You Have Nothing You Need Use But Your Brains"
Forgive the distant play on "workers of the world unite, you have nothing to lose but your chains;" the point is that the observations of workers and all the rest of us are worth something when evaluating the judgments of the "experts."
On balance, I'm a proponent of a meritocracy, expertise, graduate and post-graduate education, and looking to scientists and experts rather than ideologues for solutions to public policy challenges.
But it's also reassuring when ordinary folks like myself, relying on instincts, intuition and such limited information and understanding as we possess, can come to the same conclusions ultimately adopted by the experts.
(And I won't even note the instances when the "experts" prove to be not all that expert -- except to provide you the following video look-back on how Fox's "experts" trashed the prescient predictions of Peter Schiff.)
That amateur's instincts can often prove right is fortunate for a blogger like myself, since I enjoy expressing opinions on dozens of public policy topics for which I have neither formal educational training nor the expertise of "experience."
But there may be a lesson here for the experts as well. In a variation on "when the people will lead their leaders will follow," when the public says "the emperor has no clothes" it might well behoove the experts to at least take a second look at their naked proposals.
So it is with the coming global economic collapse.
Please note that my point is precisely the opposite of "we're smarter than the experts." My point is that even though many of us are not smarter than the experts, even though we don't have the educational credentials or experience that they do, doesn't mean that we aren't capable -- drawing on what we do have -- of coming up with positions and understandings that ultimately prove to be correct.
When I wrote the op ed column, "Ten Questions for Bush Before War" in February of 2003 (along with many similar analyses at that time), I wasn't the only "non-expert" who was able to predict, pretty much step-by-step, the disasters for America that would result from our invasion and occupation of Iraq.
When Secretary Paulson announced his three-page $700 billion bank bailout plan many noted that if we were going to go down that road we should at least give the taxpayers some equity in return for being bilked, rather than just buy up the banks' securitized worthless mortgages. I was among them: Nicholas Johnson, "Better Alternatives to Congress' Bailout Plan; Senate Bill: Wrong Plan, Favoring Wrong People, at the Wrong Time," October 2, 2008. Now even Paulson has reversed course and acknowledged we were right.
Today's issue involves the automobile industry bailout being pushed by the Democratic Party leadership -- President-elect Obama, Speaker Pelosi, and Senate Majority Leader Reid. Indeed, apparently Obama made this among his top priorities during the limited time he had with President Bush (who has opposed the idea) during their visit. Declan McCullagh, "Big Three Bailout? Not So Fast," CBSNews.com, November 12, 2008 ("The labor movement spent, according to Financial Week, a whopping $385 million to elect Obama and other Democrats last week. Nobody writes such large checks without expecting something: now it's payback time.").
To many observers this proposal looked nuts. Nicholas Johnson,"Jobs, Not Unemployment, Key to Recovery; Why America Needs a Jobs Program: Because When Your Automobile (Industry) is in the River It Makes More Sense to Go For the Shore Than to Continue Bailing it Out," November 8, 2008 ("GM went through nearly $7 billion in cash in the course of losing over $4 billion during the last three months! Pouring more billions of taxpayers' money into this bottomless pit can do little more than postpone the agony for three or four more months.").
GM's problems are fundamental and have been for decades.
Management has been unimaginative, resistant to change, and bureaucratized beyond belief. It has opposed progress of all kinds: seat belts, air bags, and bumpers that might withstand a crash at more than two miles per hour; small cars when customers wanted them and foreign car manufacturers were gaining an increasing share of our domestic market by providing them; efforts to reduce greenhouse gases and climate change; their lobbying for tariff protections rather than confronting competition in an open marketplace; dragging their feet on hybrids and alternative fuel vehicles or even improving the gas mileage of conventional vehicles; continuing to manufacture trucks and SUVs in the face of rising gas prices. See, Declan McCullagh, "Big Three Bailout? Not So Fast," CBSNews.com, November 12, 2008 ("Detroit's problems aren't caused by a one-time slump. They can't be fixed by another infusion of cash. One cause is that union labor and legacy costs are too high and make the so-called Big Three companies uncompetitive. Another is that their profitability is tied to large, heavy trucks and SUVs that Americans no longer want to buy, at least in such large numbers. That's just common sense.").
The company has permitted itself to assume liabilities (for employees' health care and pension plans among other things) far beyond its ability to pay. And now it's burning through cash at a rate that will bring it to bankruptcy by early next year. Sales of internal combustion vehicles are down dramatically around the world -- but far more so for GM than for those made at American plants by American workers by Toyota, Honda, BMW, and Kia. "Sales of cars and auto parts plunged 23.4 percent from last year, . . . and 31.9 percent in October . . . the lowest recorded in 25 years and analysts predict the market will remain weak into 2009." Jack Healy, "A Record Decline in October’s Retail Sales," New York Times, November 14, 2008; Declan McCullagh, "Big Three Bailout? Not So Fast," CBSNews.com, November 12, 2008 ("Honda kept its focus on smaller cars such as the Civic and Accord, and saw its sales continue to increase this summer while GM, Ford, and Chrysler have slid.").
And today we learn European insurers are now refusing to provide insurance to suppliers of the Big Three.
There would seem to be little justification for a bailout -- nor does there seem to be a realistic business plan in place regarding what the money will be used for, what it will accomplish (especially in this economy), where it will get us and when and why.
To the extent the earlier, special $25 billion taxpayer gift is to be used for re-tooling and design of new, more "green" vehicles, (a) is that a business the taxpayers really want to get in? (b) isn't the market (e.g., Toyota) responding to that desire? (c) if not, is there a point to doing it if customers won't buy the cars (e.g., how many Volts will sell at $40,000 a copy?) (d) if we want any private institution to undertake such research, why on earth would we pick GM -- whose executives have had decades to provide this response and have fought doing so? (e) even if some GM employees had the ability to pull this off, what is the likelihood the company will be able to do in the next few months what it has been unwilling to do for years? and (f) if it takes three years to bring a car from design to showroom, how is that going to save a company that is less than six months from bankruptcy?
So what, exactly, is going to be done with the near-$100 billion the Democrats want to give the (formerly) "Big Three" besides continuing excessive executive compensation and payments to shareholders? Workers are going to continue to be laid off -- which won't make it any easier for them to buy cars (a principle that Henry Ford understood in setting his workers' wages in the early 20th Century). There's little point in the few who will be retained making cars for dealers who are closing their showrooms and don't want the inventory, or potential customers who have lost their jobs and can't pay their mortgages.
Slowly, these seemingly obvious facts appear to be coming to the attention of "the experts" as well as all the rest of us. David M. Herszenhorn, "Dodd Says Auto Bailout Lacks Votes in Senate," New York Times, November 13, 2008.
And this morning one of my favorite conservatives (because he's smart, rational, and rarely ideological or mean spirited), David Brooks, sums up the situation as well as anyone. David Brooks, "Bailout to Nowhere," New York Times, November 14, 2008. Here are some excerpts:
Not so long ago, corporate giants with names like PanAm, ITT and Montgomery Ward roamed the earth. They faded and were replaced by new companies with names like Microsoft, Southwest Airlines and Target. The U.S. became famous for this pattern of decay and new growth. Over time, American government built a bigger safety net so workers could survive the vicissitudes of this creative destruction — with unemployment insurance and soon, one hopes, health care security. But the government has generally not interfered in the dynamic process itself, which is the source of the country’s prosperity.There you have it.
But this, apparently, is about to change. Democrats from Barack Obama to Nancy Pelosi want to grant immortality to General Motors, Chrysler and Ford. . . .
It is not about saving a system; there will still be cars made and sold in America. It is about saving politically powerful corporations. . . .
It is all a reminder that the biggest threat to a healthy economy is not the socialists of campaign lore. It’s C.E.O.’s. It’s politically powerful crony capitalists who use their influence to create a stagnant corporate welfare state. . . .
G.M. and Chrysler . . . are not innocent victims of this crisis. To read the expert literature on these companies is to read a long litany of miscalculation. . . .
There seems to be no one who believes the companies are viable without radical change. A federal cash infusion will not infuse wisdom into management. It will not reduce labor costs. It will not attract talented new employees. . . .
In short, a bailout will . . . just postpone things. . . .
[T]he most persuasive experts argue that bankruptcy is the least horrible option. Airline, steel and retail companies have gone through bankruptcy proceedings and adjusted. It would be a less politically tainted process. Government could use that $50 billion — and more — to help the workers who are going to be displaced no matter what. . . .
Is this country going to slide into progressive corporatism, a merger of corporate and federal power that will inevitably stifle competition, empower corporate and federal bureaucrats and protect entrenched interests? Or is the U.S. going to stick with its historic model: Helping workers weather the storms of a dynamic economy, but preserving the dynamism that is the core of the country’s success.
We have a mechanism in place to deal with the auto industry's problem: Chapter 11 bankruptcy reorganization. It's clearly a preferable "least-worst solution" to bailouts. Some corporate executives will be out of work, but they deserve to be -- indeed must be if the companies' prospects are to improve. Shareholders will suffer a loss -- but their stock has already declined some 90% in value, so it's not like Chapter 11 is their biggest problem. "Shares in American automakers, the Ford Motor Company and General Motors, have fallen to multi-decade lows as the companies reported billions in losses." Jack Healy, "A Record Decline in October’s Retail Sales," New York Times, November 14, 2008.
Economic support should go to workers, not named, pre-existing corporations. (That means jobs programs, unemployment compensation, food stamps, healthcare and retraining programs.) The corporations' physical assets aren't going anywhere. As Brooks points out, they can (and will) continue to be operated either in Chapter 11, or by whatever other companies may acquire them at market value. (As a sidenote, our largest local mall, Coral Ridge, will probably be in Chapter 11 by early 2009; the theater, big box stores, restaurants and skating rink will continue to operate -- or, if not, they will be reacting to their own economic conditions, not those of the mall owner.)
See, Amitai Etzioni, "Bail Out the Workers, Not the Plants," The Huffington Post, November 11, 2008; Declan McCullagh, "Big Three Bailout? Not So Fast," CBSNews.com, November 12, 2008 ("The better solution is a simple one: Allow automakers to declare bankruptcy. Contrary to popular belief, that will not mean the end of a company such as GM, which has indicated it may run out of cash by the end of this year. Under Chapter 11, a bankruptcy judge will weigh the different interests of GM's creditors, labor unions, shareholders, and so on, and the resulting company will emerge leaner and stronger. Many current customers of United Airlines, Texaco, Global Crossing, and Pacific Gas and Electric probably don't even know that those companies once filed for Chapter 11."). Micheline Maynard, "G.M.’s Troubles Stir Question of Bankruptcy vs. a Bailout," New York Times, November 12, 2008 ("But not everyone agrees that a Chapter 11 filing by G.M. would be the disaster that many fear. Some experts note that while bankruptcy would be painful, it may be preferable to a government bailout that may only delay, at considerable cost, the wrenching but necessary steps G.M. needs to take to become a stronger, leaner company.").
Robert Reich, "The Real Difference Between Bankruptcy and Bailout," November 11, 2008:
"Under it [Chapter 11], creditors took some losses, shareholders even bigger ones, some managers' heads rolled. Companies cleaned up their books and got a fresh start. And taxpayers didn't pay a penny.As a final, not insignificant comment note that this ill-considered, seeming capitulation to the auto industry and UAW is not an example of "reaching across the aisle" to serve the interests of Obama's oft-heralded "United States of America" (as distinguished from our "Red States" and "Blue States"). Whatever the red state Republicans' motives may be, they are opposed to this idea. (Not incidentally, they give many of the same reasons for their opposition as the rest of us.) Coupled with Obama's earlier support for the original $700 billion bailout, and his prior vote supporting immunity for the telephone companies that spied on us in violation of law, it does not bode well for the new Administration's ability to offer "change" (beyond freeing up stem cell research) to a "broken" Washington, subservient to corporate power.
So why, exactly, is the Treasury substituting government bailouts for chapter 11? . . . Wall Street's major banks and insurance giant AIG . . . [don't] have to be bailed out. They could be reorganized under bankruptcy protection. . . .
And what a tragedy it would be if the government spends so much on these bailouts there isn't enough money left for the next administration to help average people get affordable health insurance, send their kids to good schools, and find good jobs -- including jobs rebuilding the nation's crumbling infrastructure and finding alternative sources of energy.
It's not the big guys who need rescuing. It's the small. Right now, the government has its priorities upside down.
November 16: Register's Consistent Editorial
Editorial, "Be bold: Start a WPA-style jobs program," Des Moines Register, November 16, 2008, p. OP1. You will want to read it all, but here are some excerpts:
The U.S. unemployment rate hit a 14-year high of 6.5 percent last week. The fear of losing a job is compounded by the difficulty in finding another if you're laid off. . . .
Iowa State University economist and professor emeritus [Neil Harl] said it's not out of the realm of possibility that the United States could see unemployment rates [of] some 25 percent . . . and "there's nothing to indicate [employment rates] are going to improve." . . .
What has been tried so far hasn't worked so well.
Tax cuts pushed by the Bush administration didn't trickle down to create sustained job growth. Rebate checks didn't sufficiently stimulate the economy. Recent investment-bank bailouts haven't done enough to boost lending.
It's time for a better, bolder strategy. President-elect Barack Obama should make job creation his No. 1 priority. . . . Spending dollars to create jobs benefits workers directly and boosts the overall economy. . . .
The federal government could quickly infuse money into states to fund projects that are already planned -- including roads, bridges, sewers, parks and trails. That would create jobs for unemployed Americans, [send] money rippling through the economy [and] this country would get more of its infrastructure updated [strengthening] the economy against global competition for years to come. . . .
In the summer of 1932, Franklin D. Roosevelt . . . began putting the country to work through the Works Progress Administration.
Within a few years, millions of Americans were working to build infrastructure -- improvements that are still around today. . . .
Create jobs. Boost consumer confidence. Put the country on track for a brighter economic future.
It makes more sense than pouring more billions into bailouts.
1 comment:
In the case of the auto-makers' bailout, it's a relief to have a national issue that is so straightforward: American cars tend to break down and fall apart therefore people have stopped buying them. If GM and Ford don't want to go out of business, they should start making decent cars. To bail them out would be to reward their terrible manufacturing standards.
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