Freddie accuses me, again, of a double standard on Detroit and Wall Street. I don't know what not wanting to bail out Detroit is supposed to make me want do to Wall Street. I don't have any ideological interest in saving Wall Street jobs, no matter how devastating that may be for the local economy of my beloved hometown. I don't think the CEOs, or any of the financial workers, are entitled to a damn thing beyond two weeks' severance. I don't want to save the banking industry, except insofar as we can't get along without it.
In my judgement--and the judgement of most economists--a massive banking industry failure has the potential to take down the real economy into a Great Depression like death spiral, and the failure of even a large single non-financial industry does not. I am interested in saving banking only to the extent that this is true, and no more. It is not a matter of deciding who is most deserving, or cutest, or most historic. We need a semi-functioning banking industry, for reasons that I've gone into, at this point, about eighty times before. We do not need an American auto business, and in fact old line industries have collapsed in America before (see Steel, Bethlehem and US) without wreaking the destruction that their CEOs also promised would inevitably follow.
I have a theory of government which says that the government should make these kinds of interventions only where they benefit society as a whole, not when they almost exclusively benefit the interests to whom the money is given. (I make exceptions for those who are, temporarily or permanently, unable to care for themselves. But that doesn't describe the autoworkers, except insofar as I think they should get unemployment insurance and relocation help. And anyway, I digress.)
Now, I may be wrong about my judgement that the collapse of the financial industry will destroy the economy in a way that the collapse of Detroit will not. But it's not some belief that I just cooked up yesterday to justify giving outrageous amounts of money to my friends on Wall Street while sticking it to the UAW--indeed, a year ago any left-wing development economist could have happily and easily enumerated all the countries where a financial crisis had far, far worse results than, say, the collapse of the national automaker.
But given that belief, my stance on both bailouts is rational, not hypocritical. And frankly, I think that anyone who believes that the collapse of even a large national industrial concern is on par with the collapse of a nation's financial system is obligated to provide multiple historical international examples of their theory. Because I can name dozens to support mine.
Obviously, if you think it's the government's job to pick economic winners and losers, and ensure that rich people lose as often as possible, then my stance is horrible and hypocritical. I will explain another time why I think that this is neither just, nor in the long-term interests of American society.
For now, Merry Christmas, bankers, autoworkers, and all.
Copyright © 2009 by The Atlantic Monthly Group. All rights reserved.
"Now, I may be wrong about my judgement that the collapse of the financial industry will destroy the economy in a way that the collapse of Detroit will not."
You may well be right in the abstract. But having an industry on which so many jobs are dependent collapse during a boom is entirely different than having it collapse when everything else is coming unglued as well. Given how much we've found out about what we didn't know about the potential negative impact of banking practices the past few years, it seems unwise to roll the dice at this point in time and hope that the sudden unraveling of Detroit won't do too much damage. Spending $15 billion or so to keep the Big Three going seems like pretty cheap insurance to me.
If the wall street guys had been smart, they would have joined the UAW and worked on the assembly line after the got them degrees. Problem is not everybody can join the UAW or any other union. To get a union job you gotta have pull - family members who are already in the union and friends among the union bosses.
What's even worse is that the wall street guys all gave money to right politicians. The only thing worse than a politician that can be bought, is a politician that won't stay bought.
"We need a semi-functioning banking industry, for reasons that I've gone into, at this point, about eighty times before. We do not need an American auto business, and in fact old line industries have collapsed in America before (see Steel, Bethlehem and US) without wreaking the destruction that their CEOs also promised would inevitably follow."
We need functioning banking, steel, and auto industries if we want to maintain any semblance of being a superpower. We also have a lot of overcapacity in our banking and our auto industries, and both industries need to be leaner. The banking industry is in the process of shedding some of its overcapacity, while the UAW hinders the ability of the D-3 to do the same. The domestic steel industry shed its excess capacity years ago, and is now smaller but profitable and viable, with companies such as U.S. Steel, Nucor, etc.
An interesting topic for a post, Megan, would be a summary of how the domestic steel industry was reorganized, and a comparison of the role the Steel Workers' union played in that versus the role of the UAW today.
Another point is that there are some legitimate complaints about the high compensation of banking industry execs in a year when a) their companies have lost money, b) their shareholders have suffered, and c) they have been the recipients of federal bailout money. Even the editors of the IBD are offended by some of these pay packages.
It is rational to want to save the industry where one's wealth has been put for safe keeping, which is why corrupt politicians threw so much money into Wall St's black hole, and why so many editorialists supported it, too. Rationality has nothing to do with fairness or egality, however.
The point you seem to be completely missing in this whole story is that it is precisely BECAUSE banking is treated differently from cars that it becomes an industry that is too important and in need of different treatment.
If banking were not guaranteed with deposit insurance, and if banks didn't own the Fed, which has a monopoly on printing money, and if there was no Fed whatsoever, and money was provided by the market in the same way that cars are provided, then there would be no systemic risks from banking and there would be no reason for government intervention anymore than there is a reason for intervention in the car market.
I know everyone will now think that "money is weird" and we can't rely on the market to deliver money because "money is different from cars". But that's just nonsense. Whenever we've had any semblance of private money provision and private banking, the economy was far more stable than with a central bank. Canada never had a Central bank until the 1930's, and didn't experience a single bank failure in its history until then. America's banking system was still better without a Fed than it is with it. And when it didn't have a Fed, banking was unstable simply because it was too regulated.
But, again, people are completely brainwashed on this point, and will continue to view the consequences of money being treated differently as arguments for why money should indeed be treated differently. All the reasons why banking is "weird" and "different" is simply because it is run by a Soviet style central planning agency.
"And frankly, I think that anyone who believes that the collapse of even a large national industrial concern is on par with the collapse of a nation's financial system is obligated to provide multiple historical international examples of their theory."
I don't have multiple examples, but I can provide one big one: Great Britain in the period 1880-1940. In 1880, the UK was the workplace of the world. It was Britain's industrial supremacy, not its colonies, that made it the dominant power in the nineteenth century. Then something happened, and Great Britain sunk to the second rank as an industrial country. This had a disastrous effect on the British standard of living and on Britain's ability to maintain its armed forces. I suggest that Megan read Correlli Barnett's books on this subject, particularly The Audit of War.
I would hate to see us repeating Britain's mistakes, but that's exactly what's happening. First steel, then autos. What's next?
I have a theory of government which says that the government should make these kinds of interventions only where they benefit society as a whole, not when they almost exclusively benefit the interests to whom the money is given.
I think this is where your argument falls down, for the most part. I'm sure you do think that government interventions are justified 'only where they benefit society as a whole' - the problem with this is partly the typical libertarian objection that talking about 'society as a whole' only masks the cold, hard truth that individuals are inevitably the ones who will bear the costs, but partly also that once you start the idea that 'society as a whole' can benefit if resources are redistributed there seems to be no principled place to draw the line. It is just as plausible that we need the auto bailout to avoid a catastrophic implosion of the economy in Detroit and the Midwest as it is that we need the financial bailout to avoid a catastrophic implosion of the national economy. Why is one of these OK and the other not? I don't think you, and the other supporters of the $700 billion travesty, get to turn around and use the 'government shouldn't be picking winners and losers' defence, especially straight after you've supported the government doing precisely that.
Wall Street has some distressed assets. Detroit has a failed business model. One of these can be solved with liquidity, one cannot.
sindibad,
It would also be far riskier to keep money in banks. Banks would therefore find it much harder to lend money, and it would therefore be much harder for businesses and consumers to borrow money. This would mean much higher interest rates.
But having an industry on which so many jobs are dependent collapse during a boom is entirely different than having it collapse when everything else is coming unglued as well.
Shrug. What do you think recessions are for, anyway? Businesses that can't make a profit need to die or be reorganized.
There is too much talk of panic. We are sitting on the accumulated productivity gains of hundreds of years of capitalism. At the very worst, we'll fall to late 1990s levels of wealth in absolute terms. People should just take a deep breath.
Wall Street has some distressed assets. Detroit has a failed business model. One of these can be solved with liquidity, one cannot.
Repeat after me- The banking crisis is not a liquidity crisis, its a crisis of incalculable risk.
Not incalculable in the sense of approaching infinity, but in the sense of no one knows how to calculate the exposure. We can throw money at it all day long, but until all the assets are priced rationally.
The Detroit business model will be solved by universal health care divorced from employer contributions. And losing half the management of GM, Chrysler and Ford.
*until all the assets are priced rationally, we will continue to have problems in the credit markets.
"We need a semi-functioning banking industry, for reasons that I've gone into, at this point, about eighty times before."
True, but throwing money at a deeply dysfunctional banking system won't bring us any closer to that.
We need functioning banking, steel, and auto industries if we want to maintain any semblance of being a superpower.
DaveinHackensack: We need the first one, but surely not the second or third. Not that we're terribly likely to lack either steel or autos in the immediate future, but why is either industry integral to geopolitical power? Surely you're not suggesting the United States will ever again find itself fielding vast tank and artillery-laden armies in a world war, are you? A war with a nuclear power is likely to be very nasty, very brutish, and very short. And a regional war - such as the campaigns we're fighting now -- doesn't seem terribly likely to prevent us from buying steel from others, were the need ever to arise -- or indeed to build still mills from scratch if need be.
I seem to be missing a step here:
1. Banking is more crucial than automobiles.
2. ????
3. Thus an auto bailout needs to micromanage wage levels, while a bank bailout needn't include even basic accounting of where the money goes.
You're missing a lot more than just a step pal.
Megan, this should be called asymmetrical understanding; you are just horrible when it comes to workers. If you believe, as you wrote a few entries ago, that bankers have lost jobs but autoworkers haven't you are sadly uninformed. 10 minutes on google or at the BLS site is all it takes to fix that.
This same lack of actual knowledge about the auto industry plagues some comments here too. The UAW has negotiated literally close to 100 plant closings and job cuts measured in the hundreds of thousands. All while the D3 plants surpassed the non-union plants in productivity.
I could go on and on here, the examples of error are that numerous. Please people, just a quick google before you try to base the hatin' on facts that don't exist
"If the wall street guys had been smart, they would have joined the UAW and worked on the assembly line after the got them degrees. Problem is not everybody can join the UAW or any other union. To get a union job you gotta have pull - family members who are already in the union and friends among the union bosses."
Sounds a little like legacy admissions in the Ivy League.
I can't speak to hiring practices in Detroit. But it sure doesn't work that way in my union. I know - I'm the local union boss.
Gearhead, shame on you for trying to pull Megan out of Libertarian Pony Land. On Christmas Eve!
I'm not interested in changing your opinion, or anyone elses, at this point. That horse has left the barn. I am trying to understand why there is such anger towards a $17 billion dollar autoworker bailout, and so little towards a $750 billion plus financial bailout. That's all.
http://lhote.blogspot.com/2008/12/manhattan-detroit-and-anger-imbalance.html
And I am saying that you are interpreting a belief that the American auto manufacturers a) shouldn't and b) can't be propped up as "anger" towards Detroit or the unions. I'm about as angry at the unions as I am at the Lehman idiots who tried to hold the Fed up for a sweeter deal: if you want to deliver ultimatums while asking us for money, you can damn well go demand the money from somewhere else.
Jasper,
We're fielding plenty of tanks and other armored vehicles in our current wars. Any superpower that can't manufacture most of its own weapons isn't a superpower. Also, I wouldn't assume that we'll never fight another war against a major power, or that such a war would inevitably escalate to a nuclear war. In any case, the best way to deter such a war is to be ready for one, and that includes having a manufacturing base able to crank out tanks, planes, and other war materiel as needed.
There are other reasons beyond national security why it's vital for us to maintain heavy manufacturing industries such as the auto industry (albeit in a leaner, more viable state). These industries create high-paying blue collar jobs that help support a large middle class. They also create a lot of high-paying white collar and professional jobs in areas such as R&D. In addition, manufacturing industries create products that we can export, which can help us narrow our trade deficit and current account deficit (you can export services too, of course, but most international trade is in goods, not services).
Freddie,
It should be quite evident:
IB d-bags are infinitely preferable to auto-worker d-bags.
i.e. the smart and well educated are infinitely preferable to the stupid and ignorant.
Dave writes: "Another point is that there are some legitimate complaints about the high compensation of banking industry execs in a year when a) their companies have lost money, b) their shareholders have suffered, and c) they have been the recipients of federal bailout money. Even the editors of the IBD are offended by some of these pay packages."
Dave, you're forgetting that these geniuses would get out of banking if they weren't appropriately compensated. As you know, Megan has made the case for defending their compensation using this justification.
One would assume that these guys wouldn't have too much to worry about if they took a hit in their standard of living, provided, quite curiously, that one didn't read Ms. McCardle's recent posts lamenting the poor MBAs who "did all that was expected of them", but are still out of work and facing "difficult times". "Difficult times", of course, means moving in with your upper middle-class parents, but hey, it's all relative, isn't it?
Megan writes: "I have a theory of government which says that the government should make these kinds of interventions only where they benefit society as a whole, not when they almost exclusively benefit the interests to whom the money is given."
And who presumes to decide when these interventions "benefit society as a whole" vis a vis "when they almost exclusively benefit the interests to whom the money is given".
I'm no commie, but, as Lenin would say, "Who? Whom?"
TallDave writes: "Wall Street has some distressed assets. Detroit has a failed business model. One of these can be solved with liquidity, one cannot."
Solution to distressed assets: extension of credit!
Soultion to (temporarily, cough, cough) failed business model: extension of credit!
All problems can be solved with an extension of credit, but, at some point, you're going to run out of track. That's what got us into the mess we are today.
You say tomatto, I say tomato.
Megan writes: "if you want to deliver ultimatums while asking us for money, you can damn well go demand the money from somewhere else."
... and that's exactly what AIG did, no?
Dave writes: "In any case, the best way to deter such a war is to be ready for one, and that includes having a manufacturing base able to crank out tanks, planes, and other war materiel as needed."
Didn't you read Freidman's book? The world is _flat_. No country with a McDonald's has ever fought another counter with a McDonald's! It's the End of History, brother!
"Dave, you're forgetting that these geniuses would get out of banking if they weren't appropriately compensated."
There's a big economy out there outside of banking that can use more smarties. Maybe some of these folks can start their own businesses, or work in other industries. Nothing wrong with living with your parents if that's an option either.
s/counter/country in the previous post.
Too much eggnog tonight...
"Didn't you read Freidman's book? The world is _flat_. No country with a McDonald's has ever fought another counter with a McDonald's! It's the End of History, brother!"
I lose enough brain cells reading Friedman's columns occasionally. I've taken issue with his work in the past (e.g., "Iraq, the Automakers, and the Limitations of Technology"). Regarding his inanity about countries with McDonald's not going to war with each other, I'm reminded of an article in the WSJ during our war against Serbia, where the WSJ reporter noted some steps the local McDonald's franchises were taking to play down their restaurants' association with America given that we were bombing the crap out of Serbia at the time.
I have a theory of government which says that the government should make these kinds of interventions only where they benefit society as a whole, not when they almost exclusively benefit the interests to whom the money is given.
This sentence nicely distills what is so frequently wrong with Ms. McCardle's thinking in this column. She attempts to analyze economics first and foremost through a political lens, instead of taking economics on its own terms and relying on data, historical example and case study to reach her conclusions.
Except to extremists who tend to confuse the two, economic analysis and political theory are two separate topics. The laws of economics aren't impacted by the political views of those who participate in it.
All of us, regardless of our political differences, have a vested interested in having a thriving economy. Once we have an economy that is capable of generating the money, we can use our political differences to argue about what to do with the cash.
It is this rampant elevation of ideology above economic reason that encouraged the federal government to indulge in a 20+ year orgy of deregulation for its own sake, irrespective of whether or not it actually worked. Incredibly, we allowed "philosophers" such as Ayn Rand to influence our approaches to our setting of interest rates and our failure to regulate the credit default swaps market, as if our philosophies were somehow better than the abundance of real-life examples that could have provided us with more useful insights.
Disastrous decisions are made when ideology-as-religion trumps common sense, and when no one bothers to measure the policies by their effectiveness or lack thereof. History will view us as being incredibly stupid for turning that sort of tripe into policy, instead of keeping it tucked away in college dorm rooms where it belongs.
I happen to agree that the banking system needs to be rescued, whereas the auto industry arguably does not. But I've reached that conclusion because the banking system is a de facto extension of the Treasury and the Fed, while the Detroit automakers are not.
If Detroit doesn't meet the cost-benefit test for us, then we shouldn't help them. But it wasn't a cliched MBA hatred of labor unions that caused me to adopt that position; the money multiplier did.
I don't know why a UAW worker would prefer socialized medicine over their current health benefits provided by American car companies, which (to the best of my knowledge) is much sweeter than govt. provided healthcare in most Asian countries.
I've spoken with a few medical types from Asia who were skeptical about America adopting nationalized healthcare. There are just WAY too many people here (5,6 times the population of Canada, California nearly matches their total population I believe). Some doctors would vigorously object to government controlling their wages, and everyone would riot if they had to pay 6,7 bucks a gallon of gas to support government healthcare.
Most Asian governments will take forcible measures to keep health care cost (artificially) low. I have to admit, I like 50 bucks for MRI in Korea. But I don't think American politician will take that step, not if they want to elected.
Industrial capital is as important as financial capital. Industry creates wealth, finance mostly moves it around.
Since the current crisis in the auto industry is partly the result of the financial crisis, it makes sense to provide finance to tide them over. The auto industry has other problems that can be fixed if they are not detonated by the financial crisis.
The US needs a domestic auto industry, even if it does not need all three of the big companies.
There is a limit to how much creative destruction we can handle at any one time. And we can't be sure how creative the destruction is. The purpose of having an economy is to provide prosperity to families. So there is a limit to how much you can devastate families to build the economy.
Re: This had a disastrous effect on the British standard of living
Are you really claiming that the standard of living in Britain was lower in 1940 than in 1880?
Am I really saying that the standard of living in Britain was lower in 1940 than in 1880? No. But I am saying that Britain's gross domestic product was much higher compared to its competitors in 1880 than it was in the late 30's. The UK was the leading manufacturing country in the world in the period just after our civil war. Then it declined, compared to other countries, just as we're doing now. I don't know if this is due to a dismissive attitude to manufacturing or to imperial overstretch, but it's happening and it can't be denied.
There's another possible difference between banking and the big three: it may be possible to save the banking industry, but there is no hope of saving the big three without either concessions the UAW won't even consider or unlimited money for many years (like what Britain tried with its auto industry, for a long time, until it was gone). If $15 billion would really set the industry back on its feet; fine. It won't last three months.
Here is why the Big Three CANNOT be competitive.
Well gee, Megan, maybe just maybe some of us remain a little bothered by the fact you're complaining about the $15 billion we gave the auto industry while NOT complaining about the $150 billion we gave AIG.
That's our problem. We've been clear on it. Couldn't be any clearer.
I find it interesting people ONLY focus on the banking industry v.s. the auto bailout as opposed to focusing on AIG v.s. the auto bailout.
AIG has wasted that money on corporate retreats and bonuses. Their own former CEO was on CNBC admitting the company was not viable. They have no market plan as to how they intend to turn their business around. They do not pretend to. Their previous plan was clearly not working as they needed a $150 billion loan from us, the taxpayers. They don't answer inquiries as to how they have used the $150 billion. They are not where we "keep our wealth" and hence are not, as others charge with the banks, critical to our well-being.
Yet what do you do about this? Complain about the company that got $150 billion and doesn't have a plan or complain about the companies that got $15 billion and do have a plan?
You take the easy way out, as usual, and only complain about the auto industry.
That's the double standard we're complaining about. Perhaps, in the New Year, you will stop holding this double standard and learn to admit you were wrong about something. But, much like those on Wall Street, you generally do neither.
Let the attacks commence from the intellectually dishonest. Merry Christmas.
The auto companies are not failing because of their labor rates (less than 10% of the cost of vehicle), but because of the failure of the financial system.
GM can't get the credit it needs to finance operations, and prospective buyers can't get the loans to buy cars. Please note that Toyota is also losing money in the current situation.
I also think that because both writers and financial types are white collar-workers, and that the national media and finance are both concentrated in New York, there is more sympathy for the finance types, and less for those who work with their hands in auto plants.
Further, I am disappointed, but not surprised to note that there has been no discussion of the role of the strong US dollar in the stagnation of US manufacturing. I have been both a UAW member working in a factory and an international sales manager in the Asia-Pacific market. I know from both personal experience, and labor statistics, that union manufacturing workers are more productive than non-union and foreign workers. I also know that China and the other Asian Tigers keep their currencies artificially low against the US dollar, which makes it almost impossible to compete in their markets. Hence the relocation of factories overseas, transferring both jobs and technology to our competitors.
I am believe in free trade, but without freely floating currencies, international trade becomes a win-lose proposition, rather than win-win.
The Obama administration will need to prop up the auto industry in the short run (two years), restore liquidity to the finance system, and lower the value of the dollar to reduce the trade deficit.
"Obviously, if you think it's the government's job to pick economic winners and losers, and ensure that rich people lose as often as possible, then my stance is horrible and hypocritical."
But you apparantly think that it is the government's job to try and insulate the economy from the poor decisions people and institutions make. Isn't that merely deciding that the winners must include the economy as a whole?
And if you do accept the view that it is the government's job to protect us from our own economic mistakes then where do you draw the line? Wouldn't accepting that premise justify full centralized control of individual choices so that we don't make poor choices that would hurt the economy?
As an example, think of the health Nazis who want to ban smoking, fatty foods, and other behaviors that might make us less healthy and increase health care costs.
I have no idea how you can consider yourself a libertarian.
I think you are correct, Bob. Certainly something needs to be done to redress the free trade issue and 'fair' competition. Notice, btw, that it's in all the papers now that Toyota is posting a loss of over a billion dollars, and it's hard to argue that this loss is the fault of those mean old unions.
Speaking of inaccuracies, consider Megan's - and others' - talking point about how much the unions add on to the cost of making a car. Wouldn't the fairer comparison be to how much labor costs add on to the total cost of an automobile? You can guess where this is going:
Finally, consider the talking point that the bailout for the financial sector was imperative on the grounds of national economic health. While I'm not ideologically opposed to such a bailout, like others, I was concerned about what conditions would attach to financial aid[1]. And like others, I was appalled at the lack of oversight imposed on the management of those aid packages and suspected - rightly it turns out - that this lack of accountability would lead to the misuse of funds. As everyone knows by now and as Megan refuses to acknowledge, large sums went, not towards improving liquidity, but to 'retention bonuses', aggressive buyouts of smaller, sounder firms, etc.
Yes, at one point, Megan's opinion might have been a principled one. But the time is long since past where she should acknowledge that as far as the fiscal health of the nation is concerned, those financial institutions squandered the money that was given to them, and nothing has changed in the culture of management. Insisting that it was still right and principled to oppose one bailout while accepting another is, at this point, nothing but rank hypocrisy.
[1]My position at the time was that anyone who wanted went begging for a handout would be required to go on national TV and publicly acknowledge that their behaviour was wrong, that they should then publicly apologize for that behaviour, and that they finally publicly offer to make some sort of amends. It seems that time has proven me right once again.
The Detroit business model will be solved by universal health care divorced from employer contributions. And losing half the management of GM, Chrysler and Ford.
Employers and employees are going to have to contribute one way or the other; making them do it through higher taxes instead of subsidizing employee insurance just adds even more bureaucracy (and government rationing, which would reduce the level of health care for anyone currently insured) to the problem. To truly divorce health care from private companies we'd have to have truly free health care -- that is, all materials at zero cost, services provided entirely by unpaid volunteers, paid for by no one. In other words, virtually no health care.
So health care isn't the problem. The real problem is pensions -- there are more people drawing pensions from the Big 3 then there are people working for the Big 3.
Solution to distressed assets: extension of credit!
Soultion to (temporarily, cough, cough) failed business model: extension of credit!
Except it's not temporary. GM sold as many cars as Toyota this year. GM lost billions, Toyota made billions. Clearly this can't work.
The other perhaps more important difference is that a bankruptcy reorganization of the Big 3 nullfies most legal agreements allowing them to jettison excess management and renegotiate with employees, and thus set up a profitable business model. A bank's functions, otoh, are just a bunch of legal agreements, so nullifying them essentially causes the bank to no longer exist as a business enterprise.
Anyone advocating any of these bailouts obviously thinks it's the government's job to pick economic winners and losers.
What I find interesting is that everyone chooses to focus on two American auto companies who in a tough environment in which Toyota (previously the bastion of an intelligently run auto company) received a $15 billion loan, as opposed to a SINGLE insurance agency that received a $150 billion loan who has stated it in no way intends to change its operating procedure.
As for the notion that we know the auto companies are going to come asking for more, well heck AIG initially asked for less too. They've now come back 2 times to ask for more money.
Again $150 billion bailout for one company with no business plan v.s. $15 billion bailout for two companies wiht a new business plan. And which one do people choose to complain about?
You'd almost think people care MORE about bashing on the auto companies and the UAW than they do about actually making unsound taxpayer-funded loans to failing companies.
Anyone intellectually honest would focus at least 1/10th of the collective wrath we've put on the auto companies on AIG. But then again that would be sound financial thinking. And would be the first step to actually mitigating this financial crisis. Hence we won't do it.
Instead we'll spend the next year bashing the auto companies, again, while a dozen more banks go out of business and the global financial crisis deepens. Cause that's the financial analysts, who have been wrong about everything, prefer it.
So by all means keep railing against the auto companies and the UAW because you strongly dislike them. That'll get us nowhere.
Toyota, loses money in this quarter. What do the same people who rail against the American auto companies and blame all of their loses on unions say? Nothing.
John at 12:41
Sometimes it pays to know what you are talking about. While it can be argued that extending $150 billion or so to AIG in the form of loans and government investment may not be necessary, keep in mind that the bulk of the businesses are profitable. The nature of their problem, in part, is having to post collateral for potential, theoretical liabilities on CDS and other derivatives. And, if people were smart, they would not force them now to sell profitable segments at bargain prices to foreign Mr. Potters, who are buying while we are panic selling. (Technically we should have bought garbage off their books, taken an equity stake, and fired management).
And on the whole, Megan's point is exactly right.
If you are going to bail someone out, you are going to bail your financial system. Because when that is messed up, every other segment of industry can't get the daily financing it needs in the credit markets. You have fully functioning profitable businesses who need the overnight or short term credit markets to help them run day to day (while waiting for payments). This includes the car companies.
Too many of you would be like "eff the financial firms" while tossing money the car companies way (including to the private equity/hedge fund firm Cerberus, who owns Chrysler, stupidly buying it from the smarter Germans who couldn't even make a go of it, and who refuse to kick huge amounts of their own funds to defend their own investment).
So you save the car companies, and when those very same companies need to go to the markets to issue short term paper and debt... oh wait, we have no functioning financial system.
Singapore has no major car companies. Great banking system. Same with Hong Kong, pre and post China control. Find me the developed western nation with no sound financial system. We will be Iceland writ large, but with really beautiful, inefficient cars sitting in auto lots because nobody is available to finance those purchases.
In reality, you would like to help the auto companies first, except that their problems existed far before the financial meltdown. Giving them meltdown help does not set their core comptentency issues straight.
(Although, if up to me I would help Ford, but tell the other two to take a hike).
Repeat after me- The banking crisis is not a liquidity crisis, its a crisis of incalculable risk.
As a former insurance underwriter, I can assure you that these risks can be calculated. In fact, there's a big hint here -- when they say the risks are "incalculable", try substituting the word "worthless", and you'll be right more often than not.
It's not a crisis, it's some bankers who bought derivatives and whatnot based on tranches of extremely subprime mortgages that will have a default level approaching 100%. OK, it's a crisis -- for those specific bankers. Let them suffer the consequences of their bad decisions. The alternative is to let them continue making wealth-destroying decisions.
All the bailouts are bad ideas, Megan.
You have fully functioning profitable businesses who need the overnight or short term credit markets to help them run day to day (while waiting for payments).
I guess, like loan default, this is just one more behavior that we normalize in the business world but would consider a deep moral failing when private individuals, or even small businesses, do the same thing.
What would we say to someone who couldn't run their monthly finances without taking out check loans and payday loans between paychecks? Even if they were able to stay ahead of the loans we'd consider them some kind of white trash. If a small business was taking out loans to cover payroll we'd stop shopping there since we'd expect them to be belly-up in a matter of weeks.
I don't see why corporate America can't run its finances with the same level of responsibility as American homeowners. But what I am pretty sure of is that the jackasses that came up with a system that basically balances the national economy on a knife's edge of credit were paid an obscene amount of money.
John @2:14
Toyota had it's first loss in 70 years, and it was an operating loss, leaving net profits.
So pointing out Toyota's rare operating loss in extreme market conditions has nothing to do with U.S. auto companies and their constant state of struggle.
I don't think anyone who thinks that the car companies should not be helped would blame everything on the unions. They would suggest that the unions in their current negotiating stances are not quite part of the solution to the woes (and neither is management).
It's as though you believe that the jobs lost if Detroit falls are a discrete set and will not exceed the number of current factory workers employed, ignoring the jobs dependent on those jobs, producing the parts and materials for the cars, serving food, doing the hair cuts of those workers and so on.
Moreover, unlike banking, the auto industry actually produces something tangible. Now I know that it's so very very Republican to woo the working class in October and screw them in December, but this takes it to a new level of valuing wealth over work and the intangible over the tangible.
Maybe it's not hypocrisy, maybe it is just stupidity.
Chet at 2:57
1) Small businesses get floated credit all the time, profitable or not. They get the goods in, and eventually, they get billed 15,30, or 90 days out. The credit markets are the big business version of same.
2) Homeowners have NOT been responsible. We are in this situation in part because everyone (little guy to big) assumed asset prices would rise. Somewhere along the way some little person stopped paying his mortgage, thus causing expected returns on certain mortgage instruments to adjust.
RuthieAlice:
Nice sentiment. But explain to me who is going to finace vehicles, or finance the daily needs of the car companies when our financial system collapses? Our financial system supports the goals of all businesses. So the cars you see as tangible exist in part because Ford or Chrysler can get credit... or because GMAC (owned in part by the small firm that owns Chrysler)can provide financing to you. Unless you plan on moving to an all cash system.
"It's as though you believe that the jobs lost if Detroit falls are a discrete set and will not exceed the number of current factory workers employed, ignoring the jobs dependent on those jobs, producing the parts and materials for the cars, serving food, doing the hair cuts of those workers and so on."
So what's the plan RuthAlice, ScentofViolets? What do the D3 have to do to become solvent? All you're doing is making this one inefficient jobs program. The demand for cars and the jobs associated with supplying them will remain. It will just be picked up by the competitors in the south.
So we give them $17 billion and then...what? March rolls around and they give us some weak knee'd proposal that focusses more on saving jobs than saving a viable core enterprise. They'll claim this is the glide path to self sufficiency, they just need dozens of billions more dollars to keep them afloat in the interim. Do you continue to drain stronger businesses from all other sectors for a couple distressed organizations?
I've asked this question three or four times in as many of Megan's threads. No one, but no one has offered the slightest hint of a long term solution.
The financial mess is fairly simple. Wait out the storm until the bad loans all scrubbed from the balance sheets, and then start over keeping in mind the lessons learned from the bubble burst.
Freddie accuses me, again, of a double standard on Detroit and Wall Street.
There should be no double standard!
Offer GM/Chryler/the UAW the same bailout terms that AIG got: A loan of however much money they need to avoid collapse, at 11% intrest (in a 3% world), to be repaid in two years by breaking up their businesses and selling of their parts to whomever would bid for them.
There, is Freddie happier now?
Or perhaps he'd prefer that Detroit get the same bailout terms that Bear Stears, Wachovia, IndyMac, Washington Mutual and Lehman got?
Maybe Freddie will say he wants Detroit to get the same kind of capital injections that JP Morgan, Citibank, etc., received?
But no, he can't! No double standards!
The capital injections only went to financial firms that are solvent, not broke, not bankrupt by year-end without them.
GM and and Chrysler are bankrupt by their own pleadings. No capital injections for them.
No double standards!!
Re: But I am saying that Britain's gross domestic product was much higher compared to its competitors in 1880 than it was in the late 30's.
So what then? The absolute standard of living was higher, and was in fact only minimally lower than Britain's main competitor, the US.
Re: there is no hope of saving the big three
And you know this, perhaps, because some lustful god has granted you knowledge of the future in the manner of Casasandra of old?
Re: GM can't get the credit it needs to finance operations, and prospective buyers can't get the loans to buy cars.
GM can't get new loans because it's on the ragged edge of bankruptcy. Banks are supposed to turn down prospective borrowers in those circumstances. If they had practiced that discretion for the last few years we wouldn't be where we are at right now. Even in boom times banks would (and should) be saying "No" to GM.
Meanwhile, people with decent credit can indeed get auto loans-- and that is as it should be. People with bad credit (like corporations with bad credit) shouldn't be getting auto loans. Of course a lot of people are worried about their future right now and so they are putting off big ticket purchases like autos.
Re: Employers and employees are going to have to contribute one way or the other
Still, a universal system would require that everyone contribute, and that the risk was spread over the entire population. So a company with older workers, or workers requiring expensive healthcare, would not suffer unduly for that fact. Everyone would be on even ground there. And that too is as it should be.
They get the goods in, and eventually, they get billed 15,30, or 90 days out.
That's a pretty expansive definition of "credit." By that definition Netflix is a lending bank, since they only bill me at the end of the month for the DVD's they send out.
"Singapore has no major car companies. Great banking system. Same with Hong Kong, pre and post China control."
Singapore and Hong Kong have small, homogeneously high-IQ populations. They don't have large populations of lower-IQ blacks and mestizos. There aren't a lot of jobs in banking for blacks with IQ scores of 85 or mestizos with IQs of 90 who don't speak English. Unless you want to support tens of millions of blacks and mestizos with indefinite public assistance, you need to provide them with jobs where they can work with their hands and make a decent living. They can do that on an auto assembly line. They can't do that as banking executives.
Yawn. Still making excuses for AIG are we?
You don't think anyone is blaming the D3's losses entirely on the UAW and the auto workers? Really? Anyone? Well, ok, if you say so.
Listen we can cut, dice, renege, and dodge guilt on AIG's bailout (not loan, but bailout) all we want. When you need a $150 billion bailout from the taxpayers, your business model is not financially soluble. Sorry but it isn't.
Why does something tell me AIG is going to be asking us for another $20 billion by February and the same people will still be making excuses for them?
Sigh. When we lose another half dozen banks by April, will you then consider ceasing the bashing of the D3 and dealing with the real problem? Or do we have to continue this dance for another year?
Oh yes, but that's right. Those of you on here bashing Friedman just know so much more. Which is why your opinion has been so accurate over the past year.
Please. Only in the financial sector could you get away with the awe-inspiringly DUMB moves these idiots have made over the past 9 months and still be taken seriously.
AIG? An embarassment full of crap. And anyone actually in the insurance industry will tell you so.
John,
AIG was run by a bunch of douchebags. They have since been fired and replaced with management appointed by the U.S. government. The government now owns 80% of the company, having virtually wiped out the existing shareholders. The reason it loaned the money to AIG (at double digit rates) was because the collapse of the world's largest insurance company would have had catastrophic consequences for the world economy, not because insurance workers are better than auto workers.
P.S. AIG is perhaps the most poorly ran company of the past decade. They started tanking a decade ago and have spent the majority of their time since 2005 trying to CYA their losses dating back to 2000.
The notion that they suddenly ran into problems this year is ridiculous and preys on the short-term, money-worshipping memory of those who cover the financial sector.
AIG could and should have went down no later than spring '05. As it is they've spent the past 4 years trying to mitigate blame, lie about their losses and suck off the taxpayer teat.
We finally agree.
I'll just add to that, most intelligent economists would likewise agree that the collapse of any of the three major American automotive companies, in the middle of the worst depression we've seen in decades would, likewise, have devestating consequences.
Please note I am not the libertarian blogger who opposed the auto bailout but supported the bailout of both the banks and AIG all while snidely posting a column about how I'm not really applying a double standard (cough, Megan, cough.)
Again Megan can do whatever she wants. And you don't have to subscribe to the double standard charge.
But the notion that she still has one iota of credibility as a libertarian, let alone a libertarian financial blogger, is laughable.
"I'll just add to that, most intelligent economists would likewise agree that the collapse of any of the three major American automotive companies, in the middle of the worst depression we've seen in decades would, likewise, have devestating consequences."
I'm in favor of bailing out the automakers, provided that they make the necessary changes to become viable companies. I think the only way for that to happen would be via an organized, pre-packaged Chapter 11 reorganization, with debtor-in-possession financing provided by the U.S. government. Some non-Chapter 11 facsimile that accomplishes the same type of reorganization could work as well, but I doubt any politically appointed car czar would have the same freedom of action of a bankruptcy judge.
All things being equal, a Chapter 11 bankruptcy would have been the way to deal with AIG too, but all things aren't equal, in the sense that the financial system can't handle such a bankruptcy. The global heart attack caused by the bankruptcy of the much smaller Lehman Brothers demonstrated that.
My issue with the current bailout of the automakers is that it doesn't require the sort of reorganization necessary to make them viable. I have nothing against auto workers, but the idea that the UAW ought to be able to keep its current labor agreement until 2011 when the parties to its agreement are effectively bankrupt now is absurd. The UAW is going to have to take it up the ass like everyone else: the dealers, management, the bondholders, the stockholders, etc. I say let a bankruptcy judge -- with the objectivity and freedom from political influence provided by a lifetime appointment -- sort it out.
My issue with the current bailout of the automakers is that it doesn't require the sort of reorganization necessary to make them viable.
Then just wait a few months. Seriously. The amount of money in question is intended merely to tide over the two firms for the next three months. Quite rightly, the long term solution to the problem will be the new administration's responsibility. A plan will be forthcoming before the end of March. At that time it will be worth discussing whether or not the necessary changes are present in the plan. Right now we're in the interregnum. Given the fact that`the new administration in question is Democratic, it wouldn't shock me if the changes forced on Detroit are insufficiently rigorous and far-ranging. But I still wouldn't worry too much, because then we just delay the day of reckoning a bit longer -- and that day or reckoning will happily coincide with a time when the county's GDP is once again expanding. And the thing is, the public's mood is clearly moving against Detroit, so if they come back with their beggar's bowl in (say) 2010 or 2011 because of failure to make sufficiently significant reforms in 2009, Congress won't be able to buck the voters and give them more dough. They will have finally reached the end. This is all about making sure they don't reach that end next year.
...but the idea that the UAW ought to be able to keep its current labor agreement until 2011 when the parties to its agreement are effectively bankrupt now is absurd.
One can certainly make plausible arguments against waiting until 2011, but even if the financial viability plan revealed in QI09 indeed makes no labor changes before 2011, it's a little strong to say waiting another eighteen months or so is "absurd." Undesirable for some parties, and for some purposes -- sure. But "absurd?" We are in the midst of vicious, dangerous downturn, you know. I'd just as soon not see the state of Michigan go into federal receivership. I can think of worse things in such a time than extending multiple decades of expensive labor practices another year and a half.
I agree with Jasper.
The government incurs significant costs when the automakers collapse: unemployment benefits, welfare benefits, relocation benefits, retraining expenses, pension guarantees. These costs will far exceed the 14 billion bailout.
The bailout also preserves a small chance that the auto makers will survive as viable entities. Without the bailout they would be in chapter 11, soon to be chapter 7.
The cost of the auto bailout is insignificant when compared to the cost of the financial industry bailout. Yet, the potential payoff of a viable auto industry, is enormous. Looks like a good investment for the American taxpayer to me.
I don't see Megan as hypocritical in her position at all. I see her as blinded by the right.
I wonder how many of the bailout enthusiasts here actually own a GM, Ford or Chrysler vehicle. If you really want to help the UAW, go out and buy yourself a Suburban or maybe a nice F-350.
Jasper:
"Quite rightly, the long term solution to the problem will be the new administration's responsibility. "
Silly me. I thought long term solutions were _management's_ problems.
Silly me. I thought long term solutions were _management's_ problems.
You are being silly. Rather obviously, the precipitous pink-slipping of many hundreds of thousands of people will result in hefty bills for federal and state governments. And anyway, the initial loan from the taxpayers is a done deal, so, yes, that's all the more reason that it's the government's (in addition to other stakeholders such as management, labor, stockholders, etc) problem.
I wonder how many of the bailout enthusiasts here actually own a GM, Ford or Chrysler vehicle.
I wonder if there's any such thing as a bailout "enthusiast." I'd happily let them collapse if Americans businesses and households hadn't just suffered a $12 trillion drop in equity (or whatever ungodly figure it is).
So we are down to deciding when the best time will be for the inevitable collapse of the Big Three. But if we try to put it off, doesn't that mean that we will simply prolong the depression? Maybe it is better to get all of the pain out of the way now, so that we can get on with the recovery without having the automakers as an ongoing drain on the economy.
Besides, who is going to be crazy enough to buy a car from these guys while they are under a cloud? Why buy a car from a manufacturer that can't promise that they will follow through on the warranty, when you can buy a Toyota or Honda instead? The longer we stretch it out, the more damage they take.
If the Big 3 go into Chapter 11, with some sort of provision for protecting car buyers (federal guarantee of warranty and parts, perhaps?), then they may have some real chance of coming back.
Re: I wonder how many of the bailout enthusiasts here actually own a GM, Ford or Chrysler vehicle.
I'm not an "enthusiast"; I just see this as a necessary evil.
But I do own a Jeep Wrangler (4 1/2 years old), and I'm perfectly happy with it, thank-you. Since it's running just fine, and very nearly paid off, I have no plans to replace it soon, but would definitely consider purchasing another one. I would however like to wait and see what new technologies emerge in the next few years; a hybrid or flex-fuel version would be nice.
Again, the people hitting Megan for the hypocrisy don't know what they're talking about. AIG/Lehman/etc, as financial firms, by law, could not be reorganized in bankruptcy but would have to be liquidated. The same is not true of the Big Three. They can go bankrupt, go through restructuring, and try to become profitable (isn't this what Corker proposed, plus federal loans?). The problem with AIG, etc is that if those firms go bankrupt, they must be liquidated and this would cause massive dislocation for the financial system. The reason to oppose the bailout for the big three is that there are other options.
As for comp packages for financial employees and big three employees... first, no one is trying to micromanage the pay fo the big three. The only directive is that they "become competitive" with the other firms. So I found it rather rich that the UAW then complained about the terms being unfair towards workers. Yeah, $30 an hour for people who never went to college is really really horribly unfair. Gag me.
I second Tommer when he wrote:
Come on you geniuses. Tell us what your plan is to turn the D3 around with that 17 billion dollars? I want a detailed business plan, not just more bitching about how AIG got a bunch of money so therefore Detroit should get some too. Also I'd like to know how many of the individuals in favor of a D3 bailout have put their money where their mouths are and invested all of their funds in stock in the D3. Have any of you done this? Or are you the moral equivalent of those neo-cons such as Jonah Goldberg who think that the military is really neat and foreign wars are really wonderful but who never served their country and who can't be bothered to serve it now?
Oh, and for those of you who think that the banking bailout is such a great deal, well look at the fact that Washington Mutual, which was taken over by the FDIC and then sold off to J.P. Morgan Chase, is laying off 80 percent of its workforce in Seattle and is also walking away from WaMu's leases on 880,000 square feet of office space in downtown Seattle.
Now, all of you good gliberals who are in favor of a D3 bailout might think that that last item is a good thing, because it means that those greedy, horrible landlords won't make any money. Except that now there's another 2.5 million square feet of office space that was planned to be completed next year which may or may not be completed and which may or may not be leased. Which kind of fucks over lots and lots of those blue collar folks in building trades that you gliberals claim to love so much.
So please tell me, while I'm watching the city that I live in get hollowed out, why I should be concerned about Detroit going down the tubes. Where's your sympathy for those laid-off WaMu workers? Please tell us how their jobs were less valuable than those of the UAW workers who spend their days building cars that no one wanted to buy, or the UAW "workers" who have spent years sitting in the jobs bank.
Re: Yeah, $30 an hour for people who never went to college is really really horribly unfair.
Again, what is it with this resentment of auto workers making $30/hr? So what if they never went to college! What does that have to do with anything? Once upon a time a prosperous working class was a siurce of national pride. Do we have a lot of bitter English lit majors stuck working at Starbucks on this blog? I'm open to the argument that those wages are not sustainable; that's an economic argument. But the argument that "they're stupid; they don't deserve it" is not reputable at all.
I've still never seen anything that suggests the banking industry would fail without a bailout. In fact, it seems to be making things worse.
a hybrid or flex-fuel version would be nice
JonF,
You may not have too long to wait...
Wrangler EV
https://www.chryslerllc.com/en/innovation/envi/specs/jeep_vehicles.php
But the argument that "they're stupid; they don't deserve it" is not reputable at all.
I don't think that's the argument (at least, I hope it's not). I think the argument is more along the lines of: Someone must have greater than average skills to warrant a greater than average wage.
Thanks, SG. My point isn't that $30 is too much to pay them. My problem is that they are arguing that $30 per hour, which is what lots of other autoworkers are making, is TOO LITTLE to pay them. And that paying them that is unfair. That's exactly what the UAW said immediately after the White House announced the bailout. There's no other way to read the complaints of the UAW about the demand that they negotiate their wages and benefits to be competitive with other automakers.
Why don't we just have a $100 minimum wage? I mean, screw Ralph Nader and his $15 min wage proposal. I mean, let's go whole hog!
This is just plain weird. Either the marketplace sets wages or it doesn't. One can't argue that executive X makes so many millions of dollars because that's just what the market will bear, and then turn around and claim that another set of workers aren't 'worth' what they're being paid.
Either the marketplace sets wages or it doesn't. One can't argue that executive X makes so many millions of dollars because that's just what the market will bear, and then turn around and claim that another set of workers aren't 'worth' what they're being paid.
Well, UAW workers don't have their wages set in a free market. That's the whole point of the union - by being a monopsony supplier of labor the union can command a higher wage than individuals can because individuals would price compete against one another.
Furthermore, the non-UAW plants provide an existence proof that it's possible to have a quality labor force at lower rates. The UAW wages are clearly higher than market wages for building a car. That's part (but not all) of the problem facing the Big 3. Their labor costs are higher than market rate and that's a hindrance to being viable company.
And for the record, I don't ever recall opining about executive pay one way or the other. As a practical matter, I don't care what executives or UAW workers get as long as I'm not forced to pay for it.
Ultimately, people get what they negotiate. Low skilled labor doesn't have a strong negotiating position, so they like to form unions to increase their leverage. As near as I can tell, once you get high enough up the management ladder the interlocking board of directors/executive compensation boards effectively form a union (well, more like a cartel, but similar concept). Both work to extract maximum value for themselves with shareholder value a distant second (if even that...).
It's all most likely non-optimal socially, and I'd be interested in hearing about alternative structures. But while non-optimal, it would also be quite possible to do worse.
I wonder if the day will come that boards of directors realize that India gradates people with MBAs too. No reason executives couldn't be outsourced along with R&D and manufacturing...
No, they're not a 'monopsony market'. Do you know that that is?
Now, GM has been perfectly free not to renew the UAW's contract whenever it comes up. They have chosen not to.
I will also note that you've got a lot of crust, determining what people are and aren't worth. That is just soooo contrary to libertarianism in particular and conservatism in general.
Now, I can get away with saying this sort of thing, because I am in no way a 'conservative'(In fact, I claim that the labor market is badly broken, and the relationship between wages and labor has become increasingly tenuous over the last thirty years.) But - again going to hypocrisy - conservatives simply can't make certain types of claims about remuneration and employment. At least, not without an extraordinary amount of backup.
Re: I think the argument is more along the lines of: Someone must have greater than average skills to warrant a greater than average wage.
Well, that is certainly politer, but there's still two hidden assumptions: 1) that auto workers are unskilled and B) only people who go to college can be skilled.
As to assumption #1, let's see a show of hands: how many people on this blog could walk into an auto factory tomorrow and take over any random worker's job? No? Meanwhile, auto workers are not some undifferentiated blob of workers. Yes, there are (relatively) unskilled workers in the mix and they get paid wages at the low end of the scale, but are also some highly skilled people in those plants, electricians for example, and their wages drive up the average.
As for assumption #2, We need to eliminate the twin prejudices that A) only college-eduacted people deserve a middle-class lifestyle and B) college graduation automatically entitles one to a middle-class lifestyle.
Re: Either the marketplace sets wages or it doesn't.
The marketplace has set auto worker wages. Who else is doing so? George W Bush? The Pope? Beelzebub? Little green men from Naboo? The real issue here is that some people don't want unions to be part of the marketplace, but they're unwilling to frame it honestly like that.
JonF, taking your last point first, I'm not making a claim either way. I'm merely asking for consistency. If you want to claim that the market sets wages, fine. If you want to claim that the market doesn't set wages, fine. What I object to is the indiscriminate mixing and matching, particularly when pointing this out is just waved away with the all-purpose get out of jail free card 'that is not a free market'. Often with - of course you've guessed this already - no evidence that other situations that the poster does approve of are a free market.
Me, I'm not sure that there is so much a free market in labor so much as what Galbraith called 'countervailing forces': Yes, it's worth it to me to pay you $10/hr. But if I can, I'll try to arrange things so that I only have to pay you $5.15/hr.
The first part about 'unskilled labor' gets me too. My father never graduated from jr. high, let alone High school. But, to hear him tell it, he was approached(not the other way around, mind you) with an unsolicited pitch because he had for that time, 'leet skillz. I can't speak to what skills he had then, but right now he can do a lot of manual things that take a great deal of skill indeed. He could, for example, be a professional welder, if he bothered to sign up for certification. Or he could be a machinist; on occasion, he's actually made auto parts up from scratch rather than be bothered to look for an old replacement part.
The point here is, he's never had any formal education past jr. high school, has never been apprenticed, has never signed up for any special instruction. So, while I don't know how typical or atypical he was for his time, I do know that before I take anyone who calls these people 'unskilled' seriously, I better see some evidence to that fact.
I will also note that you've got a lot of crust, determining what people are and aren't worth. That is just soooo contrary to libertarianism in particular and conservatism in general.
Where did I make any such determination? Quotes please. Here's what I recall saying: "Ultimately, people get what they negotiate". I make absolutely no claim as to what people are worth - they are worth whatever they can convince somebody to give them.
Do you have a point to make other than "I am in no way a 'conservative'"? Trust me, you've made that quite clear. As I said, I'm interested in hearing alternative compensation structures as I think the current structure (for both management and labor) is likely non-optimal. ISTM the Japanese do far better, but their system is based on cultural mores that are unlikely to translate.
Well, that is certainly politer, but there's still two hidden assumptions: 1) that auto workers are unskilled and B) only people who go to college can be skilled.
I don't assume 1) generally or B) at all. There's a lot of skilled trades, and the people in them make a good living. College is certainly not the only way to become skilled. Auto workers at the transplant factories make better than average wages (if not UAW level), so there's clearly skill required there.
The marketplace has set auto worker wages. Who else is doing so?
The UAW is setting wages for the Big 3. As a practical practical matter, they are the only organization allowed to sell labor to the Big 3. GM is certainly not free to decline the UAW contract, not without a lot of pain. I may be mistaken but I think there would be some mandatory binding arbitration somewhere along the way too.
We have proof (in the foreign auto plants) that the auto labor market will clear at lower compensation (with no cost to productivity or quality) than the UAW receives so why are the Big 3 willing to pay more? The UAW being the only seller of labor to the Big 3 sure looks like a monopsony. The wage and benefit premiums they receive are exactly the sort of rent seeking behavior you'd expect to see from their position.
As for assumption #2, We need to eliminate the twin prejudices that A) only college-eduacted people deserve a middle-class lifestyle and B) college graduation automatically entitles one to a middle-class lifestyle.
I fully agree with you on both A) and B).
I do know that before I take anyone who calls these people 'unskilled' seriously, I better see some evidence to that fact.
A better (and less pejorative) term would be unskilled work (as opposed to unskilled labor). The question is how much skill is required to perform the job, not how much skill the worker has.
It's been over 20 years since I worked on a shop floor (a steel mill - non-union and still in business...), so things may have changed, but back then, the tasks required a fairly low skill level. This fact says little about the skill level of the person performing the work - the worker might be very skilled, but if almost anybody can do the work, there's simply no good reason to pay a lot of money for someone to do it. It's unsustainable to do so - the job will go to China (or Malaysia, or Vietnam, or...) if you try.
And really, if the worker is very skilled they should be doing something that has more value than feeding the stock through the rollers and pushing the start buttons. It's a waste of human potential to do otherwise.
Er, the part where you said this:
Please keep track of what you say. I'll skip some other self-contradictory stuff to get to here:
See, this is what I find very strange. Where does 'pain' enter into it? I'm certainly free to decline certain types of employment too, though not without a given concomitant amount of pain. What has that got to do with the 'free market'? Nothing. Just because the only choices you can make are the ones you don't like is no reason to start complaining; I've had to make great numbers of those types of choices, and I see no reason why GM should be exempt.
I'll also point out, again, that one of us seems to be unclear on what a monopsony is. Sure you're not talking about something else? Or is this one of those things where you're not going to admit you're wrong, despite my having posted a number of definitions above?
Probably because the UAW is a union? Brought together to achieve a superior negotiating position? Like we've been saying all along? As JonF notes, the real issue here is that some people simply don't want (certain) unions to be a part of the market place. That seems to be contrary to libertarianism in particular and 'conservatism' in general, as I've already noted.
Sigh. The word you're probably scrabbling for here is 'monopoly'. A monopsony occurs when there is only one buyer confronting several sellers.
Again, simply untrue. A job might be unskilled, but extremely dangerous or unpleasant, in which case only a few people are willing to do the work. A different issue from being able to do the work. Also, the last sentence is just so much fallacious econ 101. This is nothing more than the same line of argument that says we have to have immigrants to do the work that citizens refuse to do.
Er, no, it's not that American citizens refuse to do the work, it's that they refuse to do the work at a given (very low) compensation. I recall with some amusement some of these people who indignantly claimed that they raised their wages to a whopping $9/hr to work on a production pig 'farm'. You couldn't get people to work in one of those nasty foul depressing places for the highway robbery wage of $18,000/yr?
My heart bleeds for you.
It's the same thing with engineering, unfortunately, as many an engineering grad has found to their sorrow. Yes, employers have said for many years that there is a 'shortage' of engineers. What they actually meant was that there was a shortage of engineers who would work for H-1B wages.
Races to the bottom are so unseemly. And work only in the very narrow interests of a few interested parties, as the country is finally realizing on a grand collective scale.
Re: The UAW is setting wages for the Big 3.
The UAW is a participant in the market. It isn't some supernatural visitation.
SoV and JonF,
Sure UAW should have the right to participate in the market. I'm a libertarian and I'm consistent about it. What they shouldn't have the right to do, however, is have the right to mandatory arbitration ajudicated by the National Labor Relations Board, a government body, nor should they have the right to keep their jobs if they go on strike. They also shouldn't have the right to not have their union "busted" by managers of the Big Three. And in a free market, the Big Three should be allowed to refuse to hire workers who bear positive attitudes towards unionization. None of these things are particularly free market oriented, so let's not pretend like the UAW functions in a free market in its dealings with GM.
My whole point was not that UAW does or does not deserve the wages they earn. It's the fact that they have the crazy notion that them having the same wages as everyone else (people whose wages ARE set by the market) is somehow "unfair". Those claims are particularly rich, given that it's not like workers at GM had to pay large amounts for their educations or spend lots of time getting schooling (hence the college comment), hence eliminating any sort of consideration of what is "fair" aside from mere market forces. Now, college grads also don't really have much argument to claim that whatever wage arrangements they have are unfair, but I'm at least sympathetic to hear that someone spent 4 years in college and 7 years in a Ph.D. program only to work in a low paying job later. That was the only point I was trying to make.
The current auto bailout is just big enough to get the can kicked down the road to Obama's desk in February. Obama is, to his lasting credit, and my lasting joy, a future focussed thinker. His thinking tends to form around "how do we get there from here" and the "there" in these broad brush economic issues is a functioning middle class that isn't insanely vulnerable (just constructively vulnerable).
For all their many and manifest shortcomings the UAW, and the conditions they have won for their members, provide for Obama a reasonable model for at least some of the foundations of a functioning middle class. Consequently, he will be reluctant to push them under a bus (or even a hideously pointless SUV). But he will screw them fairly hard over the medium term in pursuit of the goal of a reasonable middle class economic mix which looks to be somewhere in between Detroit/UAW conditions and Kentucky/Toyota conditions.
Megan is right to point out that finance workers have had a very serious, and much needed,readjustment of their economic prospects. But, I fear she has spent too long at lunch with that industry to have a clear grasp of the reality that even with such a sharp adjustment they are still way ahead of the Kentucky/Toyota baseline.