Last week. President Bush sacrificed his free market principles on the altar of expediency. Apparently, under “ordinary circumstances,” the Commander-in-Chief wouldn’t have expropriated $17.4b of taxpayers’ money to bailout General Motors and Chrysler. But someone somewhere screwed-up the U.S. economy; leaving him without the option that cannot be named (a.k.a. doing nothing). I guess Bush was channeling Flip Wilson: “The Devil made me do it!” Actually, that would have been a welcome excuse. The pretext Bush deployed is deeply worrying: “My economic advisors believe that bankruptcy could now lead to its disorderly collapse.” So we’re propping-up two dead dinosaurs walking because we fear “disorder?” When did the United States become Germany?
Seriously. I’ve seen Germans standing at an empty pedestrian crossing at 2am, waiting for the light to change. Don’t get me wrong. The German desire for order is both their weakness and their strength. Alois Ruf doesn’t build the world’s best supercars by allowing his mechanics to plop a schmutz-oozing bratwurst sandwich onto a toolbox. But a tightly confined system of rigidly enforced rules and regulations is not the American way.
As a nation, we’re supposed to have a system of government– and a corporate culture– that allows individuals and companies to engage in the art, science and business of innovation. To paraphrase Joseph Stalin, you can’t make an innovative omelet maker without putting a few omelet makers out of business.
I’m sure I don’t need to lecture anyone about the importance of creative destruction to the health and vitality of our entire economic system. Unless it’s President Bush. Does the Chief Executive honestly believe that the American economy will be stronger if our tax money props-up two, perhaps three failed not-to-say doomed carmakers?
Even if GM could be “saved” by a temporary reprieve from Adam Smith’s “invisible hand,” the overall effect on the automotive market will be stultifying. GM and Chrysler will suck-up sales/money that could have rewarded and strengthened more efficient and market-sensitive automakers, during a time when every sale counts.
Those of you schooled in realpolitik will counter that the Motown bailout buffet is like everything else that emanates from the political sphere: it’s about pragmatism, not principle. The President believed that protecting his political legacy (such as it will be) depends on making GM’s implosion Barack Obama’s problem.
Fair enough. Or, in this case, completely unfair to the car companies who deserve to survive. But the real irony here is that President Bush’s failure to embrace his inner cowboy, his failure to stand back and let the chips fall where they may, will make things far more “disorderly” than if he’d left not well enough alone.
During this pre-C11 interregnum– for that is what it is– The President and his cronies expect GM’s stakeholders to not drive that stake into the automaker’s black heart. For some reason, Bush expects the company’s executives, unions, bondholders, dealers and suppliers to fashion an agreement whereby everyone takes a hit for the team so that the team may survive.
For GM’s longtime observers, the idea triggers a simple, inescapable thought: why the Hell would they do that?
For one thing, they haven’t done it so far, even though GM has been technically bankrupt, heading for its day in bankruptcy court, for years. In fact, you could make an excellent case that the bailout is a reward for NOT having negotiated a viable business plan. And anyone with dogs knows what happens when you reward a behavior. See you on March 31 for more of the same? Count on it.
For another, there is no power within the bailout “agreement” to force anyone to do anything– other than file for Chapter 11 (which they’re going to do anyway). The idea of a bailout “Car Czar”– once the linchpin of the whole deal– has quietly disappeared. And no wonder. He or she would have been a de facto bankruptcy judge. And you can’t have that while you’re busy jockeying for position in the real bankruptcy.
If Bush and the federal teat-suckers he’s supplying think a GM/Chrysler bankruptcy now would be disorderly, just wait. GM’s various “stakeholders” will spend the next 90 days or so fighting over the meat thrown to the wolves by Uncle Sam, and then begin the real business of internecine warfare. Without a bankruptcy judge’s staying hand, all Hell is about to break loose. I fully expect the whole house of cards to collapse before the time comes to re-up. And if not then, later.
But no matter how long it takes, every day that GM (and Chrysler) stay in business will sap precious strength and vitality from the American automobile industry. Energy is never lost; it merely changes form. America’s Founding Fathers knew that some forms are better than others. But when it came to commericial ventures, as long as they stayed within broad boundaries, it was not for them to decide which.
Once again, the Bush administration has shown the ability to take a bad idea (invading Iraq, hiring a FEMA chief, bailing out the Detroit 2.6) and made it worse.
That being said, I still think the debate about the bailout is incorrectly focused.
People love to talk about the benefits of the ‘creative destruction’ of the capitalist system without talking about the very real human costs.
Given the value to our economy of automotive manufacturing jobs (so much that Bible Belt state governments are willing to pay $200k per job), it makes some sense to turn the creative destruction into as much of a ‘soft landing’ as is reasonably possible.
The fact that GWB has managed to take the worst aspects of all of the proposals floating around and combine them in one package is (given his history) not at all surprising. But this is one of those cases where letting the Great be the Enemy of the Good (or mediocre-to-bad in this case…:-P….) will simply be worse in the long run.
“The President believed that protecting his political legacy (such as it will be) depends on making GM’s implosion Barack Obama’s problem.”
It might look like buck-passing, but reportedly Bush and Obama conferred, and agreed that this is what should be done in the short term. My guess is that they both felt that effectively pulling the plug on GM and Chrysler right now would have a terrible effect on consumer confidence as well as quick and direct economic damage. Who knows, maybe in three months some voluntary cram-downs can be adopted. Bush isn’t the first president to find himself doing things at odds with his philosophy. FDR told the voters he’d get the budget balanced.
Eric_Stepans: “GWB has managed to take the worst aspects of all of the proposals floating around and combine them in one package”
What would be the best aspects of all the proposals?
Or, in this case, completely unfair to the car companies who truly deserve to survive.
Who are the companies that “truly deserve to survive,” and are they complaining?
Is it Toyota? No. “‘We support measures to help the industry,’ said Toyota Motor spokeswoman Mira Sleilati.”
Is it Honda? No. “Honda has endorsed the American government’s decision to provide the Detroit 3 with a $25 billion loan, describing the aid package as ‘totally proper’ and important for the development of more fuel-efficient models.”
I could go on.
Those who are against the bailout, in the main, are limited to: (i) a few Southern Senators who put what they thought would be best for their individual state ahead of what is best for the country as a whole, and blocked a vote in the Senate; and/or (ii) those on the far right of the political spectrum.
Yes, politics affects the auto biz, like everything else. Lately, though, it seems that politics is the raison d’etre for this website. Myself, I come here to learn about cars, not to read opinions on political philosphies.
If TTAC could get back to discussing cars, that would be great. If it is going to be “The Truth About Right-Wing Politics As We Believe It,” then I want no part. There are innumberable cites on the intertubes better equipped for political discussion.
That said, I may as well chime in with my view of the politics on this issue. It is amusing to watch people who are very smart about cars attempt to veer into politics, and champion an ultra laissez-faire, free-market approach that has been tried and failed (repeatedly), and in fact is responsible for the horrendous state we’re in right now.
Sure, the government can be overly-involved at times, and some regulations are stupid. But government does have a role, and some of its rules are not stupid. Right now, we’re learning again why certain regulations came about in the first place. (See Wall Street.) Maybe Neal Peart wasn’t really onto something, after all.
Anyway, what does everyone think about the new Fusion Hybrid? Do you think it will be capable? What about the Kia Soul? Too outlandish, or is it what should have been the second-generation xB? Hell, let’s talk about any car at all.
“President Bush sacrificed his free market principles on the altar of expediency”
Was that supposed to be sarcasm?
His steel and shrimp tariffs from back before the current “crises” are two quick and easy rebuttals to the idea that he has anything resembling free market principles!
The big 2.666 are incapable of creating a business plan for success with current management. Current management just do not get it. They are not capable of seeing the future of transportation, just the past. Things have changed forever. The economic climate that allowed bloated cars and bloated car companies is gone.
It’s different now. The only thing that can save them is new, forward looking leadership.
This just lets Dubyah shed the onus of presiding over the inevitable. Post BO, GM and Chrysler need to build something Americans will buy. I dont see this happening.
Robert, unless my memory fails me, you’ve long-supported the concept of a prepackaged bankruptcy for GM. Rightly or wrongly, Bush and his top advisers felt that there wasn’t enough time to work out such a package before GM ran out of money (presumably at the end of the month).
A prepackaged bankruptcy, versus a standard Chapter 11, is attractive because it theoretically would prevent escalation to a Chapter 7 liquidation – which could bring down major suppliers and cause Ford to go bankrupt as well. That’s the “disorderly collapse” Bush is talking about.
Bush appears to be saying, “Look, here’s enough money to buy you the time you need to determine if you can really reorganize without bankruptcy. And if you find that you can’t, you should still have enough time to work out a prepackaged bankruptcy that avoids liquidation and protects suppliers.”
GM may still go bankrupt. And if that’s the only way to get to that sustainable future that allows long-term success, fine. But it seems to me that if by buying three months we can control the process and thus minimize damage to the broader economy and the human suffering that will result, it’s a reasonable proposition.
I don’t post on these boards as much as I did early on (I’m just too busy). But I’ve been accused of having a liberal bias because I didn’t support a standard Chapter 11 for GM. But that’s simply not true. My point has always been that taking a textbook approach to the Detroit automakers’ situation will result far-greater consquences — with far-greater human suffering — than many can imagine.
Robert, I’m not accusing you of not caring about the human dimension in all of this (I’m not actually sure where you stand on that point). But you do seem to be taking a textbook approach to the argument.
Barack Obama did say one thing recently that even his opponents should take heart in. I’m paraphrazing here, but he essentially said he wanted solutions that work. He said he didn’t care if those solutions came from the right or the left – he wanted to know what works – even if those soluations are sometimes a hybrid from the right and left. The solution to the automakers’ plight might just be that.
This is the 21 Century. Let’s check our hard-core ideologies at the door and get to work, shall we?
GM and Chrysler will suck-up sales/money that could have rewarded and strengthened more efficient and market-sensitive automakers, during a time when every sale counts.
Since GWB is concerned about American businesses and the US economy, just which “efficient and market-sensitive” automakers are based in the US?
Is it Toyota? No. “‘We support measures to help the industry,’ said Toyota Motor spokeswoman Mira Sleilati.”
Is it Honda? No. “Honda has endorsed the American government’s decision to provide the Detroit 3 with a $25 billion loan, describing the aid package as ‘totally proper’ and important for the development of more fuel-efficient models.
Of course. If they go out of business, they take a lot of suppliers with them. Suppliers that make parts for Honda and Toyota as well.
Detroit Todd,
It’s not just the “far right” that opposes a bailout of Detroit. Opposition by conservatives is pretty widespread and opposition by libertarians seems to be universal. Unfortunately, supposed champions of the free-market system and stated opponents of wage and price controls don’t have a problem with the government compelling workers to have wages that match those of foreign owned companies.
Only those conservatives that have a clue about manufacturing and the auto industry, like Thaddeus McCotter, recognize the importance of having a healthy domestically based auto industry.
The problem with many conservative pundits, like at National Review, is that many live inside the bubble of Manhattan and Washington, DC. Those who have ties to business are more likely to have ties to the financial trades (hence their reluctant support of bailing out the banks) than to small business or, gasp, manufacturing. I’ve yet to see Stephen Sprueil or Larry Kudlow explain how forcing workers to take lower wages is at all consistent with free-market conservatism.
If TTAC could get back to discussing cars, that would be great. If it is going to be “The Truth About Right-Wing Politics As We Believe It,” then I want no part. There are innumberable cites on the intertubes better equipped for political discussion.
Detroit Todd,
I’m on the right side of the spectrum and I don’t see TTAC as leaning hard to the right. I doubt that Farago is a right wingers. If anything, many of the commenters express fairly left wing or Euro style democratic socialist political attitudes.
Anyway, what does everyone think about the new Fusion Hybrid? Do you think it will be capable?
Unfortunately the bailout has drowned out a lot of newsworthy developments. Dan Neil reports that he was able to get over 50 mpg in a mixed driving test of the Fusion Hybrid. While the first tests of the Fusion Hybrid are starting to appear online and in print, its not getting the attention it would get if all the focus wasn’t on money.
The bailout is even obscuring important money developments in the auto biz. Toyota will lose money this fiscal year, for the first time in 71 years. Normally such an epochal event would get a lot of attention, as would Honda slipping into the red, but not only is this news buried under news of Detroit’s crisis but also reporting on woes at Japanese automakers goes against the prevailing narrative that Detroit can do no right and Toyondissandai can do no wrong.
Detroit Todd: “Anyway, what does everyone think about the new Fusion Hybrid?”
I’m eager to hear more about it. I suspect it has much more potential to reinvigorate the industry than the Volt. Early on I was skeptical about hybrids, but the Prius has proven the concept.
“What about the Kia Soul?”
A good start, but Kia needs to round out their line with a sporty model called the “Id” and a chicken-fat burning diesel hybrid named the “Super-ego.”
Detroit Todd
You got your free money. Now get ready for the blowback from the rest of the country.
There had to be another reason.
No one other then those that will put free taxpayer cash in their pocket argue for anything other then BK. It is that obvious.
Had to be something to do with CDS. There are reportedly 1.2T default swaps written on GM alone, and we don’t know what players hold what positions.
The job loss is a red herring, the jobs will be gone either way.
The McCotter reference is pure spin.
We (me and a group on another board not car related) very much looked up to him when he opposed the bank bailouts. We thought that he was doing the right thing on principle.
Turned out to be a whore, flip flopped when the free money goes to his people.
You got your free money. Now get ready for the blowback from the rest of the country.
I do not work for the auto industry. And it’s not “free money.” It is taxpayer money. I am a taxpayer.
I am not worried about juvenile, empty threats of “blowback.”
I would, however, be worried about overplaying one’s hand, as Michigan is still a “donor” state to the U.S. Treasury, notwithstanding our years-long recession. That’s likely to change, now that it’s been made very apparent that it’s each state for itself.
Detroit Todd:
“…it’s each state for itself.”
You are kidding, right? Perhaps you haven’t caught wind of the next emerging bailout? Cities and states (all generally blue and high tax, coincidently) jockeying for their piece of largesse. Listen to the big city mayors or governors of California, New Jersey, New York, Illinois, etc. whine about their massive budget deficits. Who here thinks they won’t get a big ole slice of bailout pie?
“…an ultra laissez-faire, free-market approach that has been tried and failed (repeatedly), and in fact is responsible for the horrendous state we’re in right now.”
It is that very approach that allowed this country to grow and prosper into the most dynamic, powerful economic engine on the planet. Why do so many people from around the world want to emigrate here, when there are so many lovely socialist democracies to choose from? They do so for the opportunities this system affords its participants. No other economic or political system has outperformed the U.S. In fact, it distributes wealth far more broadly and efficiently than any other tried through history.
Booms and busts are natural phenomena. Looking through history, a free market allows the busts to better allocate resources to more productive uses, creating ever more wealth for all.
More government is most certainly NOT the answer. The government does not create wealth. It distorts and redistributes. And corrupts. I’m sorry, but I don’t trust Boehner and McConnell any more than I trust Pelosi and Reid to make our lives better.
Ronnie Schreiber :
December 21st, 2008 at 2:37 pm
GM and Chrysler will suck-up sales/money that could have rewarded and strengthened more efficient and market-sensitive automakers, during a time when every sale counts.
Since GWB is concerned about American businesses and the US economy, just which “efficient and market-sensitive” automakers are based in the US?
You are right. There is obviously no efficient and market-sensitive automaker based in the US (other than the foreign subsidiaries, which you did not mean).
Oh well, was there ever the idea that any of the D3 was supposed to be efficient? Or market-sensitive? From facts, we conclude: NO. And from the reward they get from GWB on this, it seems that the future still means, they do not need to be efficient nor market-sensitive. Just BE. And suck up tax payers money.
Why do so many people from around the world want to emigrate here, when there are so many lovely socialist democracies to choose from?
Now, to be fair, a statistically insignificant number of people emigrate to and from western democracies. Most of what you’re talking about was from post-WW2 Europe.
Social democracies have a higher standard of living; America has more absolute wealth-making opportunities, especially if you’re already rich, and a lower cost of living.
If the government REALLY wanted to help Detroit they’d do everything in their power to keep gasoline and diesel cheap. My reasoning? The #1 and #2 vehicles sold this year were the Ford F-150 and the Chevrolet Silverado. Create situations that play to Detroit’s strengths and they’ll thrive.
If the government REALLY wanted to help Detroit they’d do everything in their power to keep gasoline and diesel cheap.
I don’t think that we have enough money to buy Saudi Arabia.
The US government does not hold a magic wand that can magically create 79 cent gas. What is it that you’d expect the government to do, exactly?
Sales are down from 17 million to below 10 million.
The bailout will do zilch since autos are not selling. People can’t work building autos if nobody is buying them. (well not for very long) Even Chryslers has figured that out. (maybe they will use the bailout money to give away free cars!)
We now need a USA bankruptcy series.
@ reclusive_in_nature
The #1 and #2 vehicles sold this year were the Ford F-150 and the Chevrolet Silverado.
And there in one statement is The Big Lie of the US auto market. In a recessed economy when you’d think tradesmen wouldn’t be buying new vehicles, and people claim they can’t get credit, the most popular vehicles MUST be being bought by people that in no way need them.
@ reclusive_in_nature
[The #1 and #2 vehicles sold this year were the Ford F-150 and the Chevrolet Silverado]
well have you ever tried to talk a toyota sales rep down on a tundra? not gonna happen.
in addition id say that there are still a lot of diehard “buy american” purists with “semi-expendable incomes” and little idea of what kind of vehicle they could buy for similar money (ex: your grandpa who retired from bell telephone in 1980.)
re: “…Booms and busts are natural phenomena…More government is most certainly NOT the answer. The government does not create wealth. It distorts and redistributes. And corrupts.”
jschaef481 / December 21st, 2008 at 4:43 pm
two more ‘natural phenomena’ you also ought to consider: greed and deception – because left unchecked, they will also breed corruption. which is why any sound economic/financial system absolutely requires reliable rules, reasonable regulations and rational oversight, plus rigid enforcement of them – and i mean lots of rigid enforcement.
that is where our government can, and most certainly must, become the answer.
Mr. Farago:
I am parenthetically sick, tired, and fed up with “Detroit.”
MY genenation, the “Baby Boomers,” (born between 1946 and 1964) came of age at a time when “Detroit” was turning out some really BAD products. They BURNED us with some terrible cars, and even worse “service after the sale” routines. The “Boomers” have never gotten over that. WE took our MONEY elsewhere…to drive somebody else’s cars. I rightfully suspect “Detroit” will NEVER recapture OUR “market segment.”
BTW, we “Boomers” now RULE; being the largest generation ever born (some 77 Million), standing to inherit the largest transfer of wealth in the history of America, we now dictate social, cultural, intellectual, political, and economic policy in America.
Mr. Brock Yates, Jr. carefully chronicles all these facts in his prescient masterwork “The Decline and Fall of the American Automobile Industry,” which I first read in 1988. J. Patrick Wright carefully explains all this in John Z. DeLorean’s superb book, “On A Clear Day You Can See General Motors,” which I first read in January 1979. Rolling back over 40 years, to the April 1968 issue of Car and Driver Magazine, the wise Maven, Mr. Yates, first warned “Detroit” about the “Hangman’s Noose” they were setting themselves up for…as we NOW see, per their Congressional “begging sessions.” His famous 1968 essay “The Grosse Pointe Myopians” is pure FACT!
UAW and “Detroit” have created their own “Monster” problem, with little/no chance of any viable solution. Perhaps another lifetime.
“Detroit” now lives within a “Universe” of other car companies, producing a “galaxy” of makes and models, far superior in quality, at the same or less price. But those, such as Rick Wagoner, have their heads stuck so far up their asses, I’d need to pipe in sunlight and sound…to get them to realize the simple TRUTH.
Neither myself, nor the American taxpayer owe “Detroit” a damn thing…other than a swift, hard kick in the ass, for being STUPID!
Mr. Wagoner and myself are the same age: 55. Mr. Wagoner and myself hold the same college degree: MBA.
But Mr. Wagoner carried home some $14+ MILLION in “executive compensation,” in 2007. Thus, I should not expect him to see things the way I do. Nor the rest of you who may care to read this post.
General Motors has racked up some $72 BILLION in losses, within the past 36 months. What an astounding accomplishment! The damn company must be run by GENIOUSES!
No matter. My local, friendly HONDA dealer rolls out the “red carpet” treatment, everytime my tires hit the service lane. As they have the past 20 (twenty) years, HONDA will get every dime of my MONEY, for as long as I live…
“Detroit:” YOU had your chance. YOU BLEW IT!!!
Blowback is not a juvenile threat.
The blowback will come in the form of potential customers that would have been willing to support a leaner GM coming out of BK without a bailout not even considering a 2.x vehicle at any price.
People hate to pay twice for anything.
It doesn’t matter that you personally are not in the auto industry. Billions going into a few towns will put taxpayer money into your pocket.
McCotter isn’t a auto worker either, you both talk your book without any consideration to what is right.
“not even considering a 2.x vehicle at any price.”
Exactly. Apparently I am powerless to stop my government from subsidizing Detroit, but I do get some kind of vote. Call it juvenile, but just don’t think it isn’t real. Typical auto worker entitlement attitude: pay up and shut up! Apparently the taxpayer has taken on the role of the company and must be whined and threatened into compliance.
and/or (ii) those on the far right of the political spectrum.
I guess 55-60% of Americans are on the far right of the political spectrum …
http://www.businessmirror.com.ph/index.php?option=com_content&view=article&id=3404:most-americans-against-auto-rescue-survey-shows&catid=51:world&Itemid=67
http://www.cnn.com/2008/POLITICS/12/03/auto.poll/
I suppose when tax time rolls around; GM et al. will get a pass or waiver this time?
The blowback will come in the form of potential customers that would have been willing to support a leaner GM coming out of BK without a bailout not even considering a 2.x vehicle at any price.
Exactly. I won’t. That is why I think Ford is brilliant in holding out for now….
Is there an award for the most quotation marks in one post and can wardenr win it?
Turned out to be a whore, flip flopped when the free money goes to his people.
Ain’t no free.
The $14 billion is a small fraction of the $200+ Billion that has been drained out of Michigan by the federal government.
McCotter’s representing his constituents. I suppose that big Dick, Shelby isn’t whoring himself to Mercedes, Toyota, Honda and Kia?
California, New Jersey, New York, Illinois, etc. whine about their massive budget deficits. Who here thinks they won’t get a big ole slice of bailout pie?
All states that pay way more in taxes to the federal government than they get back in federal spending. Illinois has lost about $400 billion in the last 30 years. New Jersey is perennially ranked last in return on tax dollars, now at $0.65 per dollar sent to Washington.
America has more absolute wealth-making opportunities, especially if you’re already rich, and a lower cost of living.
If you look at who is earning what now, vs who was earning what 10 and 20 years ago, the US has far more upward economic mobility than Europe. A poor or lower middle class American has a much better chance of becoming affluent than their counterparts in Europe.
BTW, those youths of unidentified ethnicity are rioting again in Malmo.
BTW, we “Boomers” now RULE; being the largest generation ever born (some 77 Million), standing to inherit the largest transfer of wealth in the history of America, we now dictate social, cultural, intellectual, political, and economic policy in America.
More evidence that my fellow baby boomers are the most narcissistic, self-indulgent, self-important generation in US history.
But Mr. Wagoner carried home some $14+ MILLION in “executive compensation,” in 2007.
Mr. Wagoner’s take home pay in 2007 was $3.5 million in salary, bonuses and other compensation. The rest was mostly stock options that were worth nothing in real terms in ’07 and not likely to be worth anything for a while. For accounting purposes GM must place a value on those options, but to Wagoner, until the stock price goes up past his option price, they’re worth nothing to him.
While I’m not an MBA, I’m pretty sure that if my employer grants me the option to buy 1000 shares of stock at the price of $30/share and the stock is trading at $4/share that I haven’t “carried home” $30,000.
I suppose when tax time rolls around; GM et al. will get a pass or waiver this time?
Unless you believe that companies that lose money need to pay “income” tax on their losses.
One of Michigan’s more stupid taxes is the Single Business Tax, which taxes businesses whether they turn a profit or not.
philipwitak :
There is nothing wrong with reasonable regulations which protect the safety of the citizenry while ensuring a fair and equitable market. However, greed and corruption are hallmarks of human nature, and are amplified by power and wealth. But government has the added power of the gun to enforce its coersion and to determine who is prosecuted for violations against society and how they are punished. (By the way, no crime is prosecuted unless it is politically expedient to do so.) This makes empowering the government much more dangerous than allowing the free market (well-regulated) to operate and determine its ultimate winners and losers.
Ronnie Schreiber: All states that pay way more in taxes to the federal government than they get back in federal spending.
As has been explained numerous times, this is a red herring argument.
These states aren’t going broke because of this imbalance.
Federal outlays include payments made to those eligible for Social Security and Medicare – who tend to be elderly. Most of that money goes directly to recipients, not state governments.
It also includes federal disaster relief. The South has been hit by severe hurricanes over the past few years. Perhaps Illinois and New Jersey are supposed to feel cheated because they don’t experience severe hurricanes on a regular basis, or California is supposed to be sad because it hasn’t had a really devastating earthquake in years, but I’ll bet that most residents are thankful.
philipwitak: two more ‘natural phenomena’ you also ought to consider: greed and deception – because left unchecked, they will also breed corruption.
And politicians and bureaucrats are completely free of these vices? And regulations aren’t proposed because they represent a transference of power from the private sector to government, thus fulfilling the greed and the desire for power among politicians and bureaucrats?
Ronnie Schreiber:
“One of Michigan’s more stupid taxes is the Single Business Tax, which taxes businesses whether they turn a profit or not.”
Just wow. What are the details of this and whose brillian idea was it to propose and pass? I can’t imagine anyone wanting to create or move a business to MI under those circumstances.
People consistently seem to confuse a US auto industry with the 3 auto companies that exist today, and predict that if those three specific companies go under there will be no more US auto industry. This is extremely naive.
Should all 3 go under, there will be a supply of factories sitting around idle, along with skilled engineers, designers, and workers. One or more enterprising groups of investors will step in and buy up factories, hire a team and create a new and vibrant industry from the wreckage of the the old.
It has happened before, i.e. the steel industry and consumer electronics industry. A void is never left empty. Propping up these dead shells just to have a “US auto industry” is a bad joke on all us taxpayers.
What is going to die for good if the big 2.8 go under is the UAW, and it seems to me that this is what all the angst is about.
@Detoit Todd:
It’s N-E-I-L Peart, and he was indeed onto something.
njdave wrote “What is going to die for good if the big 2.8 go under is the UAW, and it seems to me that this is what all the angst is about.”
Perhaps he has something there. There is nothing about GM, Chrysler, or Ford that is different from Studebaker, Packard, Nash, Hudson, or all the other American auto manufacturers that ceased operations.
I wonder, though; how about Peterbilt, Kenworth, Navistar, John Deere, any of the truck or machinery manufacturers. Do any of them have contracts with UAW? I don’t know.
Fincar1
Good point about the truck makers. I do not know if they have UAW affiliation or not. But even if they do, it will be vastly reduced union. Consider that recently, Ron Gettlefinger got invited to speak on Capitol Hill along with the CEOs of the car company’s. Why? Probably because he represents millions of current and past workers, and even more importantly (in DC anyway) hundreds of thousands of lobbying dollars. Congress risks all of this going away soon.
Steve Biro:
Bush appears to be saying, “Look, here’s enough money to buy you the time you need to determine if you can really reorganize without bankruptcy. And if you find that you can’t, you should still have enough time to work out a prepackaged bankruptcy that avoids liquidation and protects suppliers.”
Assuming that’s true, why did the Big 3 wait until their last solvent moments to do anything? What can they possibly accomplish in the next 90 days that they couldn’t have done long before now? They’ve known what was coming for years; it’s hardly been a secret. The bums waited until they knew they could force the issue, get their loans, and not have to face reality.
In 90 days, they’ll be right back, a handful of days from bankruptcy, looking for another handful of cash. There will be promises of reforms-in-progress that need just a little more time and just a little more funding to complete. Sound familiar? It’s the same death spiral addicts follow down the drain, and feeding their addiction is never the answer.
I am not an enabler. It’s time for an intervention.
Illinois has lost about $400 billion in the last 30 years. New Jersey is perennially ranked last in return on tax dollars, now at $0.65 per dollar sent to Washington.
Big states pay “more” into the Federal coffers than they get back because Soak-The-Rich works. Significant majority of Federal discretionary outlays and income is from ~5% of income earners. All those billionaires in Silicon Valley and now-subsidized bankers in the Hamptons (and nice diggs in New Jersey) are what pushes those states into net-senders of money. Illinois has Chicago’s Magic Mile, same difference. Rick Wagoner and his peers in Michigan also get quite a haircut, and that is where Michigan’s “surplus” comes from. Corporate taxes are also mailed with the Corporate HQ’s address, and are accounted that way in this mis-measure we’re talking about. Less rich people in a state, and the fewer tony-addresses with the rich and famous or their corporate money-engines, the less income comes out of the state to the Feds by that measure. So, states composed of working stiffs with no Beautiful People enclaves get “more” from the Feds. Whole thing of in/out to states is an accounting fiction when you take these realities into the estimate.
A more accurate measure of who-pays-what to the Federal Government on a state-by-state basis would be measured by all other taxes, eliminating the socially distorted income tax. Then there’s cases like Iowa – which should be re-named Ethanol Acres – so those distortions show up as well on the outlay-side. Another measure on the balance sheet is assets. Given the Federal Government owns probably a third of all real estate west of the Mississippi, the West is where the government’s best assets lay, at least if Uncle Sam had to obey real accounting rules and take measure of its assets.
As has been explained numerous times, this is a red herring argument.
These states aren’t going broke because of this imbalance.
Federal outlays include payments made to those eligible for Social Security and Medicare – who tend to be elderly. Most of that money goes directly to recipients, not state governments.
I’ve asked for citations for this claim but so far none are forthcoming. If what you say is true than Florida and Arizona should be at the top of the list with all their retirees, and they are not.
It also includes federal disaster relief. The South has been hit by severe hurricanes over the past few years.
Disaster relief is a factor but not a huge one.
Averages from 1981-2005
Louisiana $1.24 (even without Katrina related spending in ’04 and ’05 it averaged $1.19)
Mississippi $1.69 (without Katrina related spending in ’04 and ’05’ $1.67)
Military spending is a major factor, with most military bases and defense plants being located in the South.
About the car czar. I would loved to have seen George Bush appoint Mitt Romney to go in and figure out a business plan for survival. Look at a formal bankruptcy, a de facto bankruptcy, and other options. Get someone in there other than just the carmaker executives themselves.
Because you don’t want the foxes in charge of the henhouse. They’ll eat the hens. As Adam Smith put it, “The man who borrows in order to spend will soon be ruined, and he who lends to him will generally have occasion to repent of his folly. To borrow or to lend for such a purpose, therefore, is in all cases, . . . contrary to the interest of both parties.”
Lending money to the carmakers for operating expenses just adds more fuel to the fire, and the money gets burned up. In three months it will be gone, and there will be nothing to show for it. If on the other hand the money had been lent for the purchase of durable goods, or investment in production, there would be something left of it. The money turns into something productive.
That’s the difference, by the way, between the financial company bailout and the carmaker bailout. The financial companies have good businesses dragged down by bad balance sheets. The capital that went into them was not for operating expenses, and did not disappear. Economically that bailout makes sense. Whether the financial company bailout should have been done, of course, is a more complicated question than just economics.
But the carmaker bailout has no such economic justification. It’s purely political. That no effort was made to handle this situation like a bankruptcy, with someone outside of the companies coming in to clean them up, is folly. This waste of money is a shame, and shame on George Bush for doing it.
To those who asked: Most if not all of the heavy truck and ag machinery manufacturers have UAW contracts. Caterpillar in particular has been historically notorious for poor relations with the UAW. UAW also represents many casino workers.
I believe that support for the bailout is somewhat proportional to people’s enthusiasm for the product. A Honda fan would likely support a bailout if it was Honda asking for help.
If the American automakers had a product lineup like that of their Japanese or European competitors, perhaps the bailout would have been much easier to push through.
Perhaps that’s true, but as a Honda owner, I wouldn’t support bailing Honda out, either. The problem is that many domestic owners feel they’ve been burned for years, to the point that domestic manufacturers are in the sorry state we see today. Bad labor deals, cutting quality, ignoring clear market trends, insane financing practices, huge rebates, and now their failure is a surprise? Decisions were made to forestall the inevitable, and today, the inevitable has arrived.
Historically, the domestics owned the North American market, and did well overseas. They are are the ones that betrayed the market with poor products and services, and instead of fixing their problems, they continued to ignore them and blame everyone else, including their customers, for their failings.
Doling out money has nothing to do with fixing anything. They’ve wasted decades and their own billions, and now they want ours. If the problems that led the Big 3 to this point aren’t fixed, there’s no point in giving them a dime, and there’s nothing to indicate any improvement in the next 90 days.