real manic depressive. The Red State label was a phantom at best, after all, Virginia has only had 4 Republican governors, and one of those was a Democrat turncoat. And a mere 20 years ago the state legislature was 75% democrat. Perhaps in the next decade the Evil Party might make room for a few dozen Larry McDonald-style congressmen.
78 Comment by Etienne Gervaise on 18 November 2008:

If any readers have ever visited Detroit’s city museum, they will know that in the early 20th Century that city was home to over 300 automobile companies. OK many of them only ever made a prototype, but the people were resourceful and invented all sorts of product improvements. Now a century later we must bail out the Big Three. Oh Really! I remember American Motors — number 4 — bringing out innovative designs, the Hornet, the Gremlin, the Eagle were all produced to meet a demand for smaller cars by the market. The Pacer was years ahead of its time although there were some design problems a lack of V-6 engines and tinted windows to be precise. But the Big Three learned from their mistakes until Chrysler bought them out. Mercury is on the way out, Oldsmobile is gone, and Plymouth — the brand which survived the Great Depression and the gas crisis — was unceremoniously canned by the Germans.

Nowadays, well for over 40 years, congress has dictated how cars will be built, CAFE standards, air bags to protect future taxpayers from stupid cellphone yakkers, etc. The little guy has now been overwhelmed by a bureaucracy that requires every manufacturer to maintain an office on K Street.

My solution is to repeal bad laws, but Congress will not go along.
79 Comment by Scott Palmer on 18 November 2008:

Huzzah! The election’s over and the real Pat Buchanan is back!

I agree with every word he wrote. I just hope that the Republicans (and Democrats) take his advice to heart.
80 Comment by stats on 18 November 2008:

“That said, I agree with you that the financial bailout arguments were completely nebulous. However, all the friends I talked to in the financial industry said it was necessary — their asses were on the line.”

Curious, why is it necessary to bail out financial industry “friends” whose asses were on the line, but not necessary to bail out auto industry employees whose assess also happen to be “on the line”?

” The fact it has not worked yet is not surprising, is it? I don’t think any of the initial 350 billion dollars have been spent as is evident by this change of course.”

About $300 billion has already been spent. Congress is currently bickering over the remaining $50 billion. I guess your friends with exposed asses in the financial industry are going to need that money also? Can’t see your way clear to help a few poor schleps in Michigan (granted, you probably don’t know any of them personally) with $25 billion of the remaining $50 billion?
81 Comment by R. McCabe on 18 November 2008:

Mr. Richert, @75, this is a fine point. I guess my skepticism of Hank Paulson knowing what’s best for our financial institutions (or the taxpayers) has carried over reflexively to wonder if it were possible for Congress to assert the necessary leadership. I want to pull the trigger as much as anyone, but throwing good money after bad doesn’t make sense, that is what I am arguing against. But I am waiting for what’s left of the GOP to step up and show some leadership.

As for 76, I can’t help you there. I don’t think any companies of the size in question ever start up. I’m looking for an alternative to what seems to be a losing history in Detroit. Could we not sell of two of the companies to create one super-U.S. company? Or sell off pieces of each to make 20 smaller car companies — I just don’t know how their manufacturing base is set up.

But your point is right, the simplistic argument by some libertarians that the free market will magically create giant car companies just falls flat.

Stats, I think you missed my poorly worded point. I was against the financial bailout in spite of many of my friends assuring me it was necessary. The previous poster had called the description “nebulous” and I agreed, in spite of friendly assurances. I was saying that the same seems to be true here as well, with people now lining up for this bailout simply because it affects their friends. But fear and haste seem to be ruling the day.

Thanks for clearing up my misconception about how much has been spent so far, but you can likewise keep your pity party and class judgments to yourself. If only my own dad or uncles or cousins had been so lucky to have a fat union job! I hope your friends come out all right, they certainly don’t deserve what’s coming to them.

The apparent total federal government commitment to spend our way out of this economic hole has reached $4.28 trillion. This is apparently more in adjusted dollars than we spent on all of WWII. I guess we might as well all line up and try to rip each other apart for what we can get.
82 Comment by David on 18 November 2008:

I happened to be in my local Chrysler dealership today to get a seat beat replaced.

While I waited I talked with one of the salesmen I know about things in general. Talk drifted over to cars, then to financing.

He said as of today, if you wanted a new car loan, and had triple A credit, GMAC’s best interest rate for a new car loan was 13%. I don’t know what the A.P.R. would work out to be. I don’t know if Chrysler is using GMAC or not.

He said that they were sending their customers down to one of our local banks for their financing. With Triple A credit, that bank was charging around 5 to 6% on a new car loan. Thats a 7% spread between the two.

I don’t know what the money offer is at Ford. It looks like GM/GMAC is trying to make their money in the loan business. I suspect they would be better off sticking to the auto business and leaving the loan business to others. I guess it will come down to deciding to be either in the finance business or the car business, but they can’t be in both.
83 Comment by Irving Babbitt on 19 November 2008:

David,

The private company that owns Chrysler is the majority owner of GMAC. GM is now only a minority owner of GMAC.
84 Comment by John Bivens on 19 November 2008:

Cline @17

I’m suggesting that Buchanan and others who speak at the
pleasure of NBC, CNBC, MSNBC, etc. need to be candid about
their apparent conflict of interest. Do not assume the public is
aware of of the GE connection.
85 Comment by Scott P. Richert on 19 November 2008:

Etienne Gervaise (@78) and R. McCabe (@81):

I’m no fan of bigness or centralization, and it’s certainly true that the Big Three (GM in particular) got big in part because they wanted to. It’s also true, though, that the diversity in the early auto industry celebrated in the city museum of Detroit (and even to a certain extent in the Henry Ford Museum) couldn’t last. You can have a hundred different factories owned by a hundred different owners making ball joints, but the complexity of an entire car means that economies of scale do inevitably lead toward centralization. Perhaps the best that could have been hoped for was what did exist for decades–where the Big Three sourced each part from multiple suppliers.

Each of the Big Three retained many of the brand names that they absorbed, but internally those brands shared parts with other brands. The first car I ever drove was a Ford Maverick; part for part, with the exception of the trim, it was identical to a Mercury Comet. The first car I ever owned was an ‘86 Buick Skyhawk; externally, it was fancier than a Chevy Cavalier, and the base model came with more bells and whistles; internally, they were the same car.

I’m not sure how you get around economies of scale on a large-scale industrial product like a car. Take a much simpler product–the consumer p.c. With the research that Intel puts into reference designs, it should theoretically be possible for a thousand flowers to bloom in the generic p.c. industry–each company distinguishing itself on some measure of performance or design. Yet the move in the industry has been toward centralization, consolidation, uniformity. Even Apple today is using primarily off-the-shelf parts for its desktops (it still does some of its own motherboard design for laptops).

I’m not saying that any of this is good or desirable. I am saying that it’s likely inevitable with an industrial product of the scope of the automobile.
86 Comment by Chris Hewlett on 19 November 2008:

What is interesting in all this that I think it could only be in the US that an auto-industry bailout is even up for argument. Can anyone name a government, country, nation that exists that would NOT bailout its auto industry? If Toyota were having trouble (and it will at some point) do you think for one instant the Japanese Government would opt to let it fail? I don’t pretend to KNOW what should be done. There does seem to be something immutable about these things. People grow up and die, sunflowers grow and die, dogs grow up and die and I think companies grow up and die. However, at the same time perhaps we should focus on what should be done for our own people in the short term. Our people are in Detroit. After this I still don’t know whether I support a bailout.
87 Comment by Scott P. Richert on 19 November 2008:

Chris Hewlett (@86):

Interesting point. It’s already on the horizon. According to Bloomberg:

U.S. auto sales plummeted 32 percent in October to the lowest monthly total since January 1991, led by GM’s 45 percent slide. Ford reported a 30 percent drop in car and light-truck sales from a year earlier and Toyota’s declined 23 percent. Honda’s slid 25 percent, Nissan’s were down 33 percent and Chrysler fell 35 percent.

Honda, Nissan, and Toyota are in for rough times, too. Are they better able at the moment to weather them? Probably. But your point is exactly correct: If things get too bad, the Japanese government will step in, without any protracted debate.
88 Comment by Tom Piatak on 19 November 2008:

Mr. Hewlett and Mr. Richert are correct. The Japanese view the auto industry as important and their auto companies as great national assets and emblems of national pride. They would certainly not let Toyota go bankrupt.
89 Comment by EE Roberts on 19 November 2008:

“So Republicans are right to be enraged. They are victims of the biggest bait-and-switch in political history. But they are now about to do something terminally stupid.”

If the silly socialist GOP hacks you swoon over manage somehow to block the democrats’ plan to take over the auto industry, that would be one in a row for them. It would be the first time GOP congress members blocked socialism’s forward march through Congress. Don’t worry, Pat. Your socialist pals in Congress will choose socialism, just as they always do.

I have always been amused at how conservatives jumped to the conclusion that you’re different from the rest of the socialist GOP pompom shakers. I’ve always seen you for what you are. Thanks for reinforcing my image of you once again.

To Pat’s fans here; shake those red pompoms,you brave brigadiers. ahaha
90 Comment by EE Roberts on 19 November 2008:

“As for saving the auto industry, I am much more inclined to waste taxpayer money on bailing out that industry than on all of the other unconstitutional bailout schemes the feds have concocted, including all of the wasteful foreign aid and the recent 700 billion dollar con job.”

I’m not inclined to waste a penny of anyone’s money but my own on anything. Why should Congress be allowed to claim the authority to appropriate money from taxpayers to give to anyone for any reason?

Where is the evidence that bailing out the big 3 will keep the US auto industry alive, anyway? The industry is doomed to failure by federally mandated union control and federal standards for automobiles. All of our money, stolen from us and handed over to them won’t make that industry viable.

Let them die and the parasites on their carcasses might just die off with them.
91 Comment by Chris Hewlett on 19 November 2008:

No, American parasites will die off only to be substituted with Japanese, Chinese, Indian, Korean parasites. I suppose EE Roberts thinks that is preferable.
92 Comment by Lucius on 19 November 2008:

Mitt Romney thinks bankruptcy would save Detroit.
http://www.nytimes.com/2008/11/19/opinion/19romney.html?_r=2
93 Comment by Scott P. Richert on 19 November 2008:

Lucius (@92):

Not quite. He’s calling for a “managed bankruptcy,” in which guarantees from the federal government would address the problems that Bill Wilder and Tom Piatak have pointed out with the normal bankruptcy process. And that would include:

The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.

I suspect that, when the rubber met the road (so to speak), you wouldn’t find Romney’s plan acceptable, either.
94 Comment by Tom Piatak on 19 November 2008:

Mr. Hewlett,

You are again correct. If the Big Three collapse, the market for cars in the United States will be dominated by a new Big Three, Toyota, Honda, and Nissan, except this new Big Three will be headquartered in Japan. Some claim this will be an improvement, but I fail to see how.
95 Comment by R. McCabe on 19 November 2008:

(@94) Mr. Piatak, I have been divided on this issue, but I think some arguments are better than others (on each side).

The market for cars in the U.S. *already* is dominated by the new Big Three. A bailout of any form will not prevent what has already happened. In an earlier comment by Mr. Richert (@67), he mentions a “relatively quick collapse” of our Big Three. But that is not accurate, is it? This has not been quick, it has been happening slowly for decades.

If you are arguing for our duty to protect all these auto workers and their related communities, then we could do that without worrying about unions or American CEOs. That would mean employment of them by Japanese companies should be just fine.

If you are arguing for the U.S. macro problem of our manufacturing base being gutted, that too has happened over the course of years, this being a painful symbol rather than a big chunk. But a bailout will not stop the trend either, will it? It is not a reform but a palliative for friends.

Our country needs to stop throwing money around. If we deem it necessary, then it should accompany reform and a set of qualifying standards. Otherwise, we should not funnel welfare through corporations or fight symbolic battles.
96 Comment by Tom Piatak on 19 November 2008:

Mr. McCabe,

If the Big Three collapse, the American car makers will go from selling roughly 50% of cars here to 0%, with the Japanese taking most of that market share, creating a new oligopoly to resemble the old oligopoly of GM, Ford, and Chrysler, with the only difference being the new oligopoly will be a foreign one, repatriating its profits to Japan.

Also, there is reason to believe the Japanese maunfacturing presence in the United States will decrease if they succeed in destroying their American competition. As I wrote in my original piece:

The major reason foreign car makers have plants in the United States is political, to hedge against the possibility of American protectionism. Once the threat of American protectionism is dead, because the American auto industry is dead, why would foreign car manufactuers keep building plants here, or even keep operating the plants they’ve built? Last summer, the Wall Street Journal quoted an unnamed Toyota executive as saying, “It’s much, much more profitable to produce cars in Japan and ship them all to the U. S. right now, if it wasn’t for the political problems that might cause.” Once there is no possibility of “political problems,” what would restrain Toyota from pulling all its production back to Japan, or shifting it to such low wage countries as Mexico?
97 Comment by Chris Hewlett on 19 November 2008:

What industries or services in the US are NOT being taken over by other nations? I think the situation has exceeded an ideological argument for or against a “free market” and is fast approaching a direct battle for the defense of the nation. Again, I don’t know the best course; however, how much of this do we really control? If other nations are going to defend themselves then we have to defend ourselves.
98 Comment by Scott P. Richert on 19 November 2008:

R. McCabe (@95):

In an earlier comment by Mr. Richert (@67), he mentions a “relatively quick collapse” of our Big Three. But that is not accurate, is it? This has not been quick, it has been happening slowly for decades.

Just to clarify: I’m talking about what is likely to happen in the absence of government loan guarantees or (at a minimum) government-sponsored bankruptcy proceedings. At this point, there’s no reason to believe that the collapse of the Big Three will be protracted. You’re mixing apples (the long-term history of the auto industry) with oranges (the short-term result of this decision). My comment about the “quick collapse” is only in reference to the latter.
99 Comment by Bill Wilder on 19 November 2008:

Mr. Richert @ 93

I have not had an opportunity to Gov. Romney’s NY Times piece, however, the notion of a “managed bankruptcy” is not persuasive. First, bankruptcy in any form wipes out shareholder equity. A “managed bankruptcy” would effectively transfer the ownership interest of current GM, et al. shareholders to either the government or private equity. (One of the scandals of Chapter 11 is that it is, in my view–and I’ve litigated in about six Ch. 11 cases–effectively legalised theft of corporate value from shareholders to private equity.) If bankruptcy in any form is unnecessary to ensure reorganization of these companies–which they have already substantially effected on their own–then why should the ownership interests of thousands and thousands of shareholders be transferred to either the government or private interests?

Second, the “exit financing” required for a “Managed Bankruptcy” would certainly exceed, likely by multiples, the $25 Bn sought by the automakers as bridge loans from Congress. (A conventional Ch. 11 for GM would, in my estimate, require $20-25 Bn in DIP financing, a sum that exceeds by multiples the largest amount of DIP financing previously provided in a Ch. 11 case.) This is at least because all three entities would go through this process.

The only use of “managed bankruptcy” is to nullify the interests of suppliers and dealers, and force concessions down the throats of employees. (That last comment will doubtless evoke howls of approval from ignorant “conservatives” and libertarians who blame the UAW and its members for Detroit’s ills.) I do not see why that should be tolerated if it is not necessary.

Finally, I second Mr. Piatak’s comment about the “transplants” in the US. It was ingrained US hostility to foreign producers (and that alone) that caused Japan to build plants in the US. It located in largely Republican and nonunion areas (doubtless recognizing the confectionary patriotism of Republicans to ensure new loyalty to the Japanese.) That will evaporate with the “creative destruction” (an absurd concept if ever there were one) of the domestic auto industry.
100 Comment by Bill Wilder on 19 November 2008:

Having now read Gov. Romney’s piece, it is unpersuasive of the need for a managed bankruptcy. To the extent he advocates particular forms of transformation, those were all identified by the CEOs in their testimony yesterday. Two of those CEOS are “from outside the industry.” (And as I noted from Tesla, such “outside the industry” executives have no assurance of success.)

The claim of needing to further reduce labor contracts ignores substantial reductions that have already occurred which have resulted in GM having fewer than half its number of employees as five years ago, and $1.5Bn less in annual labor costs. Further, the creation of the UAW VEBA will remove legacy health care costs from GM that produced some $7Bn in annual costs.

And anyone who thinks executive perks, bonuses and salaries get cut in bankruptcy is smoking something. Congress had to bank “KERP” plans (Key Employee Retention Plans) that were costly retention bonuses for the very managers who ran the company into bankruptcy. Those have simply been repackaged and continue to be rubber-stamped by our compromised bankruptcy judges.

Gov. Romney’s had nothing within it that requires bankruptcy. I also note the glaring lack of any policy prescriptions regarding trade and tax policy.
101 Comment by J. Meng on 19 November 2008:

@ Mr. Piatak, #94: You know something? You’re good, really good; but, what else can one expect from a lawyer. You claim, “If the Big Three collapse, the American car makers will go from selling roughly 50% of cars here to 0%, with the Japanese taking most of that market share, creating a new oligopoly to resemble the old oligopoly of GM, Ford, and Chrysler, with the only difference being the new oligopoly will be a foreign one, repatriating its profits to Japan.” So what? That seems logical to me in the strictly business sense. My question to you is this: Where were the managers of the American automotive industry “repatriating” their profits and their multi-million dollar bonuses? Why has the American automotive industry fallen to such a low? Why are they begging for a bailout? Are you going to blame the Japanese?

You claim, “Also, there is reason to believe the Japanese maunfacturing presence in the United States will decrease if they succeed in destroying their American competition. As I wrote in my original piece:

The major reason foreign car makers have plants in the United States is political, to hedge against the possibility of American protectionism. Once the threat of American protectionism is dead, because the American auto industry is dead, why would foreign car manufactuers keep building plants here, or even keep operating the plants they’ve built? Last summer, the Wall Street Journal quoted an unnamed Toyota executive as saying, “It’s much, much more profitable to produce cars in Japan and ship them all to the U. S. right now, if it wasn’t for the political problems that might cause.” Once there is no possibility of “political problems,” what would restrain Toyota from pulling all its production back to Japan, or shifting it to such low wage countries as Mexico?”

Oh, boo-hoo, please give me your hankie so I can dry these tears. If the United States automotive industry had no plants in Mexico, or were in the process of building new plants in foreign countries like India, I might see your point. Everyone of these U.S. companies have either overseas plants, or overseas ownership like Chrysler (which, by the way, takes away jobs from Americans) which means tthey are apostles of the Globalist agenda. Besides, the U.S. government offers no protection to domestic industry (not just automotive); why is that? Is it because the halls of Congress and the White House are filled with globalists? We wouldn’t have to worry about the Japanese moving back to Japan to produce their cars, if we posted a high enough tariff to block any imports from that country. Personally, I like Mitt Romney’s idea for salvaging the automotive industry in America, even though I despise his politics. But screw the idea of a bailout for Detroit. Let them show first that they really have the American people at heart, who have been working for them and buying their inefficient pieces of crap for years and years.
102 Comment by Scott P. Richert on 19 November 2008:

Bill Wilder (@99 and @100):

Thank you for your analysis. The fact that Romney did not even mention managed bankruptcy until the final lines of the piece did raise a red flag (if he had thought this through thoroughly, why wouldn’t he lead with managed bankruptcy?), as did these remarkable lines:

That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it.

On the face of it, the statement is absurd. There are, of course, other ways that Ford could absorb the difference in cost than in cutting “features and quality” (offering rebates and low or no-cost loans, for instance–or simply running at a loss, as Ford has done).

Thank you, too, for pointing out that the exit financing, which Romney wants Congress to guarantee, would run to multiples of the loan guarantees that the Big Three are seeking. Again, we may well find that the loan guarantees today would be the least expensive of all the options.
103 Comment by Tom Piatak on 19 November 2008:

Mr. Meng,

Of course I favor the idea of a protective tariff, as does Mr. Buchanan. But if we keep letting American manufacturing be destroyed by foreign competition, we won’t have much left to protect.
104 Comment by Tom Piatak on 19 November 2008:

Mr. Meng,

You may also want to reread my original piece. Despite all the outsourcing by the Big Three, which I deplore, the fact remains that they purchase 80% of the auto parts manufactured in this country, and the average domestic content for all the Big Three cars put together is on the order of 80%, as opposed to 35% for all the foreign cars sold in America.
105 Comment by Scott P. Richert on 19 November 2008:

J. Meng (@101):

Civil discussion is wonderful; heated discussion is all right; but can we please stop with the gratuitous remarks about “inefficient pieces of crap”? I’ve never owned a foreign-made car, or even a foreign brand made here in America, and guess what? I’ve never had any particular problems with my vehicles. That extends from the 1970 model year Ford Maverick which my parents bought when I was one year old and which I drove until 1990, when I bought a Buick Skyhawk and my parents sold the Maverick to my uncle, who drove it for several more years. It had well over 200,000 miles on it by the time he retired it.

We would probably still own my wife’s 1990 Chevy Cavalier if a dump truck hadn’t totaled it. By the time it did, it had 150,000 miles on it. We bought a 1986 Suburban with 48,000 miles on it and donated it to charity (after having it appraised at $5,000) after we put another 75,000 miles on it. We bought a used Ford Aerostar at 96,000 miles and traded it in at twice that on our current 12-passenger Chevy Express, which just topped 50,000 miles and, though a full-sized van, consistently gets a respectable 16 mpg.

Yes, everybody knows somebody who’s had a crappy American-made car, and some of us have actually owned one. Oddly enough, I’ve known just as many people who’ve had crappy foreign-made cars, but somehow, they always manage to justify the crappiness of their cars by pointing out that they paid less or get slightly better gas mileage.

If you want to comment on the quality of American-made cars versus foreign-made ones, and the comment is relevant to the discussion, go right ahead. But please, do a little current research first. Otherwise, keep your nastiness to yourself, please.
106 Comment by R. McCabe on 19 November 2008:

@96, Mr. Piatak, your argument is convincing if you are arguing for a reform of our national tax policy. If we were to raise the national price for importing all goods and services, we would then add to the political incentives a clear economic one for foreign companies to expand their factories here. I imagine being taxed on a bunch of individual parts would be less than being taxed on fully assembled cars, plus the sway with consumers as these cars would be employing more Americans than the old U.S. automakers did. The strength of our consumer market (although inflated) is too large for any such company to ignore, so they would definitely do business with us in the form of employment. But you have not mentioned separately how a bailout would not be a malinvestment.

Mr. Wilder, in several places, I find your arguments to be optimistic though confusing. I do not see how our Big 3 could possibly go forward without destroying all remnants of the union system and collective bargaining. You write derisively of employees having to make concessions. I suggest those would be better than losing their jobs. You write that bankruptcy would also wipe out shareholder value. This has already been wiped out, as a dollar of GM stock 20 years ago is now worth 7 cents.

This brings me to Mr. Richert @ 98. I understood your point clearly. Since I was unclear in making my point, I’ll leave it to a much better delivery:

Dr. Joseph Dolan: You know, it’s a shame about Ed.
Fletch: Oh, it was. Yeah, it was really a shame. To go so suddenly like that.
Dr. Joseph Dolan: He was dying for years.
Fletch: Sure, but… the end was very… very sudden.
Dr. Joseph Dolan: He was in intensive care for eight weeks.
Fletch: Yeah, but I mean the very end, when he actually died. That was extremely sudden.

In general, if fair competition is going on (I’ve seen no evidence that it’s not, except for the U.S. unions and CEOs, who peddle influence rather than merit), creative destruction is a very important part of the health of any larger system. We have gained a false sense of control and importance when we have tried to control things like forest fires and river levels. Although the short term or local results are nice (and predictable!), the longer term result is a massive increase in the severity of kickback when a fire does break out or a flood does happen.

However, if someone is starting fires (to push the analogy) then I agree with intervention against both that person and that fire.
107 Comment by J. Meng on 19 November 2008:

Mr. Richert, #105: sorry, if I offended you. I didn’t mean to be nasty. Actually, I don’t think I was. My point is this: As long as Detroit has been in the business of making cars, one would think that by 2008 they would have a vehicle that made over 50 miles per gallon as standard, that the evolution in research and development would have produced a safe, reliable car within a price range comparable to the average wage of the American working man and similar to the progress in the computer industry, where qualilty increases and prices decrease; and that the cost of parts and maintenance would be reasonable. But, they aren’t, after a hundred years or so. Detroit sells images and we keep deceiving ourselves that we are getting a deal. The most expensive outlay in my life is the car: monthly payments, insurance, license, gasoline, and maintenance. Its like I live to make Detroit prosperous. That was once called slavery. I made a point of this earlier, by giving a comparison between Detroit’s products with the sports industry. Millions of dollars in annual salaries go to individuals hyped as magnificent athletes. As a consequence, one would expect a commensurate performance, i.e., everyone hitting at least 500 homeruns a year; no fielder ever making an error; no-hitters every time a pitcher went to the mound, etc. But we don’t get it and yet the fools that we are, we pay outrageous prices for a ball game and hot dogs and beer and get for the most part, mediocre play, which is only natural, because we’re just human — but drop the prices. That’s all I am asking from Detroit, when they are asking $20,000-plus for a vehicle that hasn’t improved where it counts. After all, a car is just a means of transportation, not a status symbol that their commercials want us to believe it is.
108 Comment by Tom Piatak on 19 November 2008:

Mr. McCabe,

I favor a tariff system of some sort, but that is really extraneous to the issue at hand. The question at hand is do we act to try avoid the enormous economic, social, and fiscal costs that will flow from the failure of the Big Three, not what the ideal tax policy for America should be. And if you think that a US political system that has been systematically dismantling tariffs for years, to the great detriment of American manufacturing, will suddenly begin imposing them so as not to lose the foreign manufacturers who have moved some of their operations to the United States, you are much more optimistic than anyone here.
109 Comment by R. McCabe on 19 November 2008:

Mr. Piatak, as this thread carries on, having carried on as long in a previous article, it is clear this is a multi-faceted, confusing and subtle set of arguments.

My concern with losing the big 3 could be simpy broken down into two aspects: 1) the direct damage done to the people who would lose jobs (99% of whom are good, relatively innocent workers), and 2) the macro concern of a categorical loss of a sector of manufacturing in our country.

The loss of brand, identity or company does not concern me directly, nor does, in this case at least, the loss of the tradition of making cars. I do not care in the least if the Japanese “win” this one.

As to point 1, it would need to be argued that some sort of bailout would be more helpful to these people than wellfare and temporary unemployment or early retirement. (many companies across this great country of ours are straining under the bulk of employed baby-boomers who are at the height of their earnings potential but may lack the productivity they make up for with experience.) Furthermore, then, the style of bailout would have to be clarified. I personally cannot follow the arguments against or for types of Bankruptcy, but I find many of the arguments against Bankruptcy to be unconvincing. Also, for the bailout argument to succeed, we would need to show that Detroit could put it to good use, i.e., not just buy us 5 more years, not just buy us temporary employment, but that it is a true help in a storm. Detroit’s own ugly history, dominated by idiot CEOs and heavy-handed union bosses hurts this case with very little room to move.

As to point 2, it would need to be argued that our country would be at a loss for not making cars any more. I have not really heard why that is true. Although I instinctively cringe at the concept of a total loss of manufacturing, I don’t possess the macro picture to know what losing ownership of auto plants would amount to in our country. I have been in favor of protecting manufacturing in general because a huge number of guys I know need to work with their hands and bodies, and pouring a latte just is not the same as working making stuff.

Without being so damn logical, I could say this. At least in Japanese traditional culture, if a man dishonors his family, he falls on his sword. If the CEOs and unions came out and admitted their shame and fell on their swords, then sign the checks tomorrow and let the past be the past. Unfortunately, pride and honor are rare commodities in corporate elites, union elites and the halls of Washington D.C. — all the parties trying to do this deal.
110 Comment by pablo H on 19 November 2008:

I notice that most who favored both the Iraq invasion and staying until we achieved “victory” and the September $700 TARP fiasco are against bailing out the Big 3.

Maybe we should ignore their advice for once.
111 Comment by Scott P. Richert on 20 November 2008:

J. Meng (@107):

No offense taken. It’s just that, after 250 comments over two lengthy threads, it gets a bit tiresome to have people continue to fall back on a line that Tom Piatak dealt with in his first piece over at Takimag.

On to other matters. Do I think that Detroit could make cars that are, on average, more fuel efficient than the ones they make today? Yes, and not just because the Japanese do, but because Detroit has. Sadly, in the American market, those models haven’t sold–even to people who claim that they don’t buy American-made cars because they aren’t fuel efficient.

I didn’t find the Geo Metro, Chevrolet Sprint, and Pontiac Firefly much to my liking, but those who place fuel efficiency among their top concerns should have. For the size of the cars, they received very good safety ratings; for the price, they received good quality ratings. The only thing they didn’t have was a foreign name.

As for your comparison with computer production, there are a couple problems. First, if you’re suggesting that internal-combustion engines should have seen the kinds of performance increases that semiconductors have seen, I’m afraid we’re talking apples and oranges. There’s a big difference between increasing processor speed and making the physical process of combustion more efficient.

Second (and I think that this is more likely your point), if you point to the quality of personal computers as somehow “higher” than the quality of Detroit-made automobiles, I’d like to know what kind of computer you use. The Macs we use here in the office (and which I use at home) are, in my experience, far more reliable and higher quality than the average PC running Windows. That said, the level of maintenance required to keep any personal computer running smoothly is considerably higher, in my experience, than the level of maintenance required to keep my car running smoothly. We just tend not to think of software upgrades, closing out programs when the computer slows down, virus scans, and the myriad other things we do every day to keep our computers in shape as “maintenance.”

The number of people who’ve ever experienced the equivalent of a “blue screen of death” in a car (which, essentially, would mean the car simply ceasing to function while you’re driving it down the highway at 70 mph) is next to none.

Frankly, if my car required the level of maintenance that my Macs (much less others’ PCs) required, I would have traded it in long ago for a horse, because the horse would be lower maintenance.
112 Comment by Tom Piatak on 20 November 2008:

pabloH@110:

An excellent point.
113 Comment by Bill Wilder on 20 November 2008:

Mr. Richert @ 111

Your comments at the end remind me of the wry comments my wife’s mechanic engineer father and brothers make–try hitting “CTRL/ALT/DELETE” when you’re driving 70 on the highway. (I think they make that point in arguing computer engineers aren’t realy engineers.) Oh, and they don’t work the auto industry.
114 Comment by Steve on 20 November 2008:

I agree with Pat on many things but this “party first” attitude sounds just like Democrats and neo-cons. Americans, while seeing Detroit as vital, also have huge problems with wealthy men flying separate private jets to beg the government for billions of dollars. They also see something wrong with throwing money at a failed enterprise, particularly when the executives of these corporations refuse to resign or file for bankruptcy. Detroit auto workers make twice as much money as non-union workers in the South. Start there.
115 Comment by Scott P. Richert on 20 November 2008:

Steve (@114):

Detroit auto workers make twice as much money as non-union workers in the South. Start there.

Why would we start (or restart, after several days of extensive discussion) from a faulty premise? The wage disparity has been discussed, and it’s not two to one.
116 Comment by Etienne Gervaise on 20 November 2008:

@85 Scott

I understand economies of scale, and have no problem with the concept. My final point was congressional meddling in manufacturing probably caused many of the problems, especially on the pollution.

I recently watched the movie Tucker, if it holds close to the truth, the big guys had no problem maligning the little guy — even though Tucker made his pile as a war profiteer. However, he did produce 50 cars and 49 of them still run, that’s a better record than the oligopoly can match.
117 Comment by Etienne Gervaise on 20 November 2008:

@96 Tom Piatak

GM and Toyota are pretty much locked at the hip. As are Ford, Mazda, Volvo and Aston Martin. From what my sources tell me, most European car manufacturers are Volkswagen-owned. Fords are made a a plant in Dagenham, and sales are OK. Maybe, the automakers would be smart to move 100% offshore and ship everything on massive roll-on-roll-off ships from cheap labor countries like Indonesia, Peru, and Sierra Leone. That ought to keep the prices down, and congress from meddling — somewhat.

3 cheers for the global economy everybody! If the elites can’t ram it down our throat, then they’ll give it to us by enema.

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As GM Goes, So Goes the GOP

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