Friday, December 12, 2008

Quick Fix for the Economy

December 12, 2008, 5:30 a.m.

$14 Billion Bridge Loan to Nowhere Collapses
Why? Now What?
And Today's Quick Fix for . . . The Economy

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Why did the $14 billion loan to Chrysler and GM fail to pass?

Because rational analysis prevailed over political expediency.


What's next?

Now let's apply the same kind of tough love to a review of the financial industry's bailout -- a proposal that the House and Senate readily accepted with little or no insistence on onerous conditions, business plans or detailed proof of probable success. It was after all, as you'll recall, a proposal to drop 50 times as much taxpayer money ($700 billion vs. $14 billion) on Wall Street as on Detroit.

Who by name bears greatest responsibility for bringing on the current financial disaster? Who should go to prison for what they did?

There are various figures -- from $700 billion to $7.7 trillion -- regarding how much we're talking about from the Treasury and Fed for corporate welfare. Where is the detailed accounting and oversight? Precisely how much of the bailout went to whom, for what, with what effect? How much was spent for purposes other than what was intended? How much was "loans" and how much was cash? What is the likelihood of those loans being repaid? How much equity do taxpayers now have in the enriched institutions? To what extent have taxpayers simply been duped into paying for worthless, toxic trash? Which companies/CEOs that received taxpayer money have increased executives' pay (by whatever means), continued to travel in corporate jets, or spent some of it on luxury resorts?

Will the Republican (and Democratic Party) members of the House and Senate bring as much enthusiasm and commitment to these questions -- with at least 50 times the impact on the taxpayers -- as they brought to their efforts to kill off yet one more union?

What was wrong with the auto proposal?

The proposed auto industry loan involved "a proposal that was simply unacceptable to the vast majority of our side because we thought it frankly wouldn’t work,” according to Senator Mitch McConnell, R-Ky., Minority Leader. David M. Herszenhorn, "Senate Abandons Automaker Bailout Bid," New York Times, December 12, 2008.

I've been saying as much in blog entries here ever since the idea first reared its head, e.g., "Trust Your Instincts, Auto Bailout's Terrible Idea," November 14, 15, 16, 2008; "Auto Bailout: An Open Letter to Congress," November 19, 2008; "Auto Loan Makes Too Few Dollars Even Less Sense," December 4, 2008.

Are there a lot of businesses and jobs dependent on the auto industry? Absolutely. As Smothers Brothers head writer and musician ("Classical Gas") Mason Williams once observed, "Los Angeles is a city built by Detroit." That is to say, when GM bought up LA's light rail, destroyed it, and substituted auto dealerships and freeways, it was but one example of the reality that "America is a country built by Detroit."

It involves automobile and parts manufacturers, steel and glass manufacturers, dealerships, gasoline refineries, pipelines, filing stations, cement companies and highway contractors, earth moving equipment manufacturers, parking lots and garages, and an army of mechanics from "shade-tree" to the highly trained and uniformed in spotless facilities. It's stunt drivers in Hollywood and NASCAR drivers and their fans everywhere. It's every teenagers' dream of a driver's license and that first car. (Mason Williams also wrote an Autobiography that was the story of the automobiles in his life.)

(In case you were wondering why we don't enjoy the cost, environment and energy-saving benefits of the kinds of passenger and freight rail networks of other industrialized nations try adding up the collective political power reflected in the prior paragraph.)

Automobile sales are down approximately 40%. Does that have an impact on our economy in general and the auto-dependent portions itemized above? Absolutely.

But to argue that an additional 3 million will be thrown out of work if GM is forced to operate while in Chapter 11, rather than continue as it is, with $60 billion in debt, for another two or three months with $14 billion of taxpayer money is a wild and irresponsible stretch.

Americans are only going to buy so many new cars in 2009. They will buy them from dealers who will get them from automobile manufacturers where they will be made by UAW members and non-union workers, using parts from suppliers (here and abroad). The number of new car sales -- and thus the impact of the auto-related industries on America's economic decline -- is the metric by which to measure the severity and significance of the auto industries' retrenchment, not whether more of those cars now come from a well-managed Ford than a diminished GM. If there's a demand for new cars they will be manufactured; if there's not, they won't. And that's what will determine the welfare of those "3 million workers," not the future of GM.

And those sales figures, as I have argued here all along, will be a function of the money in potential customers' pockets, not the pay of auto company CEOs.

Today's "quick fix" for . . . the economy:
"It's the consumers, stupid!"

You want a quick fix for the auto industry -- and the rest of the economy?

o See to it that every able-bodied American is either (a) employed, and paid, doing the highest skilled task of which they are capable (i.e., recognize the economic burden (for the employee) and loss (for the economy) of "under-employment" and "part-time employment" as well as "unemployment"), or (b) provided some proportion of an equivalent amount of support until they are put in such a job.

o Institute universal, single-payer health care as rapidly as possible. It is an economic as well as moral tragedy that we are one of the few industrialized nations that does not provide this fundamental care to all of its citizens. The high costs (and for many unavailability) of health care and insurance are contributing to mortgage foreclosures and bankruptcies, an unhealthy population and workforce, and a diminished ability of American manufacturers to compete on the world market with companies that do not need to embed workers' health care costs into the prices of their products.

o Do whatever is necessary to keep home owners in their homes rather than assuming that money for investment and commercial banks, new home buyers, developers and home builders will somehow "trickle down" for all. There are many potential ways of doing this that I won't describe in detail (e.g., permit the equivalent of the Chapter 11 solutions offered to businesses; lengthen the mortgage terms, reduce the interest rates, adjust the home value to current market levels, and so forth).
Only when we put more money in the hands of consumers (or permit them to keep more of what they have) will there be any true rescue of the auto -- or any other American -- industry. This is one of those times when even if your only goal is to further enrich the wealthy, the only way to do it is to let the money trickle up, not down.

Once again it turns out that doing the right thing, the moral thing, the humane thing for all of our fellow Americans is also the most efficient and effective way of slowing, and then reversing, the downward economic spiral brought on by selfishness, stupidity, greed and corruption.

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Anonymous said...

Whoa...While it may be a good thing there was no bailout, don't assume it was done for rational reasons. It was done by Southern anti-union lawmakers who have other non-union automakers in their state.

Jason said...

General Motors had offered buyouts to all of its 74,000 U.S. hourly employees. [5] Those workers could have elected to take a lump-sum payment of $45,000 or $62,500, depending on their job description, and retire with full benefits. [6]

Republican Sen. George V. Voinovich of Ohio, a strong bailout supporter, said the UAW was willing to make the cuts - but not until 2011.
is were citations are posted