The great Detroit bailout of 2008 will not be debated in terms of economics. Free market considerations will take a back seat to the “consensus” on what’s good for our “national interest.” But Detroit is just one among many industries now nuzzling towards the warm embrace of a federal bailout. So what makes the American auto industry more equal than say, the mortgage sector or the airline industry? Not much, as it turns out.
In fact, mortgage giants Fannie Mae and Freddie Mac are already suckling upon the federal teat. Financial analysts say that taxpayers are facing a $300b bill for that already-underway bailout. Or more. For now. The staggering size and indeterminate endpoint of the terrible twins’ predicament creates the possibility of Motown-scuppering “bailout fatigue.” Meanwhile, the emerging details of the deal are sending Detroit a message: if you want public money, management must change, investors will take a bath and you’ll be placed under federal “conservatorship.”
This not what Detroit wants to hear, never mind experience. Hence the Big 2.8’s relentless “not a bailout” rhetoric. But even the most devout industry backers have to understand the populist appeal of “letting Detroit choke on its own SUVs” rhetoric. America does not love a loser, let alone a litter of them.
And push come to [unexpected fiscal conservativism revival] shove, D.C. will back the financial giants before Detroit. In fact, much of The D2.8’s recent financing came from the very structured investment vehicles that the Fed is propping-up by backing Fannie and Freddie. Every Detroit exec worth his country club membership would prefer $300b in bailout fatigue over a post-F&F credit market.
But yet another hungry mouth looms over the government trough, anxious to secure patriotic assistance in hard times. The airline industry is on course to lose $5.2b this year, and another $4.1b in 2009. Another flagship American enterprise, and the source of much national pride could just need our collective help… again.
And once again, the parallels to Detroit are eerie. A rapid rise in fuel costs that “nobody saw coming,” perennial legacy costs and crippling labor relations bind automakers and airlines in common misery. What’s more, both trumpet their necessity to the American economy while consistently having their lunch eaten by lean, mean competitors.
The airlines are not currently proposing bailout schemes with the “no bad publicity” shamelessness of Detroit. But when automakers come a-begging, the airline industry parallels will (or should) be brought up by los federales. Why? Because the major airlines are the living dead of corporate welfare necromancy past.
From the $15b “great patriotic bailout” post 9/11, to ongoing “reserve air fleet” payments, from protectionist ownership laws, to Reagan’s infamous strike-busting, the feds have done much to assist the airlines. And what do the taxpayers get for the trouble? Giant firms, dead on their feet, slouching towards bankruptcy court. Or, yet another bailout.
The travails of the airline industry and the F&F unraveling are not the only potential roadblocks to Detroit’s campaign on the Potomac. There’s even a chance that lawmakers might hold American automakers to account– not only for its poor business practices– but for its profligacy with pork long since digested.
The New Chrysler of today is hardly a ringing endorsement of the kind of “loans for retooling” bailout being shopped around. It’s hard to draw causal links between the bailout of ’79 and Auburn Hills’ current plight. Too much water has flowed under the bridge for such a sweeping claim. But, Chrysler’s precipitous downfall proved (if nothing else) how fleeting a bailout can be.
Detroit has also handily proven that government handouts given to the industry as a whole are even more wasteful. In 1993, the government created The Project For A New Generation Of Vehicles (PNGV) to help Detroit build 80 mpg sedans for everyone. Eight years and over a billion bucks later, Ford, GM and Chrysler had each built one “working prototype,” capable of 72 mpg or better.
This was the chance for Detroit to invest intelligently in R&D to prepare for a fuel price shock it “never saw coming.” Instead, $1b+ bought Americans three unobtainable diesel-electric hybrid cars. PNGV research helped clean-diesel and fuel-cell development, but where are these cars of the future?
The pressure is on politicians from all sides to protect their nation’s economy. Since Freddie and Fannie have been deemed too big to fail, the others must wait in line. But Detroit is no more deserving of federal loans than anyone else, but presents a poor track record and little hope for the future. When all is said and done, there’s still a chance that DC could just say no.
They do not deserve a dime. Show me where this is even a good investment. What do we get for 50 billion? Will we even recoup that in taxes from the D2.8 if they make a profit? Sure, the employees get soaked for taxes on wages but this is a terrible way to return revenue to the treasury. We would be better served by taking half that amount and cutting checks for the workers. Detroit does that already with the union contracts.
they should be allowed to fail. Let this be a lesson for the rest of industry. At least autoworkers can apply to build cars at the transplants door, they are hiring.
And what do the taxpayers get for the trouble?
Being treated with indifference bordering on contempt?
If you want public money, management must change, investors will take a bath and you’ll be placed under federal “conservatorship.” – Edward Niedermeyer
The Detroit-3 have been more about preserving extravagantly lucrative executive sinecures than producing marketable, profitable products. Nothing less than 10-years of totally compelling quality products customers will buy without bribes is required. I doubt there is sufficient political resolve, taxpayer goodwill and money to prop them up that long.
re: “The pressure is on politicians from all sides to protect their nation’s economy”
if they truly want to ‘save the economy’ they had better start making the solvency of all americans – not just the corporatists, the already wealthy and the powerful – their highest priority. or is this another one of those ‘we gotta destroy it so we can save it’ situations?
washington/paulson appear poised to save each severely-bungled enterprise showing up on the horizon, but i wonder if they realize all the funny money they’ll need to print just to try and do so might actually destroy the entire economy rather than save it, taking a vast majority of the american people, their individual dreams, and their collective future, with it.
whatever happened to the freemarket advocates in the republican party who don’t believe in big government? …and in big government handouts? …who just want the government to get out of their way? ..who don’t value the now-entirely-obvious benefits of strong regulation?
where the hell are these clowns, now that we really need em?
Having traveled on a “reserve airfleet” plane, I can tell you the program is more than just a subsidy. At least as far as I can tell. It seems fair to pay upfront for the right to federalize the aircraft when needed, and it’s cheaper than owning the extra aircraft.
Also, the $15B payout after 9/11 was at least connected to the grounding of all the fleets. I don’t agree with the money, but I also did not agree with the length of the grounding.
The airlines are far from being actually deregulated. Just like Fannie and Freddie, quasi government organizations more likely get the downside of both models rather than the up. TSA is at least now run by the government, so when a plane is hijacked, it won’t be blamed on the airline. You could also go the other way, and remove the liability protections. You could not; however, then allow them to be sued for profiling.
I suppose Detroit is claiming they need the money to meet CAFE, but I say call their bluff and cancel CAFE. Raise fuel taxes instead, and it’s all good. Same effect as CAFE, likely the same cost to the driver, but more money in the treasury. It’s better all around.
And what do the taxpayers get for the trouble?
Nothing.
It has been a while since I was a tax preparer but the laws use to allow a company to apply losses from one year to the next 5 years. This means that if GM lost $10 million this year they would be able to cancel out $10 million in profits over the next 5 years.
After reading previous TTAC posts, like the sad history of what GM did to Saab, it is very unlikely GM, or the others, have the intelligence to earn a profit for the foreseeable future but even if they did we taxpayers wouldn’t see any contributions to our national debt from the 2.8 for a very long time.
It is ironic. The people who didn’t want socialized medicine that would have helped U.S. businesses are now faced with having socialized manufacturing and everyone knows, except congressman, that doesn’t work.
It definitely won’t happen in 2008. It may not even happen in 2009.
What you can be sure of though is that there will be a very public raking of the calls before this takes place. Unlike Fannie and Freddie, the Big 3 are not considered to be affiliated with the government and a higher level of public scrutiny (and outcry) will require hearings and a lot of strings attached.
As everyone knows by now, I’m heavily in favor of a bailout. But the changes need to be structural (as in an effective reorganization of these firms that does everything short of calling it the ‘Big B’) for it to work out in the end.
No amount of money will cure the automakers ills as they stand right now.
Philip,
I am beginning to share your pain. Of course, I want to know where the capitalist Republicans are as well. But I really am starting to get PO’d about congress in general. Everytime you turn around, they are going after the “rich”. Even if they honestly are aiming at the multi millionaires with million dollar incomes, they don’t really hit them. Instead, they hit the families and indivisuals making over 150 who still aren’t even millionaires.
These are mostly families who are in their prime earning years trying to save for child education and retirement. If everyone under 40 who thinks they are sticking it to the rich by voting for Obama and his “tax cut”, knew how much it was going to cost THEM, the Dems would be out in the street.
By the time a twenty five year old, high school educated worker with at least decent skills gets to be forty, their is a really good chance his family will be over 150k. They just don’t know it.
Also, I know of plenty of middle class neighborhoods that are now wealthy neighborhoods. As the city grew around them, high income earners bought the homes for their location, low crime, and decent schools. Get rid of the high incomes, and you get rid of the transfer of wealth from up and coming “rich” families to retiring middle class families. You kill the growth, and you kill the value. I have a friend whose parents were not college educated, and never made more than 100k a year in their lives, yet they just sold their home for $825,000 to a couple near 40 with a child and who desire the neighborhood, and likely bring in over $350 a year because they are both professionals. (Taxes on the home will be about 19k per year, so that’s a lot of house here).
Would the retirees have been better off getting a small tax break and having their home be only worth the average quarter mill?
Look, the banks got to dip into taxpayer funds. Now the auto”makers” get to do it. Next the airlines will get to do it. After that will be the oil companires. After that..
The main purpose of the government anymore is to take money from taxpayers and give it to (supposedly) profit making institutions.
Alternate plan:
The Gov uses 20B to do a hostile take over of the GM and Fords public stock. They boot the incompetent management (OK, Mullaly can stay, for now), and bring in a team from Asia that is willing to really change things.
Just a thought.
Bunter
While the dysfunction of the major US airlines and our auto makers might seem similar on the surface, there are some key market differences that argue for prioritizing Federal assistance to the D3 over United, American, et al. The domestic airline industry has Southwest, a revived Continental and Jet Blue demonstrating that viable companies can be created or revived and grown in the sector. Southwest is a domestic competitor to the domestic majors (well, now it’s become a major itself) that operates its business in the same macroeconomic environment and operating realities as everyone else.
The domestic auto industry has no comparable context. The absence of any domestic auto making entity fulfilling the role of successful creative destroyer that Southwest has mastered over the last 35 years, and the commonality of problems faced by GM, Ford and Chrysler indicates a market dysfunction complicated by managerial fumbling. The airline business, not much younger than auto making, has had recurring entrepreneurship and reinvention accompanying its consolidating trends. Like the auto business losing the likes of Packard, Nash, AMC and Studebaker, the domestic airline business lost National, Eastern, Pan American Airways, Allegheny, Pacific Air, Pacific Southwest, et al. But it also has seen bursts of scaled entrepreneurship in People Express, Southwest, Trump, Jet Blue, Frontier, Reno, et al. The auto industry in the US has seen no equivalent to this underlying layer of well-capitalized start-ups.
The import auto making brands that have made inroads in the US aren’t equivalent. They are headquartered elsewhere, keep their highest-value jobs at home, and aren’t operating in identical macroeconomic contexts. Whatever managerial mistakes have been made by the Detroit 3, there still are the real deltas in health care costs, labor, capital costs, and regulation between domestic and foreign competitors that put them on unequal footing.
The carping here directed at the Detroit 3 as companies — and the personal attacks leveled at individuals in them — would ring truer if a domestic auto-making equivalent to Southwest Air were present and accounted for in our market. There isn’t, and that makes all the difference.
So, why is that? It can’t be capital availability alone. Starting a new airline is dearly capital-intensive, and yet we see a few created every decade. Some stick, scale and prosper. But in auto making, we’ve seen only consolidation, corporate destruction, falling market share in an unbroken line for decades. It’s possible that there is a hidebound, inbred executive business culture in the upper Midwest or in auto making in particular that is solely responsible for this state of affairs, but given the dynamism of the rest of our economy, that scarcely seems credible as the only explanation.
Distribution regulation at the states level and the political power amassed by dealers are market dysfunctions along with private health care costs relative to non-domestic competitors. The immense shareholder pressure on our public companies to operate for immediate financial performance is as much a source of operating dysfunction as is placing managerial control in the hands of finance professionals who have no abiding interest in the product they’re responsible for making.
If the extended faltering of the Detroit 3 were nothing more than executive incompetence, the industry would have its domestic Southwest, probably not headquartered in Detroit. And no, Tesla, Fisker, Saleen and Panoz don’t undermine the argument. We’ve had decades absent any major, scalable, domestic automotive entrepreneurship. That’s peculiar. It wouldn’t matter if the automotive equivalents of IBM, Prime, Digital Equipment, Data General, Cray, Lotus, Novell, Cullinet and Wang were weakened by or lost to the dynamism of changing markets, if the automotive equivalents of Microsoft, Dell, Google, Apple, Oracle, were birthed and rose to take their place. But that’s not been the case.
I have no issue with terming the pending Detroit bailout for what it is — a bailout. So be it. But it’s going to take more than money. The whole regulatory environment for distribution must change, so that an established player can adapt as readily as a new competitor can when setting up its retail networks. Dell and HP can freely move in and out of distribution and kill model lines at will, yet GM may have only bankruptcy as its vehicle for escaping prohibitive costs of killing a brand. The non-domestic competitors have all come into our market unconstrained by legacy binding the adaptive flexibility of our established companies.
Certainly execution failures are a big part of the Detroit 3’s plight, but it’s not the whole story. We need a full-spectrum economy and the economic consequences of abrupt failure are large enough to be worth Federal mitigation. The managerial responsibility can be addressed by mandating their replacement, but the macroeconomic playing field in the sector isn’t level and the lack of any appreciable entrepreneurial initiative in domestic auto making in over half a century suggests market dysfunction deeper than lack of talent in the executive ranks.
Phil
I agree with LandCrusher: Kill CAFE and jack up fuel prices if you feel the need to modify consumption behavior via government taxation.
I’ve noticed the criticism of propping up Detroit with Uncle Sam (well, China’s loan to Uncle Sam) stems from a rational, investment point-of-view. The criticisms are apt, but not applicable in the context of what motivates the political masters that decide these things. It’s more of a political question for them than an intelligent-investment decision.
Obama has already developed a history with Michigan voters after the whether-to-count-the-votes debacle in the primaries. Kwame Kilpatrick just got bounced as Detroit mayor and his mama is a big-shot in the House of Reps, who controls considerable political machinery in Michigan that Obama wants to help him there. The unions collectively have a lot on the docket with that card-carry vote bill that they DESPARATELY want. Unions aren’t much good if there are no unionized companies….tee-hee. There are many, many political motivations for Obama to cut some checks to the D2.8 crew, so I would be suspicious of him on that regard.
McCain has no ideological motivations (maybe an sentimental affinity for Detroit that you see in lots of older people) to prop up Detroit. However he wants to win Ohio, and he wants to at least have Michigan be competitive I would imagine. This would potentially involve some soul-searching (selling?) in regards to principle regarding the D2.8 and their finanical succor from the Feds.
Its “just loans” too, not actual payouts! I could see that spin being the originating talking-point for both these clowns to sell us down the Detroit river if they feel they need Michigan, Ohio, and other rust-belters in W column on Tuesday evening in November.
No irony here. Phil Ressler’s… other than a very refreshig take on the matter, is one of the best comments I’ve read in this site.
I really liked this part:
…”is as much a source of operating dysfunction as is placing managerial control in the hands of finance professionals who have no abiding interest in the product they’re responsible for making.”
they are going after the “rich”. Even if they honestly are aiming at the multi millionaires with million dollar incomes, they don’t really hit them. Instead, they hit the families and indivisuals making over 150 who still aren’t even millionaires.…
And their lies the problem. Right now people with combined incomes of 150 to 200k get slaughtered because at that level, most of the income shows up in a W2. The real “rich” people derive most of their income from capital gains, which are taxed at a much lower rate. Sad to say, it is not that easy to support a family on 150K around these parts. I, for one, want real tax reform so that the burden is distributed in a more equal fashion. I certainly don’t want more breaks for those banking 500K a year. My libertarian friend constantly reminds me of the total amount of money the top 2% pay in taxes. But when you compare what they earn to what they pay, percentage-wise, it is a much different picture.
re: “…beginning to share your pain…But I really am starting to get PO’d about congress…Everytime you turn around, they are going after the ‘rich’…honestly aiming at the multi millionaires with million dollar incomes, [but] they don’t really hit them…they hit the families and indivisuals making over 150 who still aren’t even millionaires.”
Landcrusher / September 11th, 2008 at 12:06 pm
tell me about it – that’s right where my wife and i were, only a very short time ago. but times and conditions have changed – bigtime. i was ‘forced’ into an early retirement when my longterm employer elected to close its doors. and nobody’s bailing me out.
you say you’re “…starting to get PO’d about congress [and evidently similarly concerned about obama because]…Everytime you turn around, they are going after the ‘rich.\'” well, it just might be that the ‘rich’ – however you choose to define them – are about all that is left.
the poor, the unemployed and the unemployable have no money. what little is left of the middleclass appears to be completely tapped out for the forseeable future. and based upon the magnitude of the economic mess we all now find ourselves mired in, the upwardly mobile may be next.
all of which leads me to conclude that obama is the only rational option available. out of genuine curiousity, just how much do you think the election of ‘obama and his tax cut’ would cost us?
Phil Ressler, nice post.
Maybe should write a rebuttal article. I’d read it.
Phil Ressler: So, why is that? It can’t be capital availability alone. Starting a new airline is dearly capital-intensive, and yet we see a few created every decade.
Not a valid comparison (starting a new car company and an airline). Airlines are particularly un-capital intensive. You can lease a dozen jets, rent some gates and hire the staff to run it, with very little capital. That’s exactly why its been done/tried over and over. Older jets are very cheap to lease.
Car companies are as capital-intensive as it gets, because of the necessary facilities to research, develop, test, manufacture and assemble cars. The last to try it was Kaiser-Frazier, which even got a huge (empty) factory for cheap after WWII.
It still didn’t work, and here’s why: K-F competed head-on with the full-size cars from the D3. And the D3 could easily use their larger muscle to flood the market (and absorb the temporary reduction in profit) to wipe out K-F.
The successful imports succeeded precisely because they found the niches where the D3 wouldn’t make enough of a concerted effort to succeed: small cars, and high-quality luxury cars. And because, in the case of the Japanese, their cars were consistently better quality, the profits generated by their small cars allowed them to slowly (over decades) expand into ever larger and other product segments. Now, 50 years later, Toyota competes in all of them. But the D3 gave them the openeing, with their inferior small car offerings (Vega, et al).
Anyway, your argument is essentially irrelevant, because of the global economy. The D2.8 are developing, building and selling their smaller cars abroad. There is essentially no more such an animal as a domestic-only maker (Chrysler comes closest, and they’re in the worst shape and desperately trying to increase international sales). GM and Ford are only alive today because of profitable overseas units.
The relevant comparison is Hyundai, which in some twenty years evolved from a smallish local Korean manufacturer to the world’s fifth largest manufacturer. It shows it can be done, but it suggests that Americans don’t have the hunger, desire, chutzpha, or whatever it takes to grow and succeed like a Hyundai.
Your arguments about keepng the highest paying jobs at home are losing relevance by the day. The D2.8 are slashing white collar jobs, and having their cars increasingly developed by their overseas units (Daewoo, Opel, Ford Europe, etc.).
Phil, I respect your arguments, but they sound dated. Like Humpty Dumpty, the D2.8 are broken (in the US), due to their negligence in allowing the imports to steal market share, and no amount of fed money is going to put them back together again.
GS850G wrote:
At least autoworkers can apply to build cars at the transplants door, they are hiring.
The transplants won’t hire anybody who used to be a uaw member. If you do get in and they find out, you’re gone.
Everybody who’s ever had a warranty claim rejected on a “Big 3” car should sign a petition telling the automakers to go shit in their hat. Let’s see how they feel when the tables are turned. Karma’s a bitch.
Paul-
Not a valid comparison (starting a new car company and an airline). Airlines are particularly un-capital intensive. You can lease a dozen jets, rent some gates and hire the staff to run it, with very little capital. That’s exactly why its been done/tried over and over. Older jets are very cheap to lease.
I have direct experience with capitalizing new ventures. In the spectrum of new companies that can be financed, an airline is comparatively capital intensive. It doesn’t matter that auto making is even more so. Overall, the financing options for starting a new airline are meager compared to, say, something truly capital unintensive like a web media company, or Starbucks. Let’s get real. Most financiers want nothing to do with starting an airline. It’s a horrid risk, yet it continues to be undertaken. Compared to both capital intensity and the value-accumulating potential of the investment, older jets aren’t “very cheap to lease.” They’re just cheaper than new ones. Moreover, Edward broached the comparison, not me.
Car companies are as capital-intensive as it gets, because of the necessary facilities to research, develop, test, manufacture and assemble cars. The last to try it was Kaiser-Frazier, which even got a huge (empty) factory for cheap after WWII.
Yup, but getting less so. Panoz finances a niche auto making operation on a family fortune. It developed its own chassis and leverages plastiforming of aluminum for bodies. But it buys excellent major drivetrain components from Ford while yielding a car with a very different flavor than anything Ford makes. Lotus uses Toyota engines. GM’s crate motor business is loaded with outstanding engines, as is Ford’s. Doing what any other start-up industry does — leverage what doesn’t have to be originated now to focus on what does, and integrate the two, could be much more intensively explored if the auto making economy were entrepreneurial like other sectors. It’s not, at least not here. That’s an exception in our economic circumstances.
It still didn’t work, and here’s why: K-F competed head-on with the full-size cars from the D3. And the D3 could easily use their larger muscle to flood the market (and absorb the temporary reduction in profit) to wipe out K-F.
No kidding, but this is not the world we have now. Kaiser was undercapitalized. It made a go at consumer auto-making because pent-up demand gave it room to elbow in. The company didn’t prevail on distribution, nor on capturing the public interest, and didn’t amass the scope of talent to compete with the Big 3. They were vulnerable to the also-rans. Mass promotional media was scarce. Today, the market is fragmented, rich with promotional options, and there’s CarMax. There is also much more capital sloshing around the world than in Kaiser’s time. Why aren’t entrepreneurs leveraging it, and where are the up-and-coming creative destroyers to rejuvenate the ecosystem? Perhaps the electric car will be the spark to return entrepreneurism to car making.
The successful imports succeeded precisely because they found the niches where the D3 wouldn’t make enough of a concerted effort to succeed: small cars, and high-quality luxury cars. And because, in the case of the Japanese, their cars were consistently better quality, the profits generated by their small cars allowed them to slowly (over decades) expand into ever larger and other product segments. Now, 50 years later, Toyota competes in all of them. But the D3 gave them the opening, with their inferior small car offerings (Vega, et al).
Yup. Did you mention dated somewhere in your response? The 50 year stair-stepping that Toyota, Honda and a few others relentlessly pursued in our market is to their credit, but it has nothing to do with whether the Detroit 3 are worth saving with Federal assistance. When the Vega was rusting in real time, so were Toyotas, Datsuns and Volkswagens. There was more at play than reliability, for those marques increased market share when they were less reliable than Detroit’s cars. I’m old enough to have lived it. It’s easy to dismiss Toyota’s rise as a simple outcome of a merit economy, but the fact remains that they had a lower legacy cost burden; that the Americans could not readily adjust their dealer networks, nor force business practice changes on them or innovate with completely new distribution and service models in response to a methodical intrusion. And there was the Boomer backlash against everything traditional. Culture influenced the evolution of our car market as much as economics and product. If the market is king, where are the new American auto companies fueled by frustration from working in the old ones?
Anyway, your argument is essentially irrelevant, because of the global economy. The D2.8 are developing, building and selling their smaller cars abroad. There is essentially no more such an animal as a domestic-only maker (Chrysler comes closest, and they’re in the worst shape and desperately trying to increase international sales). GM and Ford are only alive today because of profitable overseas units.
I’m as global as the next guy, and I never postulated there is or should be a domestic-only maker. But there are domestic-headquartered makers and no amount of globalization withdraws the advantage to a given country of retaining robust domestically-owned manufacturing with the full spectrum of supporting functions, from design, engineering, marketing and distribution. Globalization simply allows that domestic advantage to be leveraged more broadly in multiple markets for both wealth and value accumulation at home. That Ford and GM are sustained right now on viability of their foreign operations is no refutation of the value of reviving their central viability here.
The relevant comparison is Hyundai, which in some twenty years evolved from a smallish local Korean manufacturer to the world’s fifth largest manufacturer. It shows it can be done, but it suggests that Americans don’t have the hunger, desire, chutzpha, or whatever it takes to grow and succeed like a Hyundai.
Hyundai is not remotely relevant to my point, but I grant you they were hungry. It’s no coincidence that LG and Samsung underwent a similar transformation in the consumer electronics and appliance sectors in the same twenty years, after inauspicious starts. Hyundai blossomed from a closed domestic market, fueled by a national imperative to create wealth and jobs (in part for political stability) for South Korea, and Hyundai will continue to be a hungry beast chewing away at Toyota, Volkswagen and GM as a result. It’s not an example of an entrepreneurial company started in the US, having to compete for capital in our money markets and bootstrap itself to scalability grappling for an even footing. If it takes exclusively national policy and capitalization to build up an auto making operation, there’s an element missing from our normal economic churn.
Your arguments about keepng the highest paying jobs at home are losing relevance by the day. The D2.8 are slashing white collar jobs, and having their cars increasingly developed by their overseas units (Daewoo, Opel, Ford Europe, etc.).
Which is all the more reason to stanch the flow of high-value jobs offshore, retain what’s left and pull some that left back home. Globalists like to believe that knowledge is no longer cornered. Well, there’s really nothing from an engineering and design standpoint that Koreans or Germans or Japanese or Brits know about making a viable small car that eludes Americans. But the economic loads carried by companies in these countries aren’t equal. Is it that Americans don’t know how to design a small car? Or that designing, building, fielding and selling a small car at a market-competitive price becomes considerably more daunting when the financial scalpel is wielded to make such a car viable given its cost structure? Some of both. There’s more to Detroit’s dysfunction than management. The domestic macroeconomic factors are unique, and a Federal package aims to mitigate that.
Phil, I respect your arguments, but they sound dated. Like Humpty Dumpty, the D2.8 are broken (in the US), due to their negligence in allowing the imports to steal market share, and no amount of fed money is going to put them back together again.
Not dated, just not informed purely on economic theory. Economists suggest we should surrender to comparative advantage, just accept we’re not competitive in car-making anymore and let the sector fail. That’s nice and tidy from an economic theory standpoint, but economists always miss the human reality of politics and emotion. Economics have led us to a roller-coaster sequential bubble economy, ignoring the fact that markets frequently (usually) get things wrong and careen us into trouble. Economists are too willing to disrupt the polity, risking permanent truncation of economic potential.
It’s au courant to indulge the imperative of comparative advantage, but that’s the dated perspective of the no-consequence ’90s. The world has evolved into a small coterie of political and psychological leaders whose latitude and ability to project is underpinned by specific economic strengths. Most of the rest of the world is loosely organized under these few leaders, variously insulated from international responsibility and holding more luxury for indulging their specific bias about an appropriate economic life. The United States is chief among the first group, and doesn’t have the luxury of behaving like the second.
Our domestic economy has plenty of automotive spending in it to easily support the Detroit 3 and a wide array of non-domestic vendors, if there is more balance in the market. By any measure, giving up on a revamp of the negative legacy economics of our automotive market will leave the US economy — and Americans in general — weaker and compromised. We ought to be able to restructure enough of the sector’s underlying dysfunction to put the domestic industry on a competitive footing. Is it guaranteed to succeed? No. It will take more than money or than talent alone.
But my key point is, that the lack of entrepreneurial replacements for the domestic incumbents is peculiar in our economy. Circa 1991, when IBM was in danger of succumbing, there was no talk of saving IBM with a bailout. Why? Because it was understood that new domestic companies were rising to absorb its failure. Now, IBM is profitable, but it is far less influential and consequential, having grown much more slowly than its sectors. Today, IBM is only about $25B larger than it was in 1991 — a growth of about 33% — while its sector grew exponentially further during that time. In a lot of respects that’s a gross failure of will and performance, but the company is viable. However, we didn’t really worry about what might have happened to IBM, nor do we care that it’s not the $400B corporation it could have been, because Microsoft, Oracle, HP, Dell, Lotus, Novell, Sun and others that chewed away at the lumbering beast created much more value and wealth than they destroyed. No equivalent dynamic exists in auto making. Show me that and forget the bailout. The Federal packages under consideration are an effort to fund through intrapreneurship what the market is not supplying in entrepreneurship. Now you can argue about whether it will work, and you’ve taken the position that it can’t, won’t and shouldn’t be tried. But the arguments for the bailout aren’t dated. They’re just not popular here.
For the bailout to pay off, it must come with conditions that result in a change of direction and control — for the better. I’ve already covered my view of that in another thread.
Phil
# Geotpf :
September 11th, 2008 at 4:20 pm
golden2husky-If you can’t support a family while making $150,000 a year, you are an idiot who doesn’t deserve to make that much.
…
Nice flaming comment there, bud. Good thing RF has better things to do today. I guess you don’t have a mortgage, high property taxes, two kids with college funds to fill, a retirement to prepare for and an elderly parent that needs special care.
Phil Ressler: ” The absence of any domestic auto making entity fulfilling the role of successful creative destroyer that Southwest has mastered over the last 35 years, and the commonality of problems faced by GM, Ford and Chrysler indicates a market dysfunction complicated by managerial fumbling… ”
Detroit’s situation can be explained entirely by The Incompetence Theory.
And it continues… look no further than The New Camaro or GMFactsAndFiction for verification.
Philip,
If we get Obama AND a veto proof democratic congress, we could be in some serious trouble before eight years is up.
A lot of people I know will hunker down and simply stop earning so much. The people who actually create wealth often have jobs or businesses where this is possible. The real killer isn’t the top rate, its the payroll tax scheme.
There will be a surge in small business creation because they will become the only tax dodge available. However, many of the businesses will be little more than paper entities because employees will be too risky. (Texas has realized this trend has already begun, and is skimming the cream off the top by taxing small businesses that lose money)
Unemployment will rise, and while the income gap narrows, the standard of living gap will actually increase. It could get really ugly. His tax scheme is Chavez lite. He is buying off votes from 40% of the country by promising them a check.
A recession will be on the way, and the left will say that it was just a continuation of the one we are in now (which we aren’t, but you know).
So ya, it’s gonna cost a shit load of money. Even Keynes isn’t a Keynesian, but that hasn’t stopped all these Harvard boys from thinking they can get a free lunch on his theories.
No matter who you want, vote McCain. We need a check to balance the oncoming Pelosi-Reid nightmare.
Geotpf,
It’s not hard to have $150 coming in, and still be short. Especially if you used to earn more.
How much more after tax pay do you think a family of four has that makes 150 vs. 75? Do you realize that property taxes for many people in the 150 group have nearly doubled over the last seven or eight years?
Golden,
Everyone above 150 pretty much ends up with a functional income tax rate around 25%. What happens when you get above 500 is that people either start losing money on some paper investments, or use other methods to make avoid taxes. They also invest a lot more, and do indeed pay a lot less on capital gains. However, many capital gains payments have already been skimmed by the corporate taxes. It all gets silly complicated. The only way to get around it is consumption taxes instead of income taxes.
True social justice is only found in a consumption tax. Let’s say your neighbor makes a million dollars a year, but lives exactly like you. His extra wealth is getting invested back in the community. He is not living any better than you. Why tax him more? I have never understood why educated people don’t see this. Income means absolutely NOTHING. We should pay according to what we use (take), not by what we contribute.
Landcrusher: “If we get Obama AND a veto proof democratic congress, we could be in some serious trouble before eight years is up.”
It’s deja vu all over again… I said much the same thing about Bush and the Republicans in ’00. Bush’s total incompetence, however, prevented the Republicans from making much headway on their social agenda but my remarks were a spectacular underestimation of the damage Bush could do to foreign policy.
Landcrusher: “Let’s say your neighbor makes a million dollars a year, but lives exactly like you. His extra wealth is getting invested back in the community. He is not living any better than you. Why tax him more?”
Because he’s deriving more benefit from society. He chooses to defer the enjoyment of those benefits, which will end up compounding them.
Phil Ressler, great post, plenty of food for thought.
My question for you refers to this statement of yours:
But my key point is, that the lack of entrepreneurial replacements for the domestic incumbents is peculiar in our economy.
I agree this is true but why is it true? Are the barriers simply too high to start a car company from scratch these days? (Panoz is one example but what about Tesla?) Is the regulatory environment such that small players are eliminated?
Looking toward a post-Detroit 3 world (at least in their present form), these questions seem critical.
Kix,
The Senate Democrats kept the Repubs from running off and doing whatever they wanted. That and the fact that they forgot what Republicans were supposed to stand for.
As for your neighbor millionaire, you are making him guilty of the crime of using his own wealth before the fact!
Shouldn’t we wait until he actually DOES derive more benefit before we tax the hell out of him? He can’t take it with him. Until he spends it, his only crime is providing the banks with money that can be used to create goods and jobs FOR OTHERS. That rich bastard!
I love it when people wail about higher taxes on those making $150-250,000 annually, but then vote for those who promise to “tax the rich” to support more (or expand existing) government programs.
Only problem is that there aren’t nearly enough “rich” to pay for all of those programs. Which means that the middle- and upper-middle class will bear the majority of the tax burden. But they seem to forget that at election time, and then complain when the bill comes due.
(The complaints begin: “Blue Staters pay more taxes than Red Staters!” Well, duh – blue states contain more of the high-income urban areas, so it makes sense that those residents will end up paying more taxes under schemes designed to “soak the rich.” By many standards a couple earning $200,000 annually ARE rich, and there simply aren’t enough Donald Trumps and Bill Gates to fund government programs.)
Phil Ressler: When the Vega was rusting in real time, so were Toyotas, Datsuns and Volkswagens. There was more at play than reliability, for those marques increased market share when they were less reliable than Detroit’s cars. I’m old enough to have lived it.
I was around, but not old enough to drive. Let’s just say that even among myself and car-conscious friends, the Vega had a reputation as an unreliable rust-bucket. Might have been a neighbor’s pale yellow 1974 hatchback that developed huge, cancerous rust spots on the outside within three years that gave us that idea.
Those smaller imports were less reliable than Detroit’s intermediate and full-size cars, but no one was cross-shopping a Toyota Corolla with an Oldsmobile Cutlass Supreme or a Ford LTD Brougham in those days. They were comparing it to a Vega, Pinto and Gremlin, and it came out looking pretty good.
My first car in college was a used 1977 Honda Civic CVCC hatchback (purchased in 1980 with 27,000 miles on the odometer). My dad had a 1973 AMC Gremlin that he had bought when it was a year old.
The Honda was far superior to the Gremlin in every way – ride, handling, braking, workmanship, reliability and rust resistance. The Honda went for 100,000 miles without major trouble, after which the engine was rebuilt, and it went for another 45,000 miles. The Gremlin was shot at 96,000 miles. The car was literally falling apart before it died.
The Big Three – especially GM – had advantages, too, when the imports starting gaining steam in the late 1960s. They had a loyal customer base (especially GM), strong brand identities (again, especially GM), a strong dealer base and spoke the same language as potential customers. The simple fact is that all three of them ended up throwing those advantages away through a combination of arrogance, laziness and cluelessness.
Henry Ford I said, “Obstacles are what you see when take your eyes off the goal,” and “You can’t build a reputation on what you are going to do.” Unfortunately, by the early 1970s, Big Three management had forgotten those statements, and so they have spent most of their time alternating between boasting about the spiffy new products that are “just around the corner” and wailing about everything from the UAW to Consumer Reports.
Landcrusher: “The Senate Democrats kept the Repubs from running off and doing whatever they wanted. That and the fact that they forgot what Republicans were supposed to stand for.”
Piffle. They had the White House and a majority of both houses of Congress. Republicans have even appointed something like 2/3 of currently sitting Federal judges. What more does a party need to move its agenda? Divine intervention? Come to think of it, they had people praying for that, too.
The fact of the matter is, things didn’t happen because the Congressional leadership was more interested in controlling K Street, securing the favors of the “Christian” Right and advancing power than in advancing legislation they said would improve the country (notice I do not say legislation they believed would improve the country because I don’t for one minute believe that the likes of Tom De Lay cares about whether or not something improves the country, knows if it would or not or even gives it a moment’s thought).
Landcrusher: “Shouldn’t we wait until he actually DOES derive more benefit before we tax the hell out of him?”
It’s compounding for him. Even if he chooses to delay the ultimate enjoyment of it, he’s amassed the benefit.
No one makes money in this country without society providing the infrastructure for him to make money (courts, reliable laws, reasonably uncorrupt officials, a population that’s generally law-abiding, schools, the efforts of the previous generations, the future security provided by the next generation).
Those who benefit the most from this society can pay the most… I see no problem with that.
Kix,
I said, “That and the fact that they forgot what Republicans were supposed to stand for.”
You said, “the Congressional leadership was more interested in controlling K Street, securing the favors of the “Christian” Right and advancing power than in advancing legislation they said would improve the country.”
Those are the same thing, so we agree on that at least.
As for the Senate, they stopped more than judges. But really, most of the problem is what we just agreed on.
As for the taxes, I think you may be purposely ignoring my point. The bottom line is that if you tax consumption, then you will actually tax the so called benefits when they are taken. By taxing income, you are actually taxing peoples contribution to society rather than their benefits derived from it. It can’t be more simple. Until your neighbor consumes his wealth, he is basically lending it to the rest of us at a low rate. We should all be thankful, not hateful. I can understand the idea that the guy in the Ferrari should pay more taxes, even though I think its foolish. I don’t understand the idea of taxing work.
As for the standard BS about rich getting more benefit because they are richer, it simply does not apply to this argument. Besides that, it is a dubious argument anyway. What good a government to protect your property from thieves if they then simply take it in the name of “equality”? The government provides lot’s of value to us all equally is well. Does the poor man value his life and limb less than the wealthy man? Should we have a head tax in addition to other taxes?
@Phil Ressler, your airline analogy is weak, foreign competitors aren’t allowed into the US airline market so there is no opportunity for Lufthansa or whoever to develop into a Honda equivalent and passengers pay the price in dismal service and higher fares.
Sure if Toyota, Honda and Nissan were banned from the US market the “domestics” would have close to 100% market share but the cars would be more expensive, less powerful, less safe and less efficent.
In any case for creative destruction to take place the destruction part needs to come first.
GM, Ford and Chrysler need to be allowed to fail if necessary. There wouldn’t a SouthWest Airlines today if PanAm and TWA were still limping along on taxpayer funds.
A break up of GM is probably the best thing that could happen to the “domestic” auto industry. It would be great to see domestic brands turned around with new management and new investment but a bailout guarantees continuation of the current failing regime.
Meanwhile come rain or shine Toyota, Honda and Nissan are taking the long view, investing and creating jobs. Someone will always make money building cars in America. Who cares where the HQ is.
The airline analogy is a poor one, on a lot of levels.
The problem with the airline industry is that the carriers derive virtually no branding benefit. In most industries, a good brand allows the operator to charge a premium. Airlines get no such benefit, and they pay enormous sums to operate what is a commodity business, with most customers shopping based upon price and unwilling to pay extra for the name.
They have huge overhead to cover, but can’t make up for it with revenue. Southwest has been the exception because as a niche provider, it has dramatically reduced the type of overhead that other airlines routinely carry.
This is absolutely not the case in the car business. As a case in point, a blog item was posted here re: Warren Brown’s review of the new Chevy Aveo, which emphasized that it was inferior to the Honda Fit, but worth considering because it is cheaper.
That review inadvertently illustrates the value of branding. Honda and Toyota have built reputations and trust that allow then to command premium prices for their vehicles — consumers trust them. Consumers don’t trust GM, and therefore need to be sold on the deal, rather than the product.
The long-haul solution for GM, assuming that it continues to exist, is for it to make best-in-class products, for many years, year after year. After years of proving themselves, customers will reward them by losing their fear and being willing to pay Honda prices for GM products that they wouldn’t pay today. The airlines have absolutely no ability to increase their revenues in that fashion.
@Phil Ressler, your airline analogy is weak, foreign competitors aren’t allowed into the US airline market so there is no opportunity for Lufthansa or whoever to develop into a Honda equivalent and passengers pay the price in dismal service and higher fares.
Lufthansa doesn’t compete domestically, but entrepreneurial airlines do. Southwest is the Honda equivalent, and there’s not reason to suspect that they wouldn’t continue to be so, if foreign airlines had direct access to our domestic markets. Moreover, a motivated entrepreneur finds a way, as Richard Branson did in building Virgin America within the rules.
There wouldn’t a SouthWest Airlines today if PanAm and TWA were still limping along on taxpayer funds.
Southwest started before airline deregulation, and scratched out a path to unbroken growth during a time when the major airlines were still aided and abetted by public assets and laws that protected their position.
It would be great to see domestic brands turned around with new management and new investment but a bailout guarantees continuation of the current failing regime.
The conditions for a bail-out can be set to ensure new management. This is specifically an opportunity to disrupt continuation of failing regimes.
Who cares where the HQ is?
You should. HQ comes with tens or thousands of the highest-value jobs in the industry. Non-domestic companies keep those jobs at home.
The problem with the airline industry is that the carriers derive virtually no branding benefit. In most industries, a good brand allows the operator to charge a premium. Airlines get no such benefit…The airlines have absolutely no ability to increase their revenues in that fashion.
International carriers have built differentiating brand value with some price difference customers accept. Singapore Air and Qantas over the Pacific, particularly. In the US, carriers have generally been unwilling to even try to build differentiated value in recent decades, instead operating on the assumption that air travel can’t be made into anything other than a commodity service that a carrier must find ever more efficient ways of delivering. We don’t even know whether that assumption is correct until someone tries to demonstrate otherwise and succeeds. Southwest has become a coast-to-coast carrier, making money on the commodity-efficiency vector. That profitability has put pressure on everyone else to try to duplicate it. That doesn’t mean it’s the only path to profitability. Like Microsoft, which did an unusually good job of scaling while preserving its entrepreneurial character for many years, Southwest has remained the spoiler for the institutional brands. They’d likely retain that role even if our domestic market were wide open to foreign airlines.
Building Virgin America within the rules meant no controlling shareholding for Branson and having to sacrifice his first choice of management… a poor third or fourth best compared to being allowed to run a company with ownership and management control.
Honda, Nissan and Toyota all have American staff in high income design, marketing and management roles, they employ the same service professionals from lawyers to cleaning staff that a domestic HQ does just as GM employs professionals all over the world. The transplants are creating wealth, GM is destroying wealth but yeah the top managment is well renumerated…
The conditions for a bail-out can be set to ensure new management. This is specifically an opportunity to disrupt continuation of failing regimes. The whole point of the bailout is to protect the existing regime – my which I mean not just management but the UAW honchos, auto industry lobbyists, MI politicians etc etc…
Building Virgin America within the rules meant no controlling shareholding for Branson and having to sacrifice his first choice of management… a poor third or fourth best compared to being allowed to run a company with ownership and management control.
And, still, Branson proceeded.
Honda, Nissan and Toyota all have American staff in high income design, marketing and management roles, they employ the same service professionals from lawyers to cleaning staff that a domestic HQ does just as GM employs professionals all over the world. The transplants are creating wealth, GM is destroying wealth but yeah the top managment is well renumerated…
The true HQ jobs in Japan are more numerous and more valuable in terms of retaining expertise and core capability to operate globally. The transplants do not offer the same economic leverage here, in terms of job creation, ripple effects and core high value expertise as functional domestic counterparts, but they do in their home market.
The whole point of the bailout is to protect the existing regime – my which I mean not just management but the UAW honchos, auto industry lobbyists, MI politicians etc etc…
No, that’s not the point of a bail-out. This instance of a bail-out may fall that way if the politics of the matter prevail over business sense. But there’s nothing intrinsic to this kind of Federal aid that mandates continuation of current regimes and operating practices.
Phil
Landcrusher,
But simply having money does provide a benefit… peace of mind.
Sure, you can then rant on about “confiscatory taxes” eroding peace of mind but, in fact, we don’t have that and no one is proposing it (you get taxes on money earned by money but you still don’t get taxed just for having it). But I certainly don’t see why the top rate shouldn’t apply to the final million as well as the first $150K.
Phil, when you say I should care where the HQ is… well, I don’t. The US-HQ’ed companies I observer every day are shipping jobs and manufacturing off shore as fast as they can.
I care about manufacturers willing to invest and develop operations here. If their HQs are off-shore… so what? Who’s building here and who’s tearing down here? That’s what counts.
Confiscatory is a meaningless phrase, just like “rich”.
You clearly just don’t even want to consider my argument. YOU based the justification for taxing the million dollar earner for several times the amount that you pay based on his getting more benefit from society. When I show that only spending his wealth allows him to actually take that benefit, your response is that he has more piece of mind?
COME ON!
If you just FEEL that I am wrong, but can’t quite come up with a good argument, then just say so. That doesn’t make me right and you wrong. Charging your neighbor, who takes the same from society, but gives more to society, 5 to 10 times the taxes just because he has more piece of mind is a bit silly.
It sounds like you might consider a wealth tax over an income tax, and that would make more sense than an income tax. However, based on the justification for progressive taxation that YOU give, consumption is the fairest route.
re: “…only spending…wealth allows [the wealthy] to…benefit…”
Landcrusher / September 14th, 2008 at 5:51 pm
simply. not. true.
in addition to actual purchasing power, wealth also gives one political power, prestige, position and influence in our society.
but even more importantly – it is essential to realize that in order for the wealthy to amass their wealth, they almost always utilize, expend and even exploit other people, other resources and other opportunities that have real value. real value to them. real value to others. and real value to society.
so, realizing that anything/everything of real value must eventually be paid for by someone – why shouldn’t be by those who benefit the most from them?
Comparisons between airlines and automakers were only intended to illustrate how similar their possible pitches for federal aid could be and how they could crowd each other out.
I share Phil’s frustration at the lack of
“entreprenurialism” in the US auto industry. But let’s not kid ourselves… there aren’t a lot of new automakers worldwide. Building cars is so immensely complex, from styling to quality to sales performance and on and on. “Airline travel” is a far more generic product, and doesn’t require the kind of ground-up development that building cars does.
It’s a testament to the maturity of he auto business. Cars have become hugely complex machines, but it’s still hard to differentiate your product in the marketplace. Rather than a constant churn of new firms, the “entreprenurialism” that Phil and most of us would like to see more of comes from new management teams ascending at existing firms. How does that happen? First, the firm has to admit it has a problem and want to change.
A bailout works precisely against the one outlet for “entreprenurialism” in a mature industry like this. As long as we’re all still talking about a bailout lead by the D3, UAW, and MI pols and launched in the midst of an economy-centered presidential race. When Phil writes “The conditions for a bail-out can be set to ensure new management. This is specifically an opportunity to disrupt continuation of failing regimes,” he betrays a trust in government I simply do not share. As I wrote in the editorial, Chrysler’s current situation proves that (at best) government micromanagement only works for so long.
Philip,
Please give me an example of how someone who leaves their riches in the bank gets ANY of the benefits you describe.
Your answer is more an attack on capitalism than a justification for progressive taxation of income.
Purchasing power should be taxed when utilized, that is my whole point. No use, no benefit.
Political power is not taxed by choice in this country, that is a whole other ball of wax. Why tax the businessman’s “power”, but not the community organizers’ “power”?
Prestige is not taxable. If you gain prestige by buying fancy stuff, then a consumption tax works better, once again. If the prestige is somehow gained by telling everyone how rich you are, then I don’t think it’s worth taxing.
Influence is another thing we do not tax, and consumption would be a much better way to tax that as well. In fact, much of what happens with socialism is simply a transfer of power from the wealthy, talented, and hard working to the influential. If the influence should be taxed, then tax it, not the wealth.
I know I am attacking a point that a lot of people take as a given, but the idea of highly progressive income taxes just don’t stand up well to scrutiny. They aren’t good for anything except allowing more demagogues and class warriors to live parasitically off of the rest of us while hurting the poor the most.
re: “…highly progressive income taxes…aren’t good for anything except allowing more demagogues and class warriors to live parasitically off of the rest of us while hurting the poor the most.”
Landcrusher / September 14th, 2008 at 5:51 pm
not sure how you are defining “the rest of us,” but when you state, “…to live parasitically off of the rest of us while hurting the poor the most,” i think you have it backwards, crusher.
i am confident of this: generally speaking, the poor and the middle-class are not living parasitically off of the wealthy. the wealthy are, far more frequently, living parasitically off of the poor and the middle-class.
want proof? just follow the money. or look closely at whom the tax code favors.
to begin with, it is absolutely essential that one recognizes two undeniable truths: [1] the well-off do not amass their wealth in a vacuum. and, in most instances, [2] they do not amass their wealth on the basis of their individual effort alone.
it would be an extremely rare individual who could, by his own effort, actually produce a volume of work equal to that generated by – for the sake of argument, let’s say – dozens or hundreds or even thousands of others.
and yet, it is exceedingly common in our contemporary society for the wealthy to ‘somehow’ claim magnitudes of profit and wealth that far exceed the amount that dozens or hundreds or even thousands of others might manage to achieve, even under optimal conditions.
how can this be?
in almost every instance, it is only possible by exploiting the effort of others and taking a share of the benefits generated by that effort; and/or by exploiting critical natural resources like clean air, fresh water, healthy forests and vast mineral deposits for instance, as well as elements of civilian infrastructure like the energy grid and roads and bridges – things of real value for which they did not pay fully or fairly; and/or by exploiting economic opportunities – business investment and tax avoidance comes quickly to mind. it is only by exploiting factors and privileges of this sort, which are simply not available to most others, that enables one to amass true wealth of any measure.
seems to me that those who benefit most from our economy and society’s generous accommodation – the wealthy – are obviously able, and should be willing, to pay for the privilege.
it would be an extremely rare individual who could, by his own effort, actually produce a volume of work equal to that generated by – for the sake of argument, let’s say – dozens or hundreds or even thousands of others.
So, if this one person were to, say, organize the dozens, hundreds, or thousands into a more efficient instrument of production they would not deserve to be more highly paid?
to begin with, it is absolutely essential that one recognizes two undeniable truths: … [2] they do not amass their wealth on the basis of their individual effort alone.
Not true in all cases. Those that create new intellectual property such as inventors, writers, composers, can amass wealth with little or no aid from others. J.K. Rowling made herself wealthy from the Harry Potter books by dint of her writing ability with little help from others. (Her remuneration comes from selling the copyright to her works and the movie rights to those works.) Would you claim she expoits those who work to print and ship her books?
@ philipwitak: “seems to me that those who benefit most from our economy and society’s generous accommodation – the wealthy – are obviously able, and should be willing, to pay for the privilege.”
So by this logic I could sit at home and eat bonbons all day but I wouldn’t be earning any of the “benifits” of society you speak of. And because of that those who do work should pay back some of their “benifits” from working to me in the form of a nice juicy government check every month. I like this land you speak of!
Philip,
I think you need to read my post again, and try to think about what I meant before responding.
As for the whole new argument you offer, it is not about taxation, it is about capitalism. Perhaps you should try not using the word “exploit”. One can use that word in a positive or negative way and it has completely very different meanings.
At any rate, it seems to me, and I am not trying to put words in your mouth, that you are mostly focused on CEO pay. I will be happy to agree that CEO’s are often overpaid. That is not the point here AT ALL. Taxation is not the only way to attack that problem, and in fact, it is the worst way available.
In case you are not aware, there are a LOT of people in our society who are not making their value by simply paying low for labor while charging high rates for the production. And how does it help to raise their taxes? Is your plan to KEEP them from hiring more workers who they will be exploiting?
As a side note, if the Dept. of Labor (or whatever new fangled name it now has) wants to reduce the pay gap, all they have to do is give better information on what people working full time, with various levels of experience, in different vocations, ACTUALLY MAKE. The CEO’s have successfully used the legal reporting of their pay packages to raise their pay as a group. The lies put out about different pay for other folks is used to keep their pay down. Your tax dollars at work.