It’s been a while since we’ve been graced with a good emotionally-charged argument for a “moral obligation” to bail Detroit out. These canards were a dime a dozen during the initial bailout push, as every Michigan-based opinion writer spilled ink by the barrel describing the myriad ways in which America owed Detroit big time. From winning WWII to spearheading racial tolerance. From fighting for the rights of the proletariat to exercises in moral relativism. It seemed that Detroit backers had leveraged every possible emotionally-charged issue to clear the way to the federal teat. But just when we thought that the flow of intellectually dishonest bailout blackmail had slowed to a trickle, we found one of the best examples yet.
A Marketwire release states that “DBusiness magazine is sending individual copies of its March/April 2009 issue to President Obama, members of the White House staff, every U.S. Representative and Senator, members of the newly-formed Presidential Task Force on Autos, along with various Department secretaries this morning.” Why? An article therein makes it look like DC owes Detroit more than the other way around. Needless to say, the argument doesn’t pass the smell test.
The article in question, written by Mr. David Littman of the Mackinac Center for Public Policy, purports to “evaluate for the first time the rise of Detroit’s auto industry and quantifies a major portion of the value it added to our nation’s GDP.”
Mr Littman’s conclusion? Detroit has added $60 trillion worth of “value” to the American economy (in current dollars) since 1900.
In a nod to misleading pro-Detroit analysis of the past, Littman’s figure does not include “wartime arms and defense that Detroit and its supplier base have contributed to the nation’s security, safety, and prosperity during World War I, World War II, and every other international conflict.”
Now, Mr. Littman is a retired chief economist for Comerica bank. So I’m not about to take issue with his $60T number. The problem comes when dBusiness magazine argues that “based on the first-of-its-kind analysis, it is the opinion of DBusiness magazine’s editorial staff that the federal government has a moral obligation to spare the Big Three automakers from bankruptcy action. In fact, the editorial staff believes the federal government should nationalize one or all three of the automakers before a bankruptcy filing is submitted.”
Except for the minor detail that these trillions of dollars in “value” created by Detroit were generated in a for-profit system which handsomely rewarded the creators of this value. Only the most extreme environmentalists would argue that the auto industry is a fundamentally undesireable national asset. Recent criticism of Detroit stems from a disconnect between automakers and consumers, itself the product of a decades-long decline in innovation and quality.
The idea that a certain amount of “value” generated by a given industry puts the government in debt to said industry is a self-serving and destructive approach to the political economy.
A quick look at Littman’s other work on Detroit’s predicament suggest that he’s a fan of reduced corporate taxes and government regulation, and that he believes “the federal intervention on Wall Street (the “trillion dollar bailout”) was the antithesis of what the competitive markets of capitalism would permit.”
But then he’s also been named Michigan Man of The Year by the state Chamber of Commerce, and has written columns for the Detroit Regional Chamber. And it appears that things in Michigan are so dire that a prominent local free market economist is OK with his work being used to justify a centralized, state-run automotive sector.
Go figure.
…it is the opinion of DBusiness magazine’s editorial staff that the federal government has a moral obligation to spare the Big Three automakers from bankruptcy action
Funny, whenever I make the argument for moral obligations in an economy, I get called a socialist.
Economists are among the cheapest whores out there. The supply of people with postgraduate economics degrees vastly outnumbers the demand, so economists are quick to create whatever result the highest bidder requests. They’ll even create results for free if they think it might possibly get them future work.
GDP basically measures the price people paid (probably with some multiplier to make the number look even bigger). If Detroit automakers “generated” $60 trillion in GDP it basically means people paid that much for Detroit automakers’ cars (multiplied by a multiplier to measure the re-spending of that money).
That means we’re even. We paid for the cars. The Detroit automakers didn’t give us anything.
Since the 1970s Detroit automakers’ cars haven’t been worth what they cost, so actually the Detroit automakers probably owe us a bit of a refund.
And enough of this war crap. Yes, the Detroit automakers had lucrative defense contracts with the US back in WWII when they were actually involved in the defense industry. The Detroit automakers also worked closely with the Nazi’s, and helped industrialize Nazi Germany.
This shill’s article actually argues for nationalization; I’m sure this guy is familiar with British Leyland, so he’s not stupid, just dishonest.
You know that the end is approaching when moral obligations are mentioned…
no_slushbox :
Economists are among the cheapest whores out there. The supply of people with postgraduate economics degrees vastly outnumbers the demand, so economists are quick to create whatever result the highest bidder requests.
You’ve won the Justin Berkowitz prize for comment of the day. Congratulations.
Last time I heard the moral obligation argument, I ended up married.
ba-zing!
This shill’s article actually argues for nationalization; I’m sure this guy is familiar with British Leyland, so he’s not stupid, just dishonest.
Nationalization isn’t bad, per se, but the problem is that it’s usually not transparent or accountable. Of course, Chrysler certainly isn’t and GM’s only notionally so, so the difference is more academic than functional.
So now it’s finally payback time, right? Every business that has contributed to our GDP, ever, is due some payment from the government now.
That’s cool with me. I’ll take my check now. Of course, it will be a smaller check than GM gets, but I see no reason to split hairs. In fact, if the government would like to nationalize my small business right now and relieve me of my debts that would be just fine with me. I could use a break.
Really, this is the dumbest thing I’ve read all day…and I was just looking at Facebook. If the big 3 had been playing Santa and leaving us all cars under our Christmas trees for 100 years, I would be happy to help them in a time of need. But they SOLD those cars and made profits on them. They then chose to put that money into…well I don’t know what. Apparently, it didn’t go into good investments, fuel efficiency or product development.
So I owe Detroit nothing. My cars are paid-for, I put plenty of money into repairs, and will cheerfully buy another of their products when they build one that suits my needs.
When I donate to charities, I pick the ones that will use my money efficiently and do the greatest good…Auto makers just don’t meet those standards.
It isn’t about what DC, or the Democrats, ‘owe’ Detroit, the UAW or whomever. If you crawl out of your ideological fog for a few minutes and listen to or read any of the financial news sources today, you’d realize this is about salvaging what can be saved of our trashed economy. FAR more has been handed to the financial types and FAR more will be handed to them. It wasn’t and won’t be because they’re owed, it’ll be a further attempt to avoid chaos. Governments in other countries of all shades of left-to-right are doing similar things. None of the execs, bond holders or union people are going to be at all happy with what they’re forced to do, and one or more may not agree to anything which will put them through bankruptcy.
psarhjinian:
For the money that has been put into the Detroit automakers the government should have wiped out, or, more practically, massively diluted the existing shareholders.
The problem is that in the long term the government is incapable of operating manufacturing efficiently. Just like any single for profit company with a monopoly is incapable of operating manufacturing efficiently
At the same time, since the government cannot declare bankruptcy it would be impossible for it to make the necessary changes to the Detroit automakers (too many brands, dealers and union employees) that would make it possible for the government to put the Detroit automakers back on the market.
I do not really see any long term solution other than bankruptcy, with the government coming in afterward to make sure it is 11, not 7, for Ford and GM. And the government taking post bankruptcy shares to ensure the government gets upside of the reorganizations.
The problem is that in the long term the government is incapable of operating manufacturing efficiently. Just like any single for profit company with a monopoly is incapable of operating manufacturing efficiently
I don’t disagree with you. Nationalization should be reserved for services where the private sector’s drive for profit is anathaema to the quality of the service (like, say, defence or health care).
But GM and Chrysler are not monopolies, nor crown corporations. They should have an executive and board that are open and accountable to their shareholders. But they don’t, and neither to many corporations. The oversight model of modern corporate governance is so thoroughly broken that, in particularly egregious examples like GM, nationalization would probably be better because at least politicians are notionally accountable at election time.
Who is George Fisher or Rick Wagoner accountable to? Because from my perspective, it seems like a bit of a reach-around.
As if a “moral obligation” could bend the rules of reality.
I think we have a moral obligation to make the world a perfect place, but that’s just as likely as fixing up the Big 3 without bankruptcy.
How much did buggy and wagon makers contribute to the economy since 1700?
psarhjinian:
It’s all Delaware’s fault.
Some change is coming:
“Congress’s plan also would go beyond what the White House proposed by giving shareholders in all companies, not just those receiving ‘exceptional’ assistance, an annual non-binding vote on executive compensation.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aAylhwmdYuKw&refer=home
“Congress’s plan also would go beyond what the White House proposed by giving shareholders in all companies, not just those receiving ‘exceptional’ assistance, an annual non-binding vote on executive compensation.”
An annual, non-binding vote. That’s awesome. I’ll bet someone is patting themselves on the back for coming up with that one.
Pardon my snort of disgust.
Imagine if democratic governments worked that way**: every four years or so you have a non-binding vote for your representative or head of state.
** Hey, isn’t that how the electoral college works?
Re: psarhjinian
I said “some” change, shareholder rights are sill deeply flawed. But it is a start.
And, with your government analogy, when is the last time you had even a non-binding say regarding any of your elected officials’ pay?
If you want to lower quality, decrease supply, and raise actual costs, then go ahead and nationalize. E.g.: Amtrak, European health care.
If you want to raise quality, increase supply, and lower costs, then let the Big 3 stand or fall on their own. E.g.: American Motors.
Nationalization provides no incentive to improve anything; it just becomes a jobs program.
The best thing for the Big 3 and the consumer and the taxpayer (the source of all bailouts) would be Chapter 11.
What would we have today if we had nationalized AMC, Studebaker, Packard, etc.?
psarhjinian, the USA doesn’t have a democratic government but rather a representative democratic republic. And technically the presidential election (but not representative or senatorial) is a vote for a subset of unbound electors who in turn vote for president. Thing is the political party machines at the state level select who the electors for their party’s candidate are and you can guarantee that if that party’s electors are chosen by the state’s popular vote they’ll vote that party or never show their face at home again.
In the event of an electoral tie the electors are supposed to have a repeat of the primary conventions until someone breaks allegiance. I think the tie-breaking process was written under assumption that all electors voted individually instead of the more common state-wide blocks. It no longer matters; history has shown that when it comes down to a tie any one state’s election will go into lawsuits that escalate to the Supreme Court anyway so the actual electors never have to worry about it.
GM would sell horses and buggies if they could put OHV engines in them.
mel23 :
February 17th, 2009 at 3:42 pm
It isn’t about what DC, or the Democrats, ‘owe’ Detroit, the UAW or whomever. If you crawl out of your ideological fog for a few minutes and listen to or read any of the financial news sources today, you’d realize this is about salvaging what can be saved of our trashed economy. FAR more has been handed to the financial types and FAR more will be handed to them. It wasn’t and won’t be because they’re owed, it’ll be a further attempt to avoid chaos. Governments in other countries of all shades of left-to-right are doing similar things. None of the execs, bond holders or union people are going to be at all happy with what they’re forced to do, and one or more may not agree to anything which will put them through bankruptcy.
That is your ideological position (I won’t call it a fog). As far as I’m concerned, governemtn spending is no way to revitalize an economy. It will likely result in a worsening and lengthening of the depression (there, I used the “D” word) that this country is entering. Government spending will never be addressed towards the individual’s needs as well as an individual’s spending. There is always absolutely empty dollars in every government spending program that’s called program oversight. Under the best circumstances that oversight will cost 5% to 10% of the total funding. When I spend money directly, there is no oversight cost. The people overseeing the use of this money add no tangible value to the projects and produce no good. Finally, whether the trillions of dollars that the government spends to “repair” our economy comes from us in the form of taxes or in the form of inflation due to the borrowing (printing) of currency it still comes from us. Even if they reduce taxes and borrow trillions of dollars, the kind of inflation that will produce could well be more crippling to our nation’s eceonomy and our individual well being than any “collapse” of the financial markets that is brought about by the indivdual greed of a few (relatively speaking) investors. For evidence of this you only need to look to South America or Africa. Ooo, I know, maybe President Obama will outlaw inflation.
@no_slushbox,
Economists are among the cheapest whores out there.
My wife is an economist. She’s frugal, but if my bank account is any evidence, she’s not cheap!
“based on the first-of-its-kind analysis, it is the opinion of DBusiness magazine’s editorial staff that the federal government has a moral obligation to spare the Big Three automakers from bankruptcy action…..”
If we’re going to pay reparations, shouldn’t we start with the former slaves first? Any former slaves around?