Two little and disturbing stories concerning bailouts and potential bailouts:
First, a Connecticut lawmaker is begging for taxpayers to foot the bill for the unprofitable newspaper in his small town because he thinks it’s really cute and wonderful (and it probably endorsed him). Apparently residents don’t agree enough to pay for neccessary subscriptions and advertising, but according to this arrogant politician, all of you should be forced to pay anyway. Besides the immorality and economic stupidity of more bailouts, this one has particularly dangerous implications for free speech. If newspapers are forced to answer to bureaucrats they could lose the freedom which makes them even a little relevant. Government papers would be more boring and shoddy than private papers too. Do you prefer PBS to CNBC, CNN, ABC, CBS, FOX, etc.? The Post Office to FedEx, UPS or DHL?
Second, the bailout hungry U.S. automakers and the unions that work for them (or is it the other way around?) have been defending themselves and blaming their troubles on others, no surprise here. But a funny little fact has emerged about the UAW - they have a money-losing “public” luxury golf course as a perk to union members. No word about selling it. Auto exec’s apparently have to hide their jets in order to steal our money, but union bosses don’t have to forgo their country club. The sad part is that we’re even having this conversation. Get ‘em off the public dole, remove the unfair legal advantages and it’s no longer anyone’s business what the UAW does with their money. But so long as they get special favors at our expense, everything they do is subject to public scrutiny.
Get the government out and treat everyone equally under the law and you will find that people really get along pretty darn well. Start dolling out the favors and we start to tear each other apart.
And no, I’m not even talking about the Lions. Their 0-16 season looks heroic compared to the pan-handling, rent-seeking, name-calling, self-pitying and grovelling coming from Detroit pundits, auto execs, union bosses and politicians. Some of the most ludicrous things are flying about day after day in defense of a massive money grab (aka: redistribution, theft) by the big three. Rather than realizing their tough situation, rolling up their sleeves and setting about the difficult task of righting their respective ships, they’ve chosen to blame others who are more successful, to whine, to grovel, and to plead before no-nothing pompous politicians. Have some dignity Detroit! At least Rod Marinelli didn’t beg for money from Washington.
“The Union is squaring off against the South again. This time it’s Detroit’s union — the UAW — partnering with the auto manufacturers, politicians, and media supporters of the domestic auto industry to wage warfare against the entire South.
“The problem here centers on certain southern states — Mississippi, Louisiana, Georgia and, in particular, Alabama — where certain bone-headed senators seem to have forgotten that the Civil War ended, with the appropriate outcome, almost 150 years ago.
What’s more, these Alabama representatives argued that they and other southern states had plenty of automotive manufacturing capacity to take up the slack and keep the country’s economy going if Detroit was to go belly up. Specifically, Alabama’s Republican senator Richard Shelby called Detroit a ‘dinosaur’ and said bankruptcy was a better solution to the problems facing U.S. carmakers. The state’s other senator, Jeff Sessions, also a Republican, said Detroit’s collapse would “not be the end of the world. We have a very large and vibrant automobile sector in Alabama.”
That’s Detroit News columnist John McCormick, who labeled Southern politicians opposing the bailout “good old southern boys.”
Detroiters continue to embarrass themselves by placing the auto industry collapse into an us-versus-them framework. In the midst of all the whining and begging for a bailout, the South has been declared the new enemy, along with the foreign-car manufacturers who are producing cars — in Southern plants — that consumers want to buy. The army of politicians and opinion columnists in Michigan who lay the groundwork for resuscitating this fading industry don’t bother to acknowledge that it is in the best interests of any public company to maximize quality for its customers and efficiency of production and profits for its shareholders.”
And…
“Getting back to John McCormick’s limp line of reasoning, he ends his column by implying that Michiganders should boycott Alabama — especially the retirees and warm-weather family vacationers. As always, the little guys are told to give up their way of life to preserve the high-paying jobs of corporate and union executives — along with the jobs of people who make cars no one wants to buy. But what’s in it for them? National pride?”
I can’t handle this shameful display of prideless whimpering and excuse-making for ineptitude any longer, I’m gonna go watch the Lions game on my DVR as a reprieve.
Matt Yglesias blogs about Southern politicians’ friendliness to non-unionized businesses, such as Toyota and Honda plants in their states:
“This is, of course, but a small slice of the larger southern politics
tradition which has always insisted since the end of the Civil War that
cheap labor and a low-tax, low-service, high-inequality social and
economic system are the key to prosperity. This approach left the South
perennially poorer than the rest of the country, but over the past
couple of decades this made-in-dixie failed approach to economic
development has come to dominate national policy. Not coincidentally,
during this period the United States has begun to fall behind
high-wage, high-service, low-inequality northern European countries in
terms of average living standards.”
The phrase “this approach left” indicates a claim of cause and effect, but immediately after the Civil War the South was probably poorer relative to the country than it ever has been since. As late as mid-20C, the average income in most of the former Confederate states was much lower than the national average. With Southern wages low relative to the rest of the country, it made sense for their politicians to oppose uniform high-wage policies and embrace right-to-work laws. That way, they could attract businesses and compete with higher-wage jurisdictions, without reducing their own wages. Thus while the Japanese invasion has been hard on Michigan and Ohio, it has boosted the South economically. Southern income is today far higher relative to the national average than it was earlier in the century.
There probably was some cause and effect of the sort Yglesias insinuates during the Jim Crow era; the fact that African Americans were just coming out of slavery, and were rigorously excluded from the mainstream of society, probably meant a lot of competition at the low end of the wage scale (somewhat mitigated by the exclusion of African Americans from some low-end jobs, and from unions, I would guess.) Obviously even before gaining political freedom black people improved their economic situation, and many migrated north for greater opportunities.
Some numbers, available from the BEA: In 1950 the national average income was $1510; in Alabama it was $770, or just over half that. In Arkansas incomes were less than three-fifths of the national average, in South Carolina and Mississippi less than two-thirds, in Tennessee, North Carolina and Georgia just over two-thirds. In 1999 Georgia had almost reached the national average, Tennessee and North Carolina were not far behind, and South Carolina, Alabama, Mississippi and Arkansas were all at seventy-five or eighty percent of the average.
As post-WWII U.S. manufacturing dominance has chipped away, obviously we can no longer have the kind of economy we had in the 1950s, and a policy of encouraging investment and entrepreneurship been strongly in our interest, so many national taxes are somewhat lower. Our welfare state hasn’t really been effected, though; almost every major entitlement and regulatory program created during the modern liberal heyday still exists. It is true that our welfare state has not become as generous as those in Scandanavia. However, the U.S. bears a tremendous defense burden as a result of its economic power and its position, dating from the early Cold War, as the last-resort defender of liberal world order, while Finland, for instance, was in an indefensible position visa vis Russia and so adopted a policy of strict neutrality, which obviously does not require a bid defense commitment (no point, in fact, in waking up the bear.)
Finland (where Yglesias is currently traveling and from which he is delivering enthusiastic reports) also ranks second in the world in social stability in the Fund For Peace’s Failed States Index, one spot ahead of Sweden and one behind Norway, with a score of 18.4 (as in golf, a low score is good). This may suggest that income inequality in a modern state tends toward instability, or that stability makes the modern welfare state sustainable. The first explanation runs into trouble when we look at the countries just behind the Scandinavians: Ireland, Switzerland, Iceland and New Zealand, all very free-market economies.
All seven of these countries are small, all are by my understanding ethnically and culturally homogeneous; four of them, interestingly, are Nordic cultures (Iceland, Sweden, Finland and Norway); Switzerland is multilingual but has existed for many hundreds of centuries independent from its larger neighbors, Ireland is an island and heavily Catholic, New Zealand is a couple of medium-sized islands. Ranking next is the tiny nordic state of Denmark. The United States ranks seventeenth in the world, with a score of 32.8- not bad, but much higher than the Scandinavians, on a par with France, Germany, Italy, and the UK.
The Scandinavians have a history of social stability and, relatedly, of seeing little danger in government power. P. J. O’Rourke, in his classic Eat the Rich, speculates that this may be due to their relatively benign experience: “The Swedes seem to have no natural distrust of government. There is in Scandinavia a long tradition of communal decision making. The Vikings had an assembly of adult males that met once or twice a year and was called the Thing, surely the best name ever for a legislative body. Swedish peasants always had some land-ownership rights, and they usually maintained friendly relations with their king. Class distinctions existed, but pesky nobles made their money more by war and trade than by gouging the rustics.” America is a sprawling federation, composed initially of thirteen colonies baptised in a common hatred of royal power and consequent belief in local republicanism, which then spread further across the continent as more adventurous souls moved west and waves of immigrants came from everywhere.
Progressives may like the idea of centralizing education, health care and poverty policy, but what happens when homeschooling individualists and egalitarian levelers, secularists, Protestants, and Catholics, Fox News watchers and NPR listeners, post-modernists, Rousseauians, Freudians and Deweyites, and curriculum designers of varying persuasions all set about fighting over the true meaning of American history, the best way to educate a child, and the true purpose of education? What happens when a government is called on to objectively determine every person’s need has to choose between different interest groups, victimhood claims and the like?
Government’s decisions on these matters are necessarily arbitrary, but in a homogeneous society people may be willing to accept them. In America, where the Terry Schiavo case brought our government at every level and regularly scheduled news programing to a halt, a person unhappy with government’s decision can appeal to an adversarial media, the Courts, their Congressman or anywhere else. That we have a heterogeneous society is not a bad thing, as mid century liberals recognized when they used to denounce social conformism and rejoice in pluralism. It does mean that people are unlikely to embrace an arbitrary conception of the collective good.
Gov. Jennifer Granholm has been a high-profile proponent of using billions of U.S. taxpayer dollars to bail out the domestic automakers. However, the Granholm administration seems to be more cautious about risking the pensions of Michigan government workers in this cause.
Specifically, the Dec. 11 MIRS Capitol Capsule reports that State Treasurer Robert Kleine opposes investing state pension money in domestic automaker stock because he “is interested in making investments that make sense and not foolishly spreading around retirement dollars,” as the Lansing insiders’ newsletter put it.
The article refers to the Treasurer’s fiduciary responsibility to invest pension dollars wisely. It quotes him saying, “We owe our obligation to the retirees,” and characterizing the automaker stock as “uncertain.”
That’s good for the government class, but bad for the people: Many believe the bailout will just postpone an eventual bankruptcy of one or more of the Detroit Three, or a nationalization of the firms, either of which would wipe out any remaining shareholder equity – and also whatever taxpayer wealth will have been transferred to United Auto Worker union along the way.
So, the apparent message from the Granholm administration is that it’s OK to put taxpayer dollars at risk, but government employees are a special class that must be protected. That’s in keeping with the priorities demonstrated by the Granholm administration’s actions over that past several years, which might be described as “Leave no government worker behind.”
For example, rather than privatizing services and adopting genuine reforms in government and school employee retirement benefits, last year Gov. Granholm and the legislature imposed $1.4 billion in new taxes on a state that’s been losing jobs the entire decade.
Incidentally, the same day Treasurer Kleine made his remarks the U.S. Senate defeated a version of the bailout that would have required UAW members at the Detroit Three to accept pay rates equivalent to those of workers at thriving non-union “trans-plant” car factories in other states. These UAW compensation packages are acknowledged by everyone except the union and its apologists as one of the main factors in the decline of the Detroit Three. Gov. Granholm was highly critical of adding this condition.
The spectacle of corporate magnates from Detroit pleading to be on Uncle Sam’s dole is a sordid one. So why aren’t more Americans appalled? One reason is widespread misunderstanding — much of it sowed by these auto makers — about the size of their firms. The Big Three, we are told, are “too big to be allowed to fail.”
This myth begins with the idea that GM, Ford and Chrysler are so huge that if they go belly-up, the livelihoods of a disproportionately large number of workers and suppliers would be affected. At once, the market for their services and products would close. Therefore, the argument concludes, government must prevent any such failures.
Nonsense.
Bankruptcy doesn’t make assets — such as factories, machines, contractual options to buy raw materials, workers’ skills — disappear. If markets still exist for products produced by these firms, Chapter 11 is the best way to discover this. Some workers might lose their jobs and some suppliers might lose their markets, but there would be no industry-wide collapse of the sort portrayed by the bailout’s cheerleaders.
But what if refusal to bail out these firms results in their complete failure? Even then — especially then — the case for a bailout crashes. Really big firms such as GM, Ford and Chrysler are really big users of productive inputs, like rubber and steel. Almost all of these inputs have alternative uses and could be used by other firms or in other industries.
A government bailout of the Big Three keeps huge amounts of productive inputs in firms that can’t use them efficiently. Forcing taxpayers to subsidize the continued employment of gargantuan quantities of raw materials, labor and capital goods in unproductive pursuits is a recipe for economic stagnation. The popular and politically convenient myth has matters backwards: The bigger the unprofitable firm, the more vital it is that it be allowed to fail.
As it happens, I doubt that GM, Ford and Chrysler will all stop operating without a bailout. Firms that together produce close to half of all new cars and trucks sold and leased in the U.S. each year are unlikely to find the market for their products suddenly too small to justify continued operations. (And if they do, what would this development say about the quality of those firms’ products and about the efficiency of their operations?)
Restructuring under Chapter 11 will oblige Detroit’s Big Three to shrink, and perhaps even to merge together or with other automakers. This will unquestionably cause hardships to some workers and suppliers, but hardships no different than those suffered routinely by workers and suppliers in other industries whenever economic change reduces consumer demands for some products.
If Washington gives no special subsidies to workers and suppliers outside of the auto industry, why treat GM, Ford and Chrysler differently? Are their workers or owners more worthy? Not at all. The jobs and good pay that they’ve enjoyed were made possible by the very economic openness that now requires significant restructuring of these three firms. Their shareholders, workers and suppliers have no moral or economic claim on special treatment from government.
It is precisely because the Big Three differ in no essential way from America’s other firms that bailing them out runs a real risk of cascading into a march on Washington by countless firms unable to see why they are less entitled to taxpayer funds.
What will President-elect Barack Obama tell these other firms when they come begging? If he says no, he’ll be seen as having played favorites with three firms that deserved no such special treatment. If he says yes, he gives private industry a blank check drawn on the American economy. To imagine that firms will not draw on that account too often, too greedily, and without real justification is a dangerous fantasy.
Counters think there might be enough votes to pass it. Still a question of what strings will be attached. The the Free Press reports that one string may be the congressionally-forced dismissal of GM’s CEO. It wants the companies to drop lawsuits against states that made arbitrary and punitive legislation against them. It also reports that â€[t]he bill is to include numerous conditions on the auto industry, including appointing an overseer to monitor the automakers’ progress on restructuring plans.†Nothing is detailed over what power that overseer may have.
The WSJ says that the overseers should be bankruptcy-lite. The board should have powers to force restructuring. It wants change in the dealership networks, labor contracts, even find a foreign buyer for Chrysler. This is a middle-road response.
Unfortunately, it elsewhere reports that the “car czar†might also be a Washington appointee that ensures that the companies make cars that Washington likes.
Finally, here’s a section in GM’s most recent SEC 10-Q
Looking into the first two quarters of 2009, even with our planned actions, our estimated liquidity will fall significantly short of the minimum required to operate our business unless economic and automotive industry conditions significantly improve, we receive substantial proceeds from asset sales, we take more aggressive working capital initiatives, we gain access to capital markets and other private sources of funding, we receive government funding under one or more current or future programs, or some combination of the foregoing. We are actively pursuing all of these possible sources of funding, but there can be no assurance that they will supply funds in amounts and timing sufficient to meet our liquidity requirements in the first two quarters of 2009 and perhaps in later periods.
So, according to this, there are five different ways that the company can be solvent again. The bail-out is only one of them. I wonder why there has not been any report on the companies efforts in the other four categories. In particular, I’d love to hear from bankers about why they have no provided loans to the company.
“Why is our industry getting all the skepticism, while banks and insurance companies are getting all the money? †writes the UAW president.
“Citigroup got $20 billion on a Sunday afternoon, but CEO Vikram Pandit was not forced to submit a business plan or drive to Washington from Manhattan to be grilled by the Senate Banking Committee,†writes Daniel Howes.
It’s a dangerous point to make for bail-out supporters. The unfairness argument can mean one of two things. Either the auto-makers should get a bail-out, or that no one should. And since there are all sorts of other fairness issues with giving select companies bail-outs,* it seems the best response is that it was unfair to give finance a bail-out and it would be unfair to give the autos a bail-out.
But the congressional response would be something like this: Fix finance, fix the economy. Auto industry is not finance, so to hell with it.
Elsewhere, the Detroit Free Press makes makes an appeal to Congress, “You don’t want an economic disaster on your hands.† It makes other passionate appeals, but all of them economic.
The downside risk argument has been used in a number of occasions, and I have yet to see it in an context that considers the dynamic interplay of the economy (how does this fit with ongoing job losses and job gains?) and even the percent of total economy. So here’s the context: even using the absolute largest figure for the extent of possible job losses to the economy based on the Detroit 3 dissolving into the ether, the downside risk is only 2 percent of the total jobs in the economy.** That’s including the multiplier effect, so do not come back and ask, “Well, what about all of the spin-off jobs?â€)
Today, the newspapers are writing about the legislators that are skeptical of the auto bail-out. I hope it isn’t a coded statement that means more logrolling*** is necessary to pass the loans.
*for example, why don’t we give the other U.S. automakers low-interest loans? Shouldn’t we then give all industries something similar to be fair? And is it fair to pledge the full faith and credit of the U.S. government (i.e.–they’re going to come after everyone if the loans go bad) for selective and discretionary financing?
“So we must provide a bailout because a GM bankruptcy would make the US auto industry evaporate. Just like airline bankruptcies wiped out air travel in the U.S.
Younger readers may not remember the time before the airline bankruptcies, when anyone could go to an airport, get on a big powerful jetliner, and travel anywhere in the world in a matter of hours. The skies were filled with those jets, taking millions of people hither and yon at great speed and convenience.
Of course, that’s all gone now. Since the airline bankruptcies it’s become a quieter world, with only the occasional military aircraft visible in the skies. Our horizons have narrowed considerably, limited as we are to slow cross-country travel by automobile, and on ships to different continents. Sadly, soon the cars will go away also, and we’ll return to duller lives in which most people never travel more than 20 miles beyond their home village.
~~~~~~~
Too bad the government doesn’t create a process by which companies that can’t pay their bills could get temporary protection from creditors, contingent on their fixing the problems that got them in trouble in the first place. I suppose federal courts could oversee the process. It would allow those companies to actually come out not just with clean balance sheets, but better able to compete in their markets. Ah well - maybe in the old days our government would have been able a create a common-sense process like that, but of course those days have passed.
Congressional presentations were made. Numbers were used. Proposals were made. In reporting context, the Free Press uses the largest number of the CAR study.
In all of the news stories, the companies’ plans for plant and brand closures are treated as a good thing. But contrast that with historical reports over the same moves, which have been treated as doom-and-gloom stories. Only Daniel Howes seems aware of that.
He’s also sensitive to the changing economy. The Detroit 3 have plans for survival, but the plans are based on a series of assumptions. Howes questions whether the plans will work –  †Would it be enough? … Would it come soon enough? … What if Ford is too optimistic?â€Â Questioning the plan has largely been absent from the public debate. But it also works on other facets of the bail-out. “What if people really aren’t worried about buying from a bankrupt automaker?â€
And partly for shock value, I guess, The Detroit News runs a commentary by a Los Angeles Times writer that calls for nationalizing GM. He wants the company to make greener cars.
According to The Detroit News, Ohio Senator Voinovich claims “that if even one of the domestic automakers were to fail roughly 2.5 million U.S. jobs could be lost… “ That is a misstatement. The number comes from CAR’s analysis (viewable here) and does not say what Voinovich says. You can get to 2.5 million from the CAR analysis, but you have to assume that all the Detroit 3 — not just one company – completely stop production of everything and instantly fire everyone for a year, then rehire half of them next year, and count the multipliers.
I plan on giving a longer description of the CAR study if I get some time.
Tom Walsh carries a similar theme in the Detroit Free Press when he writes that â€hundreds of thousands of jobs in the heartland are at stake.â€
An omission in the public debate thus far has been the recent gasoline price reductions. Right now, a big chunk of the narrative has been:
Detroit 3 produce Trucks and SUVs –> gas prices increase –> lose market share
Foreign companies produce cars and hybrids –> gas prices increase –> Gain market share
With falling gas prices, we’re going to see if that works in reverse.
But it also highlights danger of making business decisions in Congress. There is a contingent of legislators that wants to see the car companies make fuel-efficient vehicles. Right now, it argues that fuel-efficient vehicles make good business sense. But if that assumption is no longer relevant, Congress may still insist on low-gas cars for other reasons.
Have the companies responded to Congresses demands? The Detroit News reports, in presenting to Congress, Ford “will highlight its small car strategy and shift to more fuel-efficient vehicles.—
There’s a lot of rhetoric being used when discussing the Detroit 3 bridge loan idea, so I thought I’d track it.
Mark Phelan suggests focusing on the long-term in the Detroit Free Press. Unfortunately, the view is entirely squared upon finding ways for Washington to micromanage the car companies. And no mention of Congresses prudent section–ensuring that the rules in which all car companies operate are just.
Paul W. Smith invokes Ford’s World War II manufacturing in The Detroit News. Is still can’t quite figure out why. Perhaps as a reminder that there are secondary and tertiary effects of economic actions, some of them positive and may have ramifications for national defense. But that’s the case for almost every economic interaction. And whatever form GM takes with or without a bail-out, someone is still going to produce vehicles (maybe even still Hummers) for the army.
The Wall Street Journal editorializes that America already has a strong auto industry, just not one that’s based in Michigan. It also observes, though, that the Detroit automakers have made large strides in productivity in recent years. But talking about labor hours per car ignores how much those hours are worth. On that point, Mark Perry reminds us of the large difference in labor costs between the Detroit Three and its in-country competitors, which I’m shamelessly ripping:
Lastly, my family had a reunion on Thanksgiving. On a couple of occasions, they bemoaned the use of the term “bail-outâ€. They were concerned that the words mean cash for nothing and that’s not what is being proposed. However, I argued that the term is allowed since we’ve been told that the companies will go bankrupt without government intervention. To go straight to the metaphor, if your ship is sinking and someone pumps out the water, they’ve bailed you out regardless of whether you pay them afterwards.
Great post today from SFE blog Consectatio on the bailouts as the age-old story of people knowing people in high places and leveraging the relationship for favors, despite the completely illogical, sometimes immoral nature of the favors.
The allusion to Atlas Shrugged is timely. I was recently having a conversation with someone who pointed out how eerily similar the big three’s situation over the last several decades is to the situation of Taggart Transcontinental in Any Rand’s novel - on the ground level the policies being implemented are ludicrous, irrational, and unsustainable, but they come from a bunch of “enlightened” and “practical” men in the halls of power. Just look into the terrible regulations that the autos not only put up with, but actually advocated for (labor laws, CAFE standards, etc., etc.). I’m sure the on-the-ground managers at the big three often pulled their hair out trying to understand why company bosses and lobbyists would support such ridiculous impositions.
From Consectatio’s post:
“Who receives the bailouts? Who is “too big to failâ€? Who gets assistance? Who gets elected to certain positions?
One good example (chosen because we all know how the situation ended) is Fannie May and Freddie Mac. McCain alledgidly had received money from these institutions, as had Obama and many other government officials. Friends of friends of friends of friends of friends. Now we look at the auto industry and the $70.3 million they have spent on lobbying congress for federal aid (I understand that there is much speculation and uncertainty as to the exact amount spent on lobbying, but the greater point is that there is a considerable amount of money being spent to win over “friendsâ€).
Ayn Rand’s book, Atlas Shrugged, is filled with examples of these inefficient, illogical situations caused by “friends of friends of friendsâ€, and, just as in real life, these situations usually negate the easily-accessable, higher quality solution, and rush for the slow, arduous, wasteful solutions that we have grown so very used to.
Next time you stop to question why an illogical, misaimed solution has been reached, and you wonder how in the world it made sense to someone to enact such a proposterous idea, you will know the answers you seek deep inside: just follow the link of friends of friends of friends of friends.”
SFE bloggers break-down facts and fallacies offered in major media outlets…
SFE blog Number Six discusses an article which claims the government saved Boeing and needs to do the same for the auto industry. Excerpt:
The most interesting flaw in the article, though, is in his analysis of Boeing’s history:
“Why does the United States have one of the most robust aircraft-manufacturing industries in the world? The answer is not that pure free markets have, through the workings of a natural law, granted us such a bounty. Yes, Boeing has been disciplined and strengthened by global-market competition, particularly with Airbus, but large-scale federal spending on defense contracts has crucially strengthened Boeing’s position as a locus of human capital, design experience, and innovation. In 2006, the federal government spent more than sixty billion dollars on aircraft manufacturers. Boeing received $20.8 billion, according to Government Executive magazine. (Lockheed-Martin received $27.3 billion, and Northrup-Grumman $16.7 billion.)â€
This sounds plausible, but is almost entirely wrong. To support his claim Cole would need to show not how much Boeing sold to the government in 2006, but that government was a crucial help in the development of Boeing’s commercial sector when it counted. This is not generally true.In the 1930s FDR held a grudge against Boeing because they denied him the right to address their workers in his 1932 campaign. Congress held anti-business hearings. Boeing was one of their targets, and to appease them Boeing offered the resignation of their President, Phil Johnson (government’s leverage came from its control of airmail contracts). Then World War II approached and it didn’t matter who liked or didn’t like Boeing; government needed the best planes in the highest quantities possible. The Air Force pushed Boeing to bring back Johnson, which it did.
The huge military buildup certainly boosted Boeing’s bottom line. It did not, however, make inevitable what came next- in fact, it raised great obstacles to CEO Bill Allen’s post-War efforts to remake the company. Producing for B-29s for unlimited demand, Boeing learned to neglect costs, a short-term problem after the War. More importantly, the War empowered a bureaucracy at Boeing that was hostile to the commercial market, where Boeing had never succeeded, and wanted the company to continue focusing on producing for the government. In 1948, Congress considered implementing an actual industrial policy, with a plan to bail out the struggling industry in return for decision-making authority for Washington, D.C., but Boeing helped block the project.(The book to read on all this is Eugene Rodgers’s Flying High.)
SFE blog Chris’s Color Commentary offers some thoughts on some of the confused narratives about the financial crisis:
This is the feeling I got from a recent article I read in the Guardian, found here. I feel that is important to indicate some flaws with some of the arguments.
[...]
In short, free markets are nothing more than free individuals doing what they feel is best for themselves. Speaking out against it takes an immeasurable amount of arrogance. It necessitates that you can be judge and jury in the lives of others, rather than allowing them to do the best they can with what they have.
In 1979 Congressman Ron Paul gave a speech on the House floor in opposition to the bailout of Chrysler. His words are extremely relevant to the new round of bailouts being discussed today. Some excerpts:
“Do we in Congress have the authority, either moral or constitutional, to cause this suffering? I can find no provision in the Constitution authorizing Congress to make loans or loan guarantees to anyone, let alone to major corporations. Nor have I yet seen a valid moral argument concluding that we, as representatives of all the people, have the right to tax the American people – most of whom receive less in wages and benefits than Chrysler workers – to support a multibillion-dollar corporation. What right have we – and I pose a serious question that deserves an answer – what right have we to force the American taxpayers to risk their money in a business venture which private investors dealing in their own funds have judged to be too risky? Chrysler paper is now classified; that means that any private investor who is handling funds for his depositors, shareholders, or clients may be judged as violating his fiduciary responsibilities should he invest in Chrysler. Don’t we have a trust equally important from the American people? Are we not betraying their trust by voting for a Chrysler bailout? I believe so.”
And
“Last year there were 200,000 bankruptcies in this country, according to U.S. News & World Report. Yet we have selected only the largest for our aid. This is discrimination of the crassest sort. We ignore the smaller victims of this government’s policies simply because they are small. Only the largest, those with the most clout, the most pull, get our attention. This aristocracy of pull is morally indefensible. What answer can be given to the small businessman driven into bankruptcy by government regulations when he asks: “You bailed out Chrysler, why not me?” No justification can be given for this discrimination between the powerful and the powerless, the big and the small.
It is an axiom of our legal system that all citizens are to enjoy the equal protection of the laws. That axiom is violated daily by our tax laws, and now by this proposed corporate welfare plan for Chrysler. Apparently some citizens are more equal than others. That is a notion I reject, and I hope you do, too. I urge you to reject this proposal for all the reasons I have stated.”
Here is a recent e-mail I received from Senator Levin of Michigan:
Dear Dear Friend:
Immediate support is needed to shore up our automotive manufacturing sector and to preserve the more than 2.5 million jobs directly and indirectly linked to the U.S. auto industry. This morning, I testified in front of the House Financial Services Committee to emphasize the need for Congress to take swift action on behalf of our nation’s automakers. Standing idly by as the financial crisis decimates our domestic manufacturing capabilities and pulls our fragile economy further into recession is unacceptable.
Throughout the world, the dire financial crisis continues to spur governments to provide assistance to their manufacturing industries, which are not able to obtain the credit they so vitally need to continue operations. Both Germany and the European Union are studying the possibility of providing support for their automotive industries. Australia has provided more than $4 billion in funding for its vehicle manufacturers. Automotive manufacturers in China are already voicing their expectation of financial assistance from their government as well. “The Chinese government will undoubtedly support us,†says She Cairong, general manager of JAC Motors, a Chinese automobile manufacturer. This quote appeared in a New York Times article this morning, highlighting China’s consideration of a plan to provide assistance to its domestic automobile companies.
The spotlight is now focused on Congress, which is considering the possibility of rescuing the industry from an economic downturn not of its own making. President-elect Obama has called the U.S. auto industry “the backbone of American manufacturing†and said that the failure of our domestic automakers would be “a disaster†for our economy. President Bush, Speaker Pelosi, and both the Majority and Minority Leaders of the Senate agree that bridge loans for our domestic automakers are necessary at this time. I will continue to work with my colleagues in the Senate and the Congressional Leadership to come up with a plan that would provide auto manufacturers with the bridge loans they need to weather this financial storm.
You can read the transcript of my testimony before the House Financial Services Committee by clicking on the following link: [http://levin.senate.gov/newsroom/release.cfm?id=305099]. During these difficult times, I am doing everything within my power to convince the Congress to provide the bridge loans for the domestic auto industry that the President, the President-elect and the leaders from both houses of Congress support.
Sincerely,
Carl Levin
Here was my response:
Dear Senator Levin:
While I appreciate your candor, I whole heartedly disagree with your ambition to support the U.S. auto industry. If you could indulge me, and please notice that the other unspoken U.S. automakers (Toyota, Hyundai, Nissan, etc.) are not having the same problems as GM, Chrysler and Ford. As you may presume, this is because of sound business plans, attention to quality, and cautious investment.
On the one hand, if you’re hoping to support the whole auto industry, then I suggest that you include these automakers, as they are also a crucial part of the manufacturing sector in the United States. Knowing how politically unpopular that is, (and rightly should be), I humbly suggest that you let the automakers go through the avenues that any other business would. File bankruptcy, restructure, and continue on.
I prefer you not spend money I do not voluntarily give, on automakers I do not voluntarily support.
With humble admonition,
Christopher Deming
Student
While I saw at the very bottom a link to unsubscribe, it dawned upon me that in all likelihood, that’s exactly what he’d want me to do.
So I didn’t. Being on several liberal mailing lists for this very reason, it’s sometimes discouraging to read things like this. On the other hand, it gives prime material to use in defense of liberty.
What would the United States look like if the auto industry went away? That’s been on the minds of everyone when discussing the auto bail-out.
Now, it’s unclear exactly what would happen in event of a bankruptcy, but we shouldn’t expect that all of the auto jobs would go away. But what’s the limits of downside risk?
David McCurdy, president of an auto trade association, says that there are 13 million auto-related jobs out there. The BLS, the official government tracker of this kind of thing, says that there are only 842,600 auto sector jobs out there (including parts) so McCurdy is likely using a multiplier.
But the BLS also gives us trends that McCurdy does not, and that’s important. Employment in the auto industry has been declining since 2000. It has already lost 487,200 jobs in the automotive sector since 2000. So given that more than a third of jobs were lost and using McCurdy’s multiplier factor of 14.4 (he says it’s only five, but the math says 14.4); has the country lost 7 million jobs since 2000? No. The economy added 5 million jobs, (and that’s including recent events!).
We live in a very dynamic economy. Every year, about 10-15 percent of jobs are both created and destroyed–typically more created than destroyed. So far, the country has already been able to afford giant decreases in auto jobs. It’s happened without propelling recession. If we wanted to prevent harm from a loss of the industry, we should’ve acted back in 2000, not 2008.
Of course, the possibility of bankruptcy is happening at a time when the rest of the nation was growing, but that changes the focus, doesn’t it? The focus should be on how to improve the overall economy–not whether to subsidize some players in an industry.
I have been encouraging my members in the University of Michigan College Libertarians to write simple and to-the-point letters to the editor to our student newspaper on issues of liberty. Here is one example from today, in response to an editorial advocating for a $25 billion taxpayer-funded handout to the Big Three automakers:
“When it comes to spending other people’s money, the Daily is awfully generous. That was the case in its editorial yesterday about a bailout for the Big Three (Bailing out our future, 11/18/2008).
A taxpayer-funded bailout for the Big Three can’t be defended on moral grounds because it is wrong to rob Peter to pay Paul, regardless of how many skilled lobbyists Paul may have in Washington D.C. Nor can it be defended on practical grounds, since this would be a subsidy for the bloated and inefficient management practices that got automakers here in the first place. A bailout would “spread the wealth†from poor taxpayers to rich executives.
Bailouts also misallocate resources by placing capital in the hands of politicians rather than market forces. Supporting Congress’s use of a limitless credit card that will be charged to our children and grandchildren to bailout private companies is morally reprehensible and confusing public policy. It would make more sense to throw our money down a hole.â€
So try it! Spend twenty minutes of your day writing to your paper with a pro-liberty message. You have a good chance of getting published and to reach tens of thousands of students that likely don’t hear a free-market perspective in the classroom. For more great examples, check out the excellent blog Cafe Hayek.
Listen for the revealing line near the beginning of this clip…one of Michigan’s own apparently doesn’t think your money belongs to you (HT: MSU Conservative)
The proposed big three bailout is a bad idea for many reasons. The graph below, from economist Mark J. Perry’s blog Carpe Diem, is striking. A bailout would mean all the people on the yellow bar to the far right would be forced to subsidize those on the blue bar to the far left of the graph. Robin Hood in reverse.
![[wages.jpg]](http://1.bp.blogspot.com/_otfwl2zc6Qc/STPujPiTUFI/AAAAAAAAH6E/uV95mvf0lOg/s1600/wages.jpg)
