. . . because much of the content relates both to Washington, D.C., and "outside the beltway" -- the heartland, specifically Iowa -- and because after going from Iowa to Washington via Texas and California I subsequently returned, From DC 2 Iowa.
Five months ago I suggested that we common people should trust our instincts when we have the sense that we have been the victims of the largest robbery of the largest number of people in the history of the world. (At that time it was in the context of the GM bailout. Nicholas Johnson, "Trust Your Instincts, Auto Bailout's Terrible Idea," November 14, 2008.)
A couple weeks ago Nicholas Kristof provided some backup for my trust in the people's common sense. Nicholas D. Kristof, "Learning How to Think,"New York Times, March 26, 2009 -- with thanks to my son, Sherman, for bringing it to my attention.
What has the Obama Administration, or the auto industry for that matter, gained by waiting five months -- and putting billions of additional debt on my great granddaughter's "credit card" -- before coming to the same conclusion?
I continued:
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.
You've probably heard that, with all of their high-priced financial experts, roughly 80% of specialized mutual funds do worse than the market averages (which you can buy in "index" mutual funds -- and at lower administrative costs). Pick stocks at random, throw darts, or ask your cat to scratch what she thinks are the winners on the stock market page and you'll do better than most "experts."
It makes sense -- especially given what we've just watched their stupidity and greed do to the entire global economy.
But now Nicholas Kristof informs us we should not be surprised at that result; because our instincts are almost always as good as, if not better than, the self-proclaimed "experts" in every field.
We should continue to avoid communicating the aura of arrogance and certainty that seems to exude from some experts, but neither should we feel the need to apologize, or be shy about our own judgments.
The entire column is well worth a read. Meanwhile, here are some excerpts. He writes:
Ever wonder how financial experts could lead the world over the economic cliff?
One explanation is that so-called experts turn out to be, in many situations, a stunningly poor source of expertise. There’s evidence that what matters in making a sound forecast or decision isn’t so much knowledge or experience as good judgment — or, to be more precise, the way a person’s mind works. . . .
The expert on experts is Philip Tetlock, a professor at the University of California, Berkeley. His 2005 book, “Expert Political Judgment,” is based on two decades of tracking some 82,000 predictions by 284 experts. The experts’ forecasts were tracked both on the subjects of their specialties and on subjects that they knew little about.
The result? The predictions of experts were, on average, only a tiny bit better than random guesses — the equivalent of a chimpanzee throwing darts at a board.
“It made virtually no difference whether participants had doctorates, whether they were economists, political scientists, journalists or historians, whether they had policy experience or access to classified information, or whether they had logged many or few years of experience,” Mr. Tetlock wrote.
Indeed, the only consistent predictor was fame — and it was an inverse relationship. The more famous experts did worse than unknown ones. That had to do with a fault in the media. Talent bookers for television shows and reporters tended to call up experts who provided strong, coherent points of view, who saw things in blacks and whites. People who shouted — like, yes, Jim Cramer!
Mr. Tetlock called experts such as these the “hedgehogs,” after a famous distinction by the late Sir Isaiah Berlin (my favorite philosopher) between hedgehogs and foxes. Hedgehogs tend to have a focused worldview, an ideological leaning, strong convictions; foxes are more cautious, more centrist, more likely to adjust their views, more pragmatic, more prone to self-doubt, more inclined to see complexity and nuance. And it turns out that while foxes don’t give great sound-bites, they are far more likely to get things right.
This was the distinction that mattered most among the forecasters, not whether they had expertise. Over all, the foxes did significantly better, both in areas they knew well and in areas they didn’t.
Other studies have confirmed the general sense that expertise is overrated. In one experiment, clinical psychologists did no better than their secretaries in their diagnoses. In another, a white rat in a maze repeatedly beat groups of Yale undergraduates in understanding the optimal way to get food dropped in the maze. The students over-analyzed and saw patterns that didn’t exist, so they were beaten by the rodent. . . .
So be a fox. Don't be shy. Say it loud; say it proud: "I've been cheated out of a whole lot of money by a bunch of thieves in suits, who have caused individuals all around the world to lose trillions of dollars of wealth, thieves who are walking away with past years' of excessive compensation, bonuses, and stock profits; and the politicians whose campaigns they've been financing are protecting them, giving them trillions of dollars of my money, and there's scarcely a prosecution in sight!"
That's right. Don't you feel better now? Next try "I'm mad as hell and I'm not going to take it anymore!"
Then start turning up the heat on Congress.
Meanwhile, trust your instincts about all this. Apparently you and I really do know as much as the "experts." _______________
* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself. -- Nicholas Johnson
Who is back? The auto companies -- GM and Chrysler.
G.M., the nation’s largest automaker, . . . is assuming it will be able to pull off a remarkable turnaround if gets the additional loans.
In its restructuring plan filed Tuesday [Feb. 17] with the Treasury Department, G.M. projects it will end 2009 with a $14 billion cash shortfall, but then improve to a $6.6 billion surplus by 2012.
That would be a swing of more than $20 billion, and whether G.M., which last earned a profit in 2004, can realistically achieve it is among the biggest questions for the Obama administration as it reviews the company’s latest loan request.
G.M. has received $13.4 billion in loans since late December . . .. Most of the new loan money that G.M. requested would be used to cover its continuing losses. The company has been losing roughly $2 billion a month since last fall.
Frankly, I see nothing that has happened during the last three months, or that GM is now proposing, that leaves GM's request for more funds as anything other than even less compelling than it was last November and December.
I don't see the business plan that explains how $30 billion more from taxpayers -- essentially $300 from every family in America -- is going to recreate the profitable and vibrant GM of old.
And I sure don't see how a proposal that includes laying off 47,000 workers and closing 14 plants can be characterized as either "a jobs program" or a part of a stimulus to our economy. ("G.M. contends that . . . losses will shrink . . . because of savings from cutting 47,000 jobs worldwide and shutting 14 plants in North America." Ibid.)
After all, GM's problem is not that there aren't enough GM cars in dealers' showrooms -- or that there could not quickly be. The problem is that those vehicles are not selling -- and that there is nothing in its proposal designed to increase sales. ("United States vehicle sales this year are at their lowest point in more than 25 years, and many industry analysts do not share G.M.’s optimism for a recovery by 2012." Id.)
Nor is this just my opinion: "in a scathing review of the restructuring plans submitted by G.M. and Chrysler, Moody’s said there was a '70 percent' probability that one or both of the companies [i.e., Chrysler as well as GM] would have to file for bankruptcy protection." Id.
Giving more taxpayer money to "the automobile industry" -- meaning GM -- primarily benefits its shareholders and handsomely paid top executives. It doesn't put money in the pockets of potential car buyers. And it essentially turns its back on the UAW members who, as a potential part of the consumer spending that is 70% of our GDP, could actually do something to boost the economy.
Insofar as those auto industry suppliers and their workers are concerned, their welfare turns on vehicle manufacture and sales -- which the GM bailout does nothing to improve. There is still an automobile market in the U.S. -- albeit substantially less (10 million vs. 13 million cars a year) than it used to be. The cars that will continue to be manufactured to satisfy that market, whether Fords or Toyotas, will continue to need parts -- all the parts for which the U.S. auto industry has a need (with or without GM). Will those suppliers take a hit? Absolutely. But it shouldn't be much greater without a GM than with it.
Here are links to eight of the blog entries from last November and December that explore some of these issues in greater depth. Almost all of them seem equally applicable today, if not more so.
__________
Nicholas Johnson, "Why America Needs a Jobs Program: Because When Your Auitomobile (Industry) is in the River It Makes More Sense to Go For the Shore Than to Continue Bailing it Out," in "Jobs, Not Unemployment, Key to Recovery," November 8, 2008
* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself. -- Nicholas Johnson
So when Toyota President Katsuaki Watanabe announces the company's first loss in 71 years(!) ($1.7 billion) will be reported next March, and says “We’re facing an unprecedented emergency situation. Unfortunately, we can’t see the bottom,” it tells you more about the global economy than it does about Toyota.
After all, "The Toyota Way" is as sound as it ever was. The company opened its seventh auto-assembly plant in North America just this month. It's cutting executive pay, and laying off some "contract" workers, but so far as I know not yet any of the lifetime workers or executives. Unlike the American auto companies, Toyota made $28 billion last year and has $18.5 billion in cash on hand.
Nonetheless, Watanabe candidly acknowledges that “The change in the world economy is of a magnitude that comes once every hundred years.” Martin Fackler, "Toyota Expects First Loss in 70 Years,"New York Times, December 22, 2008.
From Nation's Economy to Iowa City's Theaters Approach Should be Similar (Brought to you by FromDC2Iowa.blogspot.com)
What does Iowa City's Englert Theatre have in common with Detroit's General Motors? Read on.
President Bush left the White House long enough to kick the can down the road and then go back into hibernation. Notwithstanding what he represented to be his better instincts, he decided to hand over $17 billion of your money and mine to GM and Chrysler. In an ultimate example of the triumph of hope over experience, it's a "give me the money first, then I'll develop and show you my business plan" loan, made palatable to Republicans by virtue of its implicit goal of crushing one of America's formerly great unions, thereby carrying on the Reagan tradition begun with the air traffic controllers. Steven Mufson, David Cho and Cecilia Kang, "Aid in Hand, Clock Ticks for Detroit; With $17.4 Billion, a Mandate: Restructure by March or Go Bankrupt,"Washington Post, December 20, 2008, p. A1.
I've written at length of the reasons why I think this approach is folly, and won't repeat again what's contained in the blog entries to which these links will take you:
So, will things be better with Obama? If they know what's good for them, the jurors are going to stay out until at least May 2009 before coming to any judgment on that one.
Don't get me wrong, I'm as big an Obama enthusiast as anyone. That he is where he is today, that he was able to run a virtually error-free campaign, the good will he currently holds throughout the world, his clearly demonstrated ability to inspire us all, his seeming desire to turn down the rhetoric and work with all segments of America, are all indications that our hope has not yet been shown to have been misplaced.
But there are also troubling signs.
1. I share a little of the concern of former Bush advisor Peter Wehner, reported in a Washington Post appraisal of Obama's current cabinet and White House appointments: "Pragmatism has its place, but there are limits, as well. If you aren't anchored to a political philosophy, you get blown about, and government becomes ad hoc and you make it up as you go -- and if you're not careful, you begin to go in circles. . . . They're smart, they're well-educated, they're the upper crust, but the question is, do the parts make a whole, or is the whole less than the sum of the parts? . . . I'd buy somebody a dinner [if they] could define what Obamaism is as a political philosophy. If you don't have a political North Star, you can lose your way, and I'm not sure if these people have it."
2. "Deliberately structured dualism" was a phrase used to describe the split in jurisdiction over cable television regulation between the FCC and the cities. It might be used to describe what appears to be Obama's approach as well, but for the fact that he has more than two individuals, or newly created institutions, advising him on virtually any given subject. It will give him almost unlimited ability to go any direction with the four winds, which in some ways is an advantage. But it also multiplies by orders of magnitude the number of conflicts among personnel that will either create (a) more chaos in Washington than usual, or (b) a daily appointment schedule devoted to little more than smoothing ruffled feathers and dealing with threatened resignations. Alec MacGillis, "For Obama Cabinet, A Team of Moderates; In Picks, Few Hints About Policy Plans,"Washington Post, December 20, 2008, p. A1.
So what does all this have to do with the Englert Theater?
The Englert, an Iowa City gem that owes its current existence and condition to a combination of taxpayer and wealthy donor support, shares with virtually every other institution in America today, like the auto industry, economic hard times.
It has proposed that the City provide it $50,000 a year for three years from community development funds (a source questioned by a number of those who have entered online comments to the Press Citizen's editorial on the subject).
Like the Big Three auto executives' position regarding "bailouts" and "investments," the paper believes, as its editorial headline proclaims, Editorial, "Englert request is an investment, not a bailout,"Iowa City Press-Citizen, December 19, 2008 ("the theater's request isn't the theater staff calling for a new 'Save the Englert!' campaign. It's the staff asking the community to recognize the important work done by the Englert. Using economic development money for this purpose is as appropriate as was using $75,000 of economic development money as the city's portion of a loan program for local flood-affected businesses.").
I'd like to see Ford, Crysler and General Motors -- and the UAW -- prosper as they did in the 1950s and 1960s. I really would. And I'd certainly like to see the Englert prosper.
The questions are simply how best to do that in terms of both (a) efficiency and effectiveness, and (b) fairness to the rest of the national, or with regard to the Englert the local, economy.
The Englert is not the only theater in town, nor the only theater facing hard times. The arts are important to our community, not only in terms of the quality of life of its residents but also in terms of the overall economy -- our ability to attract and hold what Richard Florida calls the "creative class," the professionals and entrepreneurs who are a major source of any community's ability to build wealth.
But just as I've argued for an economy-wide approach to our current onrushing economic depression to end all depressions -- rather than merely providing trillions for bankers and billions for auto executives -- so too do I think we need a community-wide approach to the economic challenges confronting our local theaters.
In addition to the Englert, and the University-sponsored events formerly at Hancher and other venues, we have among others the City Circle Acting Company, Dreamwell Theatre, Iowa City Community Theatre, Rage Theatrics, Riverside Theatre, Young Footliters, and nearby theaters such as the Old Creamery Theatre in Amana, and in Cedar Rapids the Paramount Theatre, CSPS and Theatre Cedar Rapids.
Do I want the Englert to survive and thrive? Absolutely, I do. But not at the expense of the wealth of live theater we all benefit from in Iowa City and Eastern Iowa. Nor at the expense of the rest of Iowa City's arts. Nor at the expense of, beyond the arts, the entire local economy.
Fixing this one is a lot easier than dealing with the auto industry, folks. Let's take a broad view of the challenge and get on with it. There are tougher times ahead.
Harkin Didn't Write Again Today (Brought to you by FromDC2Iowa.blogspot.com)
Iowa's Senator Tom Harkin is drawing on the politics of fellow Iowan Herbert Hoover, who once promised "a chicken in every pot, a car in every garage" -- but you have to get your own chicken.
If all a CEO wants to do is keep her company from going bankrupt laying off workers makes economic sense -- especially if the top priority is hanging on to her multi-million-dollar salary and benefits package. And if she's a friend of yours, and you are a government official with the discretionary ability to dispense trillions of dollars, giving her a few billion also makes sense.
But if what you're trying to do is turn around the economy, it doesn't make a lot of sense to give money to the CEOs who are trying to sell stuff rather than the consumers who would like to buy stuff, have the power to drive 70% of our economy, and are out of work because of some CEO's decision.
As I wrote here recently: "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." Nicholas Johnson, "Quick Fix for the Economy," December 12, 2008.
It was nearly a month ago that I wrote "Auto Bailout: An Open Letter to Congress," November 19, 2008, addressed to the two Iowa senators and our local congressman. Since I don't presume this blog is the first thing they read every morning I also sent the letter to them the old fashioned way, through the postal service.
Dave Letterman had a running joke on his CBS "Late Night" show about his desire to appear on Oprah's TV show. He'd call his office, ask if Oprah had called that day, and then enter in his journal, "Oprah didn't call again today."
Well, "Senator Harkin didn't answer again today." It's a sad commentary about the disconnect between we the constituents and those who are supposed to be our "elected representatives." Read the "open letter," linked above. It seems to me the questions were pretty straight forward and involved matters of great consequence (the auto bailout) not only for Iowans, but for Americans generally.
(It's reminiscent of a conversation with a friend of mine a while back. She asked what I'd been doing and I replied that I was just staying at home, near the phone, thinking she might call. To which she replied, "How's that been working for you?" It was working kind of like the country-western line, "Since my phone still ain't ringing I assume it still ain't you," from Randy Travis' "Is It Still Over?" Well, checking my mailbox at the post office every day for replies from Washington hasn't been working for me any better than sitting by the phone.)
However, I at least want to give Harkin credit for an idea that is responsive to my endow-the-consumers-not-the-CEOs approach -- as well as a family member's suggestion that every American family be given a car. (We priced that one out and realized the cost was a few orders of magnitude beyond even the generosity of this Administration and Congress.)
Here's the story, as presented by Des Moines TV station KCCI:
Sen. Tom Harkin . . . introduced a bill earlier this week that in turn would take older, less-fuel-efficient cars off the road, while also giving buyers a big bonus.
The Sell Fuel Efficient Cars Act would provide a rebate of $10,000 to buyers who trade in a car more than 10 years old for a new American car. . . .
The rebate would be limited to families with an adjusted gross income below $40,000 a year or individuals making less than $25,000.
To get the rebate, you would be required to turn in a car more than 10 years old that is still drivable.
The rebate would only apply to purchases of fuel-efficient GM, Ford or Chrysler vehicles that are assembled in the United States. The car would have to have an average fuel economy of 25 miles per gallon.
Officials said close to 15 percent of automobiles that are manufactured by the Big Three automakers would qualify for the rebate.
There would be a one-car limit per family or individual and the program would end in 2009.
"A snowball's chance . . .." Snow balls have a great chance of survival in Iowa these days, indeed entire snowmen. The hell of Washington is, however, another matter. But this blog has always been more attracted to what's right, what's rational, than to what's expedient.
Win-win. Look at what all this proposal accomplishes. (1) It gets money to the Big Three auto companies, but by running it through the hands of consumers and the marketplace rather than handing it over to CEOs. (2) The money is not just free cash that can be used for anything (like the banks' bailout that was supposed to be used for loans, but instead was hoarded and used to buy up other banks); it is limited to the purchase of automobiles. (3) The retention of jobs (by suppliers and dealers as well as auto manufacturers) is dependent upon the sale (and therefore manufacture) of automobiles. No "solution" that does not involve the manufacture and sale of automobiles is a solution worthy of the name. (4) It puts money in the hands of those who need it most, individuals earning less than $25,000 or families earning less than $40,000 -- significantly more humane, and economically efficient, than further enriching those in the top 1/10th of 1% of wage earners. (5) It gets old and often unsafe cars off the road (those over 10 years old; although, disclosure: my vehicle turned 30 years old this year). (6) Because older cars tend to be less fuel efficient, and possibly more polluting, it helps reduce our dependence on foreign oil and harm from greenhouse gases. (7) It encourages Detroit to manufacture more fuel efficient vehicles.
Those are some of the positives. Now for some of the problems I see with this idea.
(1) This bill will probably never pass, so its primary value is just to get us thinking about how we ought to be going about our economic recovery -- no small contribution, but not an answer.
(2) Those who most need this kind of help may not be in an economic position to accept it. If we're talking about new cars that sell for something between $15,000 and $35,000, and folks who are earning between $25,000 and $40,000, and driving a 10-year-old car, those are the very people who are either out of work or about to be, people whose home may be in foreclosure, or whose credit cards are maxed out. They probably have neither the $5000 to $25,000 in cash, nor the ability to get that kind of credit, to enable them to buy a car -- even with the $10,000 rebate. Of course, if we're talking new cars selling for $12,000-$14,000 that's another matter.
(3) I was frankly surprised to read that only 15% of the cars made in Detroit can get 25 mpg -- and even that number is far more likely to be overstated than understated ("your mileage may vary"). Shouldn't the plan at least call for 35 mpg (my wife drives a 10-year-old Mazda four-door that gets 38 mpg highway)? Maybe electric; maybe hybred; maybe smaller vehicles. (India's new 50 mpg, $2500 Tata Nano might not be what Americans are looking for, but it does offer something to stimulate one's imagination as to what American manufacturers could design, build and sell.)
So thanks, Senator, for hopefully stimulating some more imaginative thinking in Washington and Detroit -- but I'd still kind of like an answer to my letter.
Have you ever noticed how, when things start going sour, there comes a point when they're so bad they start making their way into jokes? I remember as a kid, during World War II, we had paperback books that were collections of military humor.
Well, it's happening now with the global economic depression.
I don't read the comic pages of the newspapers. I have an assistant who does that for me and alerts me when they begin to take on social significance -- as happened this morning [Dec. 15].
"Non Sequitur" under "C.E.O. Math," in a panel the width of the entire strip, has a corporate CEO sitting in his luxurious, spacious office, behind a desk, talking to an assembly line worker, saying "We crunched the numbers over and over on where we could cut back, and it kept coming down to whatever it is you guys do on the assembly line . . .."
"Close to Home" pictures three guys on one of those old hand-powered, open railroad flatbeds, going down the track with the caption, "Ridiculed for arriving in Washington in private jets, the Big Three auto CEOs found a more humble way to travel."
"Working it Out" pictures a teller talking to a customer at "Metro Bank" saying, "'Try not to think of it as a loan, Mr. Purnell. Think of it as your own personal bailout plan.'"
But perhaps one of the best statements about bailouts comes from one of my favorite comics, Wanda Sykes on Jay Leno's "Tonight Show" on NBC, September 23:
And then there's this parable that's been going around the Internet. (I'd be happy to credit the creator but I don't know who it is.) The post-parable commentary came with it, but I've modified it all a bit:
A Modern Parable
A Japanese company (Toyota) and an American company (GM) decided to have a canoe race on the Missouri River. Both teams practiced long and hard to reach their peak performance before the race.
On the big day, the Japanese won by a mile.
The Americans, very discouraged and depressed, decided to investigate the reason for the crushing defeat. A management team made up of senior management was formed to investigate and recommend appropriate action.
Their conclusion was the Japanese had 8 people rowing and 1 person steering, while the American team had 8 people steering and 1 person rowing.
Feeling a deeper study was in order, American management hired a consulting company and paid them a large amount of money for a second opinion.
They advised, of course, that too many people were steering the boat, while not enough people were rowing.
Not sure of how to utilize that information, but wanting to prevent another loss to the Japanese, the rowing team's management structure was totally reorganized to 4 steering supervisors, 3 area steering superintendents and 1 assistant superintendent steering manager.
They also implemented a new performance system that would give the 1 person rowing the boat greater incentive to work harder. It was called the "Rowing Team Quality First Program," with meetings, dinners and free pens for the rower. There was discussion of getting new paddles, canoes and other equipment, extra vacation days for practices and bonuses.
The next year the Japanese won by two miles.
Humiliated, the American management laid off the rower for poor performance, halted development of a new canoe, sold the paddles, and canceled all capital investments for new equipment. The money saved was distributed to the Senior Executives as bonuses and the next year's racing team was out-sourced to India.
Sadly,
The End.
_______________
Here's something else to think about: GM has spent the last thirty years moving suppliers and factories out of the US, claiming it can't make money paying American wages.
Toyota has spent the last thirty years building more than a dozen plants inside the U.S. The last quarter's results:
Toyota makes 4 billion in profits while GM is carrying $60 billion in debt and losing 4 billion each quarter.
The GM folks are still scratching their heads.
If this wasn't so true it might be funny.
_______________
To paraphrase Adlai Stevenson following his lost presidential election, "When you're too old to cry there's nothing left to do but laugh."
$14 Billion Bridge Loan to Nowhere Collapses Why? Now What? And Today's Quick Fix for . . . The Economy Brought to you by FromDC2Iowa.blogspot.com
Why did the $14 billion loan to Chrysler and GM fail to pass?
Because rational analysis prevailed over political expediency.
Great.
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.
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.
And here's an intriguing suggestion from Michigan's Michael Moore:
"You could buy ALL the common shares of stock in General Motors for less than $3 billion. Why should we give GM $18 billion or $25 billion or anything? Take the money and buy the company! (You're going to demand collateral anyway if you give them the 'loan,' and because we know they will default on that loan, you're going to own the company in the end as it is. So why wait? Just buy them out now.)" Michael Moore, "Saving the Big 3 for You and Me," December 3, 2008.
Advocates for an auto industry bailout have been asking all who question the wisdom of such a move, "How can you turn your back on the Big Three? Don't you realize how important they are to the American economy? Think of the lost jobs. Why aren't you willing to save this industry?"
Answers: I don't. I do. I have. I am.
What I don't think makes sense is a "bridge-loan to nowhere." I don't think it will save the industry, provide employment, put cars back on dealers' lots, or generate orders for suppliers.
The Big Three have already laid off 166,000 workers during the past five years. GM is proposing to lay off an additional 30,000 employees. The UAW is willing to abandon the program that supports those already laid off, and the company's contributions to funding health benefits for retirees. [Source: Bill Vlasic and Nick Bunkley, "U.A.W. Makes Concessions in Bid to Help Automakers,"New York Times, December 3, 2008; and note, with regard to the widely repeated assertion in the media that GM's market disadvantage is that it must pay workers $74 an hour compared with Toyota's $45 an hour: "Base wages between the Big Three and the foreign companies are roughly comparable, . . . $28 an hour at the Big Three compared to about $25 an hour at Toyota’s plant in Georgetown, Ky."); Steven Mufson, "As Hearings Resume, UAW Offers Concessions; Urging an Auto Bailout, Union Retreats on Terms Of Health Care, Jobs Bank,"Washington Post, December 4, 2008.]
These layoffs haven't, and won't, put GM in the black, but it will minimally cut some costs. ("[UAW President Ron] Gettelfinger asserted that labor made up only 10 percent of the cost of a car. 'To be honest with you right now, if a UAW membership went into these facilities and worked for nothing, according to our research department, it would not help the companies that much,' he said." From Mufson story, linked immediately above.)
Not only will layoffs not help, they will only make the industry's problems worse. Auto sales are down about 40%! ("Vehicle sales [for November] in the United States sank . . . General Motors, down 41.3 percent, Ford Motor, down 30.5 percent, and Chrysler, down 47.1 percent . . .." Nick Bunkley, "Another Month of Miserable Auto Sales,"New York Times, December 2, 2008.)
That's the problem. And why is that? It's at least related to the fact that 1.2 million Americans have lost their jobs this year, with another 250,000 (or more) this past month. Half of the Big Three's workforce live in Michigan, where unemployment is at 9.3% and 20% of the entire population is now dependent on food stamps and other social programs for survival.
Tell me, how is adding to the number of unemployed going to increase auto sales?
And without increasing auto sales how are these "bridge loans to nowhere" going to "save the auto industry" -- including GM's 6000-plus auto dealers, and the network of suppliers throughout the country?
If the proposed bailout would double sales, result in the rehiring of all laid off auto, dealer and supplier workers, and enable the three companies to pay back the loans in six months, that would be one thing. But it won't. GM is headed for bankruptcy; it claims to need $4 billion sometime in the next two weeks to stay in business -- and another $4 billion next month. Prospects for an immediate economic turnaround are non-existent. Even the companies aren't talking about paying back the "loans" until 2012 -- and those projections are just pulled out of their tailpipes.
There's an inherent inconsistency in the bailout advocates' argument, one of those "you can't have it both ways" problems. On the one hand they say, "Our problem is not our fault, or at least not entirely our fault, because it's been brought on by the current recession and resulting loss of sales." The conflict is that if the problem is not of their making the solution can't be either.
If they had a backlog of orders for a new model, high gas mileage car that their dealers were demanding, but that they couldn't begin building without a genuine "bridge-loan" they would be able to pay back in February, that would be one thing. A loan would solve their problem, enable the factories to start turning out cars, keep the dealers in business, the UAW workers employed, and return the corporations to profitability. But to the extent the problem lies in the downward spiraling economy and lack of consumer demand, it is a problem beyond their ability to control, and one no amount of loans will solve.
Think about it. If the economic history and prospects for a hemorrhaging business in your hometown were, while involving proportionally smaller losses, otherwise comparable to those of GM is there any local banker who would loan that business massive amounts of money one month before it was going into bankruptcy? I doubt it. So why should the taxpayers?
(Later this day [December 4] Senator Shelby made a similar observation: "The senior Republican on the panel, Senator Richard Shelby of Alabama, said the automakers’ plans aren’t 'serious' and have 'few concrete details.' 'If you made this presentation to get a bank loan I suspect that any sensible banker would summarily reject your request,' Shelby said." John Hughes, "U.S. Auto Chiefs Appeal to Congress for Emergency Aid (Update5)," Bloomberg, December 4, 2008, 13:43.)
What's Wrong With This Picture?
Of course, from my perspective, focusing on corporations rather than consumers is walking into our economic recovery efforts backwards, a "trickle-down" rather than a "trickle-up" strategy that hasn't worked so far and isn't likely to in the future.
Roughly 70% of our economy is the result of consumer expenditures. The best way to revive any given industry, including autos -- or even the entire economy -- is to get more money into the hands of people who buy stuff rather than the CEOs of corporations that are, unsuccessfully, trying to sell stuff.
There are lots of possibilities including, but not limited to, the following:
(1) increase the number of persons covered, the length of the coverage, and the amount received for unemployment compensation, food stamps, and comparable social programs;
(2) fund workers to rebuild our nation's infrastructure, such as roads, bridges, schools and parks, preferably with government-run WPA type projects, or if not that then by funding comparable states' projects;
(3) what better time to bring ourselves up to a world-class standard of health care with a universal, single payer system, the savings for consumers and corporations from which would be available for consumers to spend on other things, and for businesses to invest (and to better compete globally with companies in other countries that do have public health care programs);
(4) provide lower interest rates, different (lengthier) mortgage terms, and reassessment of the value of homes to reduce the number of foreclosures and those who were formerly homeowners becoming homeless -- Washington's latest idea is often misrepresented as providing this kind of relief when in fact, "cheap mortgages would be available only for people buying houses, not the roughly 50 million families that already have mortgages and would want to refinance at a lower rate. As a result, the plan offers no direct relief to the millions of people who face foreclosure . . .." Edmund L. Andrews, "Washington's New Tack: Helping Homeowners,"New York Times, December 4, 2008; Renae Merle, "Mortgage Distress Reaches Record Highs; Delinquencies, Foreclosures Rise Steadily,"Washington Post, December 5, 2008, 12:47 p.m. ("one in 10 home mortgages is now in some form of distress");
(5) increase the nation's reserve of brain power and global competitiveness by providing additional financial support for those (of all ages) capable of benefiting from a college education or job retraining program who are currently unable to find work and for whom the next two or three years could best be spent in a classroom enhancing their, and our nation's, skills.
Now here are some additional recent stories documenting these assertions of mine:
"On the same day that the industry reported its worst sales month in 26 years, the three Detroit automakers delivered new business plans to lawmakers in the hope of winning support for $34 billion in federal loans . . . substantially higher than the $25 billion that the three companies had initially hoped to get from Congress two weeks ago. . . .
But G.M. . . . said Tuesday [December 2] that it was in such dire straits that it would deeply cut jobs . . . as part of its plea to get $12 billion in federal loans and an additional $6 billion line of credit. . . .
G.M.’s president, Frederick A. Henderson, said the company would be insolvent if it did not receive federal assistance, including an infusion of $4 billion in cash before the end of the year. . . .
Still, the company said it would have been able to survive on its own if not for the continued deterioration of the United States vehicle market, because of the weakening economy and tight credit, which has made it difficult for consumers who do wander into dealerships to get loans.
“The company would not require government assistance were it not for the drastic collapse of the U.S. economy which has devastated the company’s current revenues and liquidity,” G.M. said. . . .
G.M. also said it planned to reduce the number of salaried and hourly workers in the United States workers from 96,000 currently, to 65,000 to 75,000 by 2012. It will also reduce its North American factories from 47 to 36, and its dealers from 6,450 and 4,700.
"The [Michigan] unemployment rate is 9.3 percent . . .. The total of Michigan residents who receive some form of public assistance, like food stamps or home heating credits, is now 1.82 million, or close to 20 percent of the population, a record for the state." Monica Davey and Susan Saulny, "Even in Michigan, Not Everyone Wants a Lifeline,"New York Times, December 2, 2008.
The Fed's "beige book," a compilation of anecdotal reports from businesses across the nation published roughly every six weeks, found that "overall economic activity weakened across all Federal Reserve districts since the last report."
Consumer spending weakened almost across all sectors of the economy, especially for vehicles. . . . Services business "generally contracted in most districts."
Part of the problem was that lenders have continued to restrict credit. "Credit standards rose across the nation," the beige book said, "with several districts noting increases in loan delinquencies and defaults, especially in the real estate sector." . . .
[P]rivate businesses shed 250,000 jobs in November on a seasonally adjusted basis. It was the biggest drop in seven years and "offers evidence that the labor market continues to weaken," ADP Employer Services said in its monthly payroll survey [Automatic Data Processing, "National Employment Report"].
Based on data from nearly 400,000 companies, the report showed employment declines across the board as large, medium-size and small companies shed jobs, and employment contracted in all sectors of the economy. . . .
The numbers from the ADP report are "terrible," wrote Ian Shepherdson, chief U.S. economist with the High Frequency Economics consulting firm, in an analysis of the employment numbers.
With payrolls deteriorating in both the manufacturing and service sectors, "there is nowhere to hide," he said.
A separate study by the Institute for Supply Management showed that economic activity in the service sector fell to the lowest level since its index for the sector was first reported more than a decade ago. . . .
The economic decline took a turn for the worse after the market shocks of October. In November, the problems only deepened.
Cash-poor Americans, fearful for their jobs and victims of a steep decline in stock prices, pulled back on spending. Businesses laid off workers, cut wages and reduced hours. Real estate developers and owners suffered.
That bleak portrait — effectively a confirmation of the conventional wisdom of the last few weeks — was released on Wednesday afternoon [December 3] by the Federal Reserve in the latest edition of its beige book . . ..
At the root of the problems is a significant slowdown in spending, as Americans retreat from large-scale purchases and try to save money amid the worst downturn in a generation. Retail sales fell in most major cities, according to the beige book, while sales of automobiles “deteriorated,” particularly sales of more expensive cars like sport utility vehicles. . . .
Manufacturing activity slowed last month in all 12 districts included in the beige book. Both residential and commercial real estate companies reported problems. Vacancy rates were higher . . ..
And here is this morning's [December 4] Bloomberg story about a possible prepak bankruptcy:
General Motors Corp. and Chrysler LLC executives are considering accepting a pre-arranged bankruptcy as the last-resort price of getting a multibillion-dollar government bailout, said a person familiar with their internal discussions. . . .
Staff for three members of Congress have asked restructuring experts if a pre-arranged bankruptcy -- negotiated with workers, creditors and lenders -- could be used to reorganize the industry without liquidation, a person familiar with that matter said. . . .
General Motors shares traded in Germany fell 1.4 percent to the equivalent of $4.83 as of 11:03 a.m. The stock has plunged 80 percent this year in New York Stock Exchange composite trading. . . .
GM and Chrysler told Congress Dec. 2 that they need $11 billion in government loans just to survive the year as the auto industry slump deepens. To get the money, the companies agreed to slash payrolls, shed brands and shrink dealerships. Bankruptcy was not part of their plans.
GM, Chrysler and Ford Motor Co. asked for a $34 billion bailout package, about a third larger than the $25 billion . . ..
The Democrats’ goal of preserving a U.S. auto industry is not doable without a bankruptcy, said Lynn LoPucki, who teaches bankruptcy law at Harvard University and the University of California at Los Angeles.
Workout Requirement
“A workout requires everybody’s agreement,” he said. “. . . Bankruptcy is the only thing that can work because GM and the government need the ability to force people to go along with the plan. Paying everyone in full is prohibitively expensive.”
About 77 percent of billion-dollar companies survive bankruptcy, according to LoPucki’s database, while the others sell their business. . . .
The government could guarantee the warranties given to consumers on cars bought from a bankrupt automaker, said Mark Bane, a bankruptcy lawyer with Ropes & Gray in New York. Government money could also “ensure that parts suppliers will be paid,” he said.
Less Money
Less government money would be needed in a prepackaged bankruptcy, which might last only two months, compared with two years or more for a regular bankruptcy, according to Bane. In a prepack restructuring, an automaker would go into court after reaching agreement with lenders, workers and suppliers on what each would give up and on the business plan to be followed.
Government aid might be needed only for the period when the company was gaining consent from its constituencies -- which might take as long as six to 12 months, Bane said. . . .
Any assistance must be “based on realistic assessments of what the auto market is going to be and a realistic plan for how we’re going to make these companies viable over the long term,” [President-elect] Obama said yesterday [December 3]. . . .
