The U.S. government (ostensibly representing “the taxpayers”) is right to insist on conditions to the second round of federal loans to Chrysler and GM. As always, the devil is in the details. As always, the government has put politically motivated strings onto every moving appendage in this latest example of federal largess. The fundamental question here is not whether or not these strings– from a shotgun marriage between Chrysler and Fiat to a GM bondholder haircut– will rescue either company from liquidation. It’s whether or not the federal government should be involved in bailing out any company in any industry. Period. Though others may disagree, I believe that only companies absolutely essential for national defense/security might qualify for direct taxpayer support. Might. Otherwise, NFW.
This is not a left/right debate. When President Bush approved $17.4b worth of bailout bucks for GM and Chrysler– against the wishes of Congress– the Republican administration lost any credible claim that they were friends of the free market. This brazen betrayal of stated principles paved the way for the Obama administration to go whole-hog into national industrial policy. Although the sitting president is selling his latest plans for Chrysler and GM on a rational economic bases, his intercession is, in fact, a purely political maneuver. Bailout II is not designed to “save” the American auto industry. It’s tailored to favor, through political policy, certain groups at the expense of others.
In this case, the second round of bailouts is meant to ensure that the United Auto Workers (UAW) survives intact and unscathed from a debacle that is, in part, a product of their own intransigence and short-sighted greed. (Although the union’s democratic support is a given, Obama didn’t ascend to the highest office in the land without remembering to secure and nurture his base.) As a secondary goal, the still undisclosed amount of federal money headed towards Chrysler and GM is aimed at “encouraging” Detroit to produce “green” cars. High mileage machines that conform to president Obama’s and the Democrat’s political priorities– the free market be damned.
Economics (the free market variety, anyway) is all about creating wealth and expanding “the pie.” Politics is about dividing wealth up in a zero sum game: someone wins, someone loses. This is why socialism ultimately fails every time it’s tried: it subordinates economics to politics; wealth making to wealth sharing. Profit incentives to create and expand are sacrificed to punitive political incentives to conform and obey. Ultimately, there is little wealth left to share. The same endgame applies whether you’re talking about an entire economy, or a single industry.
On Sunday, U.S. Treasury Secretary Geithner refused to be drawn out on a simple question: is GM too big too fail? Geithner claimed he didn’t want to preempt the president’s announcement. In truth, he didn’t want to even admit the possibility that doing nothing, simply letting GM and Chrysler fail, was a viable alternative. But if GM and Chrysler had been refused new funding, what would happen in the long run– aside from the inevitable short-term pain the companies, their employees and shareholders (and bondholders) would have to suffer? The same thing that happens when any business or industry goes bust. New opportunities arise.
Opportunity eventually finds its way to create new businesses and industries out of failed ones. Over time, sales lost by either company would have been absorbed by other automakers, helping to maintain their “viability.” To a certain extent, other auto companies would have picked-up the jobs lost by either Chrysler or GM. Other industries would eventually absorb “excess” jobs. Over time, Ford, Honda, Nissan, Hyundai, Toyota and others would assume GM’s and Chrysler’s “lost” production, at least to the extent the market demanded it. The concomitant industry supply chain would cater to the new source–and level– of demand.
In other words, if market forces for punishing failure were allowed to actually work in this case, far from being the end of the world, the auto industry would eventually emerge HEALTHIER, with far less excess capacity and more productivity. The result would be a much better, more profitable business overall. This would in turn actually ATTRACT capital into the auto industry, and set the stage for long-term growth.
But no, we can’t stomach losing jobs in the short run– especially union jobs. So instead of letting nature take its course, the federal government spare us the pain that comes from producing goods or services that the market doesn’t want. And in doing so, president Obama and bailout suporters guarantee the laws of unintended consequences will have their day. The Brits learned this lesson the hard way back in the ’70s. So why are we bent on repeating the British Leyland epic failure here? Are we really that weak, cowardly and naive?
There’s no such thing as separation of market and state. It has never existed short of anarchy. Not even in the Gilded Age.
Want the government to protect your property through a police and courts system? You’ve just involved the state in the market. And Everyone except wacko anarcho-capitalists wants the state to at least do that.
Well if his comment is getting a post, I’ll re-post my reply to it. BDB is right, there is no such thing as separation of market and state, and such a separation would be quite bad.
h82w8: “Whereas economics (the free market variety, anyway) is all about creating wealth and expanding “the pie”, politics is about dividing it up in a zero sum game – someone wins, someone loses. This is why socialism ultimately fails every time it’s tried…”
I disagree with both assertions of this statement – first that the aim of the free market is to expand “the pie” and second that socialism fails every time it’s tried.
The free market, left to it’s own devices, trends toward monopoly and consolidation of wealth in the hands of the few. Given that the aim in a unregulated capitalist system is to acquire as much wealth as possible in competition with others, it takes very few cycles for one successful group to gather a majority of resources and use their power to suppress wages and raise prices, thereby gathering more wealth to themselves and ensuring the competition will not threaten their position. It’s the basic problem of libertarianism – the able thrive, but after the “cream has risen to the top” there are masses of people who cannot make their way in a world controlled by the wealthy. Without significant philanthropic interest or a strong belief in community & the betterment of society, unfettered capitalism is disastrous for the vast majority of people.
Second, there are many successful socialist countries. Socialism can be viewed as a political or economic system, and thus capitalist socialism is not a contradiction of terms. A country that provides free health care and guaranteed end-of-life care (through pensions/nursing home system) can still operate a capitalist economy, the taxes just tend to be higher. Basically, socialism doesn’t fail every time it’s tried and is being exercised in many very successful countries at present.
Want the government to protect your property through a police and courts system?
I’m not sure about that. The fundamental business need is that contracts must be enforced. I think an argument can be made that the state’s role in enforcing contracts is independent of the purpose of the contract so that enforcement isn’t per se an intrusion into markets since contracts cover more than just markets.
Thanks, H82w8. You’ve made an elegant, coherent and cogent argument. I doubt that many commentators will engage you on the logic.
The free market, left to it’s own devices, trends toward monopoly and consolidation of wealth in the hands of the few. Given that the aim in a unregulated capitalist system is to acquire as much wealth as possible in competition with others, it takes very few cycles for one successful group to gather a majority of resources and use their power to suppress wages and raise prices, thereby gathering more wealth to themselves and ensuring the competition will not threaten their position.
I will add to this that if nothing is done and this situation is allowed to exist for any amount of time, the end is violent Communist revolution (the REAL kind, not the political strawman kind) or a Fascist dictatorship supported by the wealthy that keeps the proles in line (again, the real Fascism, not the strawman “Fascism”).
This is why some of the biggest proponents of a government safety net are themselves wealthy (TR and FDR come to mind). It’s a safety net for them, too.
BDB: Want the government to protect your property through a police and courts system?
That’s a completely different animal. Though they both involve government action, law enforcement to protect private property and prevent anarchy is not the same thing as government intervention to prop up failing companies.
Although I do believe that once said company takes government money, it cannot complain when government starts demanding certain changes in leadership or business practices. You take the money, you take your chances…
Which is why it’s just better to let the market run its course. The nation – indeed, even the auto industry – will survive if GM and Chrysler go away, or (as is more likely), most of Chrysler goes away and the good parts of GM are reorganized into a leaner, more efficient company.
BDB: I will add to this that if nothing is done and this situation is allowed to exist for any amount of time, the end is violent Communist revolution (the REAL kind, not the political strawman kind) or a Fascist dictatorship supported by the wealthy that keeps the proles in line (again, the real Fascism, not the strawman “Fascism”).
Violent revolutions are not caused by monopolies – unless the monopoly is SUPPORTED by the government. The Russian Revolution and Hitler’s rise to power were not fueled by the practices of monopolistic companies or organizations.
jakecarolan: The free market, left to it’s own devices, trends toward monopoly and consolidation of wealth in the hands of the few.
Monopolies survive because they are officially or unofficially sanctioned by the government – i.e., they were “too big to fail,” or they “provided an essential service,” or “too many jobs would be lost if company X went under.”
What we are witnessing is the free market DESTROYING the last vestiges of a de facto monopoly that was lead by GM. For years, GM unofficially dictated the pricing, style and even the content of vehicles sold in the American market. Ford and Chrysler followed suit. Now that monopoly is finally dead, and the GM’s apologists want government action to preserve what is left of it.
Monopolies survive because they are officially or unofficially sanctioned by the government
Back when we had an extremely weak central government and zero regulation like libertarians advocate, capitalism still tended towards monopoly.
I’ve always been for bankruptcy, but I’ve always supported it being a government backstopped Chapter 11, and not Chapter 7.
The problem is that other countries do not play by the same rules as the US.
Market oriented nationalist socialist countries like China or Japan, or even EU countries with respect to countries outside of the EU, don’t let Yankees come in and buy their businesses for pennies on the dollar while their economies are in the tank.
In China if a company just wants to start a new business (not even buy an existing Chinese business) it has to give 50% ownership to a Chinese company, hire local Chinese duplicate employees for all management positions within the company, and give up basically all of its intellectual property.
The US does not have foreign investment restrictions, except with regard to certain national defense industries, so when an important US industry faces trouble the US has to act inconsistently and erratically, instead of relying on established restrictions on capital flow and ownership.
If other US investors were going to step in and buy the liquidated assets of GM and Chrysler, instead of the Chinese, the US policies regarding their bankruptcy would be much different.
But right now other US investors are not going to be the highest bidders.
The Chinese would happily buy all of Chrysler right not, but instead we have to give 35% of it to the Italians.
Why? Because, unlike with Chinese cars, we know people aren’t going to be stupid enough to buy Italian cars.
Giving Chrysler to Fiat isn’t about the Italians saving Chrysler, it is about saving Ford and GM from the Chinese, at least temporarily.
Because the US was not a little socialist (capital flow and ownership restrictions) before it now has to be a lot socialist (massive bailouts with conditions).
Because the US was not Japan it now has to be Britain.
I say we kicked out every goddamned foreign manufacturer of any kind in the USA. Screw them.
The government has been subsidizing industries that are aligned with its political views for as long as I have been following politics. The difference being that Republicans do it with tax breaks for oil companies, no bid contracts for Halliburton and billions for military contractors that make products that don’t seem to work.
However, when the benefits of such policies are for working people then conservatives scream “Socialism!”.
I truth both libertarianism and communism both don’t work. Both are ideologies that don’t fit the complexities of human societies. As always, the best fit is something in the middle of the two extremes.
Well said, BDB and jakecarolan.
The problem with idealogues is that they tend to compare the theoretical potential of their own system with the worst existing aspects of the competing system.
The Soviets used to play this game, too. They stressed how American freedom resulted in much higher crime rates.
Reality is that no “pure” system is viable.People want simple solutions because they’re easy to think about. But there are no simple solutions for any problems that matter.
BDB: Back when we had an extremely weak central government and zero regulation like libertarians advocate, capitalism still tended towards monopoly.
And other companies or new technologies would have come along and broken the hold that said monopoly had on the market.
And even when we had “extremely weak central government” it was still active in the market. For example, during the post-Civil War years, the federal government was virtually giving land away to railroad companies. Those monopolists benefited from government largesse…which means that the market wasn’t truly free.
“And other companies or new technologies would have come along and broken the hold that said monopoly had on the market.”
That’s a statement of faith, not something supported by facts.
“. For example, during the post-Civil War years, the federal government was virtually giving land away to railroad companies. Those monopolists benefited from government largesse…which means that the market wasn’t truly free.”
See, the Soviet Union wasn’t really Marxist…
The Gilded Age was 99% of what a libertarian wet dream entails. You know what it was like for most people? Fourteen hour work days, child labor, subsistence wages when you did work, begging on the street when you couldn’t, and if you were lucky enough to live to retirement age your retirement involved extreme poverty. If you think those things weren’t caused by the market, but somehow by the government, I’ve got some land in Florida to sell you!
The problem with ideologues is that they tend to compare the theoretical potential of their own system with the worst existing aspects of the competing system.
The Soviets used to play this game, too. They stressed how American freedom resulted in much higher crime rates.
Reality is that no “pure” system is viable.People want simple solutions because they’re easy to think about. But there are no simple solutions for any problems that matter.
Thanks for this. You saved me a lot of typing, and expressed it perfectly. Well done.
Ideology is generally a detriment to good decision making. It allows people to justify unrealistic, wrongheaded goals and to then ignore the consequences when their initiatives fail.
In the process of chasing its ideological tail, the original post misses quite a few facts and reveals a rather naive textbook view of how free markets work in real world practice. I personally like free markets, but to treat them like a religious faith just turns economics into a cult.
geeber: And other companies or new technologies would have come along and broken the hold that said monopoly had on the market.
I disagree with that statement. I work for a very large company, and when somebody comes up with an idea that either threatens or complements our services, we buy them up, fire their employees and integrate their processes into our workflows. Unregulated or lightly regulated capitalism allows this to happen to a dangerous level, where all new technologies are gobbled up to avoid new innovations from threatening the established market leader.
Total free-market just doesn’t work because given the opportunity, people will act selfishly to great detriment of the greater good, assuming we as a society agree that it is “good” that all people deserve to be healthy, safe and have equal opportunities. For an example of people working towards selfish ends at the expense of the greater good, see: Wall Street. We gotta regulate these people, and strictly – access to great wealth with only moral barriers can make monsters of us all.
I would like to see some credible cites from the economic literature showing how capitalism will tend toward monopoly. That premise is patently false. No well-developed monopoly has ever existed without heavy government involvement and political corruption….the railroad, steel, and oil cartels all survived through government assistance, contracts, payoffs,…… Pure capitalism would have eroded their power much more quickly and efficiently, but pure capitalism rarely exists. Politicians cannot keep their hands out of the cash registers. GM and Chrysler should would have been gone by now had the government not intervened.
Also….a side note, the prior administration may have initiated the free money for the auto industry but did so with the explicit stipulation that it was contingent on approval of the incoming administration. If the new administration did not approve, GM and Chrysler had to give the money back. Both firms agreed to that stipulation…of course, they would have agreed to anything. One might surmise the prior administration was setting up the current one but I doubt they were that clever. At any rate, this entire auto manufacturer and union bailout rests solely on the current administration.
I wish we could put all of the Ayn Rands and Karl Marxes in a ring and just let them “have at it”.
Of course, rigid ideology (of either course) is always the hammer to which every problem looks like a nail.
When you have some one or group trying to solve big problems by negotiating the narrow straits between conflicitng ideologies, you get confused, angry people who are denied “the simple answer”.
This is going to play out as well as it can given the circumstances.
Michael Karesh and PCH101: +1
Political (or any) ideology is a guarantee for disaster. Doesn’t it say something that politics in stable, well developed countries all tend increasingly to centrism?
BDB: That’s a statement of faith, not something supported by facts.
You’ve been witnessing it over the past few years, as GM crashes and burns.
A statement of faith is saying that free markets inevitably lead to monopolies, which in turn lead to revolutions. There is no proof of this.
BDB: See, the Soviet Union wasn’t really Marxist…
I’m interested in hearing how a government giving away land represents the fulfillment of a libertarian ideal.
BDB: The Gilded Age was 99% of what a libertarian wet dream entails.
Contrary to your assertion, there was PLENTY of government intervention in the economy during the Gilded Age. It was just in FAVOR of the industrialists.
Tariffs, for example, were used to protect American industry in the late 19th century. This was a government action interfering with the operation of the market. The rationale, incidentally, was that this would protect the jobs of American factory workers (it was also one of the causes of the Civil War – the South hated these tariffs, but they lost, so too bad after 1865). Libertarians don’t approve of that, either.
To say that the 1880s represents a libertarian paradise is wildly inaccurate.
BDB: You know what it was like for most people? Fourteen hour work days, child labor, subsistence wages when you did work, begging on the street when you couldn’t, and if you were lucky enough to live to retirement age your retirement involved extreme poverty.
Sorry, but we aren’t going back to the 1880s, no matter how fervently you believe this to be so. Alarmist hysteria may play well in the union hall – just as it does with the Rush Limbaugh crowd – but allowing GM and Chrysler to fail isn’t going to turn the clock back 130 years, or bring back 14-hour work days, or result in children working in the mills.
You also might look at how we came to ban those things in the first place – it was because we became rich enough to give even laborers free time and have children stay in school for 18 or so years instead of begin contributing to the family larder at age 7. The rise in wealth was fueled by inventions that made people rich and financial instruments that made that wealth work to create even more wealth.
The failure of GM and Chrysler isn’t going to make us poor. It may hurt some UAW workers, white-collar workers, dealers and bondholders, but they are not synonomous with “America,” no matter how often their lobbying reps or unions repeat that mantra.
What government does is provide a steady framework – a system of rules, regulations and contract enforcement – where people will invest with confidence.
BDB: If you think those things weren’t caused by the market, but somehow by the government, I’ve got some land in Florida to sell you!
They were caused by custom. Why did people allow children to work in the factories? Because, when people lived agrarian lives, they put children to work as soon as they could. Most people had children to produce a new generation of workers who would contribute to the support of the family, not fulfill their lives or give them something to love.
The Waltons and Little House on the Prairie were idealized television shows, not accurate history.
These habits and expectations initially transferred to the factory. We banned them because we came to realize that working in a factory is entirely different from working on a farm.
People worked 14 hour days, seven days a week, because that is what you did on a farm in the days before electricity and mechanization. Working on the farm wasn’t a bucolic adventure for most people. It was back-breaking work, and taking a vacation, or taking time off to “find yourself” or pursue a hobby, would likely result in starvation. Again, we changed this because we came to realize that working in a factory is entirely different from working on a farm.
Interestingly, do you know what the main cause of complaint among workers in the late 19th and early 20th century was? It wasn’t lack of pay. It was not having enough time off…many people went directly from the farms to the factories, and discovered that working all day in a factory was completely different from laboring all day on a farm.
The fun thing is we’ll get to see who is right in only a matter of years. Okay, it might not that much fun, but still.
Seriously, the United States has crossed any number of ideological lines in the last few weeks and I predict disaster all around. Really.
These schemes might be bearable if possible, but here’s the reality; obozo doesn’t even have the money he’s spending on these lunatic plans. An essentially bankrupt country is bailing out bankrupt manufacturers.
Too big to fail? Why are people so confident they can stop it?
Although I do believe that once said company takes government money, it cannot complain when government starts demanding certain changes in leadership or business practices. You take the money, you take your chances…
I think that’s flawed thinking. Companies have been taking government money through contracted work and supplies since the Revolution. Strategically vital industries have been subsidized through profitable military sales.
So there is ample precedent for government business relationships with private sector business.
Taking a direct management role, however, is something we’ve never done. Even during WWII we had a War Production Board (directed by “Engine” Charlie Wilson of GM) that directed munitions production in a less than free market, but the WPB didn’t make personnel or management decisions within the companies assigned to do particular war work. Even after Edsel Ford died and a senile Henry Ford reasserted management of a vital military supplier, the government didn’t remove Ford. They did, however, give grandson Henry Ford II an early discharge from the US Army, and he took over the family firm (along with the “Whiz Kids”) after his mother and grandmother threatened Henry Sr. that they’d sell the 51% of FoMoCo they controlled if he didn’t step down in favor of his grandson.
Hell, even during the excesses of FDR’s NRA (when the government prosecuted a cleaner for discounting prices), the government never made direct personnel decisions in businesses.
I don’t care if the government loans a business money or not. A bank or other lender of last resort can ask for a change in management and some supervisory management role to protect their loan. The government can do no such thing, because it’s still the government, no matter what. It has to somehow make sure its money is used well but it can’t directly manage a private company. That’s a characteristic of fascism.
Sorry, but we aren’t going back to the 1880s, no matter how fervently you believe this to be so. Alarmist hysteria may play well in the union hall – just as it does with the Rush Limbaugh crowd – but allowing GM and Chrysler to fail isn’t going to turn the clock back 130 years, or bring back 14-hour work days, or result in children working in the mills.
I never said it would, but enacting a wholesale libertarian economic agenda would have a good chance of doing so. Thank God this has no chance of happening.
Contrary to your assertion, there was PLENTY of government intervention in the economy during the Gilded Age. It was just in FAVOR of the industrialists. Tariffs, for example, were used to protect American industry in the late 19th century.
It’s never “really” a free market, is it?
Again, you sound like a Marxist desperately trying to convince me that the Soviet Union was not what Lenin *really* had in mind. There’s no arguing with idealized abstractions.
There is a national security angle to consider here. Not the old saw about “who will make all the stuff during WWIII”, but one far more delicate. The largest concentrations of Muslims are in Michigan. Mixing high unemployment with young Muslim men has proven problematic in many areas of the world…
Standing by for accusations of race baiting and hatred…
There were very similar statements made about the moral hazard of bailing out companies during an earlier time in our history. Their beliefs were very similar to those in the article above, that such companies should be allowed to fail. That was during the Great Depression.
So how did that work out for our country the last time we tried it?
“Those who fail to learn from history are doomed to repeat it.”
BTW, you don’t have to convince me that farm labor sucks. I’m a history buff, I’m not so deluded and ignorant that I think life was fantastic before the industrial revolution. Industrialization was a good thing on balance, even the early stage was better than farm life.
Modern industrial society, with a mixed economy, Unions, government regulations, a safety net, a progressive income tax, etc, is even better.
Jared
Before you suggest that federal intervention “saved” the U.S. from the Great Depression, have a gander at The Forgotten Man.
From: The people of Michigan
To: The rest of the U.S.
Welcome to the Party!!
=D
P.S. Great article. Unfortunately, I doubt I would have any friends left if I shared it with them. Chrysler is toast, it has been(and continues to be) a dead company walking. If Fiat wants to buy Jeep, then so be it. Otherwise, quit delaying the inevitable and let it die already!
GM could be salvagable, but not with the coporate culture currently in place. Gut the entire organization, bring in fresh ideas, and put the dinasaurs out to pasture….
“The free market, left to it’s own devices, trends toward monopoly and consolidation of wealth in the hands of the few.”
Silly me. I thought GM was dying in the free market, but it turns out the company is becoming a wealthy monopoly instead!
(And they wonder why Marxism failed)
When President Bush approved the initial bailout bucks for GM and Chrysler– against the wishes of Congress– the Republican administration lost any credible claim that they were friends of the free market.
This statement is very misleading. The “initial” 25 billion dollar loan was passed by Congress and signed by Bush in September. Obviously since it was passed by Congress I fail to see how it can therefore be considered to be “against the wishes of Congress”.
A second loan was made in December for 17.4 billion. While this second auto bailout did happen under Bush’s final days, Obama went to the White House and personally lobbied for further, immediate help for the automakers. It was only after that meeting that Bush agreed to give more funds to the automakers, to the approval of Obama and most congressional Democrats. Most congressional Republicans, particularly Southern Republicans were against the auto bailout.
Most congressional Republicans, particularly Southern Republicans were against the auto bailout.
Of course. It’s easy to pretend to be part of the opposition when it’s understood that the deal is going to happen, anyway.
Politicians put their own votes and proposals into the context of the whole. It’s an old tactic to vehemently protest when the leadership has already cut a deal to the contrary.
You need to look at what they’re actually doing. The vocal critic Corker ultimately supported these actions, he just used them as an opportunity to raise his visibility.
The bailouts are a bipartisan initiative. Let’s not fool ourselves with the cosmetics of the political system, lest we confirm that the voters are just dupes who don’t understand how the game is played.
I’m not sure about that. The fundamental business need is that contracts must be enforced. I think an argument can be made that the state’s role in enforcing contracts is independent of the purpose of the contract so that enforcement isn’t per se an intrusion into markets since contracts cover more than just markets.
If only the world were that simple. There are plenty of works to the greater good that are simple unprofitable or even anti-profitable. There has not been found a better way to do them than a representative government which implements a collective solution.
That’s a completely different animal. Though they both involve government action, law enforcement to protect private property and prevent anarchy is not the same thing as government intervention to prop up failing companies.
“Prop up failing companies” in this case is part of a larger initiative to prevent the capitalist/monetary system from collapsing. The efficiency of the current plan is arguable, but the better alternative is even less palatable to the free-enterprise crowd.
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In the even larger picture, the situation we’ve gotten ourselves in results from the very capitalist idea that it’s acceptable and even righteous to be very highly leverage AND strategically speculative. It’s the religious belief in markets, which put in a less flattering way is nothing more than pricing, that caused the inevitable slide to mistake prices for value.
Another meme that capitalism creates is that humans are naturally very greedy and thus greed should be used as the primary motivator, but the empirical evidence to the contrary is that such single minded behavior is widely consider socially abnormal. Therefore, creating a system where the most systematically greedy behavior results in the most success in lieu of other incentive schemes is somewhat pathological.
For a political discussion, with lots of facts and interesting angles, that tones down the Wingnuttia much seen here, try this link:
http://www.dailykos.com/story/2009/3/30/714612/-Fear-and-Anger-in-Michigan
don1967, I’m sure you recognize that we are not in an entirely free market, and that GM is indeed failing because of it’s own incompetence. Nowhere has anyone stated that GM is a healthy and efficient company with a sound business model. Nobody in their right minds would have said that of GM for decades now.
I maintain that unregulated free markets allow efficient, successful businesses to grow to a point where they can acquire or otherwise silence competitors or threats to their profitability. Imagine, for instance, if Microsoft had been allowed to purchase Apple when they were on hard times, and then also bought the nascent Google. Without antitrust regulations, the PC & tech industry would look VERY different today. Without regulation, it is not beyond imagination that the first super-successful business in an economy would have the power and inclination to buy every competitor as they rose to prominence.
A better way to attack my argument would be the slippery slope fallacy argument. I claim the free market will lead to the most extreme result, a giant monopolistic behemoth that devours competition. I think it’s the weakest point of the argument. I would defend it by saying I used mitigating language when I said that unfettered free markets TREND towards monopoly, which I think most economists would agree with. That’s the reason we have antitrust laws.
Oh god, this political theorizing is tiresome. You don’t know anything about politics either one of you. Theorizing politics on an entirely intellectual level is hypocracy of the worst kind. Since I guess none of you have first hand knowledge of either true communism or true fascism, you can discuss these isssues until the end of days, and still haven’t come anywhere. Politics is opium for the chattering classes, I say.
Daily Kos? Kome on, you should be able to do better than that, Stein.
Before you suggest that federal intervention “saved” the U.S. from the Great Depression, have a gander at The Forgotten Man.
Huh? Where did I suggest that?
What I suggested is that the lack of federal intervention greatly worsened the Great Depression. By the time the government intervened, they had let many corporations fail. It was too late to avoid terrible consequences.
From the article:
In truth, he didn’t want to even admit the possibility that doing nothing, simply letting GM and Chrysler fail, was an alternative. But if GM and Chrysler had been refused new funding, what would happen in the long run– aside from the inevitable short-term pain the companies, their employees and shareholders (and bondholders) would have to suffer? The same thing that happens when any business or industry goes bust. New opportunities arise.
In case it wasn’t obvious, we’re on the edge of economic disaster via a deflationary spiral. In good times, some temporary unemployment would be fine, but there is NOT going to be a matching amount of new opportunity arising anytime soon because consumers hold onto their money and nobody wants to borrow into deflation, and so the destructive cycle goes on…
—
Since I guess none of you have first hand knowledge of either true communism or true fascism, you can discuss these isssues until the end of days, and still haven’t come anywhere.
These discussion are abstracted from a large amount of [recent] historical experience.
BTW, does anyone here have first hand knowledge of “true” capitalism?
Ronnie Schreiber: Companies have been taking government money through contracted work and supplies since the Revolution. Strategically vital industries have been subsidized through profitable military sales.
There is a considerable difference between government awarding contracts to private firms for necessary goods and government using taxpayer money to prop up failing companies.
Incidentally, even those government contracts come with more than a few strings attached.
Ronnie Schreiber: Even after Edsel Ford died and a senile Henry Ford reasserted management of a vital military supplier, the government didn’t remove Ford.
After Edsel Ford died, the federal government seriously discussed nationalizing Ford and giving it to Studebaker to run. This is from no less an authority than Peter Drucker. By late 1943, however, it was apparent that the Allies would win the war, so the government abandoned that plan and let Henry Ford II fight it out with his grandfather.
BDB: I never said it would, but enacting a wholesale libertarian economic agenda would have a good chance of doing so. Thank God this has no chance of happening.
Highly unlikely, given that technology and communications have dramatically changed since the late 19th century.
BDB: It’s never “really” a free market, is it?
Again, you sound like a Marxist desperately trying to convince me that the Soviet Union was not what Lenin *really* had in mind. There’s no arguing with idealized abstractions.
You claimed that the 1880s represented a libertarian paradise when you posted this: The Gilded Age was 99% of what a libertarian wet dream entails. That is not true, given that the federal government was virtually giving away land to connected individuals and using tariffs to protect American firms from foreign competition.
I never made any claim that the 1880s were a libertarian paradise.
I’ve never said that libertarianism is the end-all and be-all.
I’ve said that the contention that free markets will inevitably result in monopolies and/or revolution is not supported by the facts.
I’ve said that I agree with the part of the editorial that states that GM and Chrysler facing bankruptcy will not result in a national catastrophe, and will, if anything, be better for the country’s auto industry in the long run.
I’ve said that if a company takes government money, it cannot complain when the government begins demanding changes in leadership or business practices.
I’ve said it therefore might be best for said company to refrain from taking government money in the first place.
Please feel free to refute those points.
BDB: BTW, you don’t have to convince me that farm labor sucks. I’m a history buff, I’m not so deluded and ignorant that I think life was fantastic before the industrial revolution. Industrialization was a good thing on balance, even the early stage was better than farm life.
The industrialists – or the free market – didn’t create 14-hour days or child labor. They were carried over from the habits and customs of agrarian life. We changed them when people discovered that working all day in a factory is a far different animal than working on a farm.
agenthex: “Prop up failing companies” in this case is part of a larger initiative to prevent the capitalist/monetary system from collapsing. The efficiency of the current plan is arguable, but the better alternative is even less palatable to the free-enterprise crowd.
The economy isn’t going to collapse because GM and Chrysler file for bankruptcy. If anything, dragging this out is counterproductive – which even Obama’s plan acknowledges by setting some clear deadlines for actions, treating GM and Chrysler differently, and basically taking GM to the woodshed for its infuriating reliance on rosy scenarios.
Great article, “hate to wait”. Well written, well thought.
Jared
Even MORE reason to take another look at that particular episode of U.S. history.
Great statement by Niedermeyer: “Opportunity eventually finds its way to create new businesses and industries out of failed ones.”
That pertains to what capitalism does best over time: creates efficiency and innovation out of inefficiency and stagnation. Yes, the business cycle for that may be 10, 20 or more years, but eventually it happens. Even the biggest monopolies are short-term and will fail. If monopolies raise prices and fail to innovate, this provides incentive for others to compete. And if the economy fails, this provides lower costs and more ability for others to compete. Then when others do compete, the monopoly can no longer sustain high prices, and something must give.
I don’t recall government intervention for Sony when they lost money as the leader in picture tubes when plasma/LCD’s came out. Or Kodak when their shares declined from losses as the leader in chemical photo processing when digital cameras came out. Those companies innovated and stayed afloat.
I don’t think anyone would argue that those are beneficial innovations.
The phrase “Creative Destruction” (http://en.wikipedia.org/wiki/Creative_destruction) as it pertains to capitalism is at the heart of this matter. No it’s not fair to those not in charge, but in the long run, only good can come out of the re-formation of GM in whatever form that takes.
Excellent editorial. The Wall Street Journal should publish this because this goes far beyond an enthusiasts website.
There is a national security angle to consider here. Not the old saw about “who will make all the stuff during WWIII”, but one far more delicate. The largest concentrations of Muslims are in Michigan. Mixing high unemployment with young Muslim men has proven problematic in many areas of the world…
You might as well say the same thing about high unemployment, poverty, dispossession and young Germans, because that’s one of the causes of WW2.
The common factor in any situation isn’t race, but poverty, Cram a bunch of poor people in one place and make it hard for them to get out of both poverty and the conditions that come with it, and you create a powderkeg. Race, sex and belief are just tools for your friendly neighborhood demagogue can use to galvanize support among the poor.
And yes, I’m aware that there’s always (supposedly), ahem, opportunities if you work hard enough. It doesn’t change the fact that fat, happy people don’t get involved in revolutions** or blow themselves up.
** Yes, I know there are upper-middle class terrorists. But they are vastly outnumbered, and usually not the poor buggers on the front-line
Car people are like cowboys: they think everything would be just fine if the government got out of their way. But in reality, they depend on the government. What an illusion!
The idea of the separation of market and state, as applied to the automotive business, is hogwash. The government made the auto industry what it is. It provides the roads that made auto travel more popular than train travel. It protects the automobile from legal action that any other thing causing 50,000 deaths per year would suffer from. Government carries out the wars that are necessary to provide cheap fuel for the automobile. Government has filled the coffers of the car industry by giving tax breaks to SUV users. These are just a few examples.
For crying out loud people, Ron Paul had his 15 minutes. Nobody voted for him and nobody ever will. Why not respect reality.
The economy isn’t going to collapse because GM and Chrysler file for bankruptcy.
If only GM and Chrysler were our sole problem.
That pertains to what capitalism does best over time: creates efficiency and innovation out of inefficiency and stagnation. Yes, the business cycle for that may be 10, 20 or more years, but eventually it happens.
I think people forget, though, that as part of the process it puts a lot of things through the wringer: people, nations, the biosphere as a whole.
This is specifically why I’m an interventionist: I believe—and I can point to precedents—that while the market does correct (much like, say, nature does) the corrections aren’t always simple, easy, slow and/or painless. The “correction” for mass poverty is revolution; the “correction” for pollution is when enough people are sick, starving or dying that it affects the balance sheet. The correction happens, but do you really want to be on the business end of it?
So you have entities—usually governments—that try to address the corrections before they become too brutal, yet also before there’s obvious financial incentive to do so. How much and the timing of the intervention is up for debate, but only someone who is absolutely sure of their position can say that we should just let the market do it’s thing.
Glad I’m able to spark some spirited debate among the B&B, and honored to be placed front and center. Totally unintentional, but fun! Cheers too all and thank you for your comments!
Now, where’s my “gubmint” check for that ol’ clunker I got sittin’ on blocks out back?
A country that provides free health care and guaranteed end-of-life care (through pensions/nursing home system) can still operate a capitalist economy
1. TANSTAAFL. “There Ain’t No Such Thing As A Free Lunch”.
2. You will know in a few years about the soundness of the “guarantees” of statist pension systems. Argentinians and Russians could tell you a couple of things about those “guarantees”.
And the point 0 about this issue: Compulsory pension plans and compulsory health insurance are immoral.
Ron Paul had his 15 minutes. Nobody voted for him and nobody ever will. Why not respect reality.
Voting does NOT create the reality. Being impopular (even very impopular) does not mean that you are necessarily wrong, nor being popular (even very popular) does necessarily mean that you are right.
About your claims about the injustice of the State “creating” “free” roads for cars: You are totally right.
Martin Schwoerer: The idea of the separation of market and state, as applied to the automotive business, is hogwash.
Your examples and giving taxpayer money to prop up failing companies are two entirely different things.
Although, as I said before, if a company accepts government money, it cannot complain when government begins demanding changes in leadership or business practices.
Martin Schwoerer: The government made the auto industry what it is. It provides the roads that made auto travel more popular than train travel.
Government provides the infrastructure for virtually all forms of transportation.
Martin Schwoerer: It protects the automobile from legal action that any other thing causing 50,000 deaths per year would suffer from.
Automobile companies can be sued for making defective or dangerous products in every state of the union. They do not have immunity from civil liability.
The reason there aren’t more lawsuits is because most accidents and deaths are caused by driver error, not defective vehicles.
Martin Schwoerer: Government has filled the coffers of the car industry by giving tax breaks to SUV users. These are just a few examples.
Tax breaks are available to those who use any vehicle – including an SUV – for business purposes. The vehicle is just a tool used in the course of the business, much like a computer or a piece of office equipment.
I never cease to be amazed by the huge number of thinkers who consider those of us who believe in America’s founding principles as “unrealistic” and “extremists” and “unrealistic extremists.” I’m also constantly taken aback at the hordes of educated people who are happy, eager even, to sacrifice principle on the altar of expediency.
We can’t have a free market! We NEVER had a free market! The free market is an illusion! Tyranny! Hogwash! Poppycock! Dangerous nonsense! The free market is chaos! The rule of the jungle! We must do what must be done, no matter how ideologically distastefull. Otherwise, civilization will be destroyed!
Stop.
This country was founded on freedom. Freedom to worship as we choose. To move about freely. But most of all freedom FROM government. Yes, we need some government to maintain our personal liberties. That responsibility is spelled our in our constitution. But the framers of our constitution realized that the single greatest threat to personal liberty is not poverty or prejudice or greed or economic chaos. It’s the government itself.
That’s why American have a constitutional right to bear arms. Not to shoot the shit out robbers or deer. To protect ourselves from our own government.
And now we’re happy to let the federal government assume control of a private enterprise, to displace the legal management because… it must be done! Or… they asked for it! Or… the government owns them anyway! They are acting in our (we the people’s) best interest!
Before GM and Chrysler cashed their first bailout check, I warned readers that it would lead to government control. He who owns the gold makes the rules. And so it has come to pass. No less a person than the President of the United States is dictating terms of business to Chrysler and GM.
This is fundamentally wrong. It violates the principles that I believe in. Those who believe that I would celebrate the government doing what GM and Chrysler’s owners should have done couldn’t be more wrong. Today, the government may be right. Tomorrow? Who knows? And who’s going to stop them?
Is there anyone amongst you who seriously wants the federal government to be in the business of making cars? More to this editorial’s point, do any of you interventionists seriously believe that the federal government will surrender the power that it has so easily usurped?
Shame on GM and Chrysler’s management for handing their fate to the government. Shame on the President of the United States for putting political pragmatism ahead of principle. And shame on us if we support this travesty as a necessary evil.
If you believe that I saw all this coming, I’ve got another prediction for you. America will turn its back on government intervention. It will also shun Chrysler and GM products. It may not come in 30 or 60 days, but there WILL be a reckoning. And thank God for that.
Isn’t Microsoft essentially a monopoly existing in the free market without government regulation to support them?
What about Boeing in commercial aircraft?(OK you now have a duopoly with Airbus)
MOOG has a large part of the servo valve market sown up.
I’m sure if I sat around here long enough I could come up with a few more.
I think people forget, though, that as part of the process it puts a lot of things through the wringer: people, nations, the biosphere as a whole.
Even more than that, the immediate problem is the stability of the central managed monetary system that enables our level of prosperity (via debt and growth).
To prevent the spiral of hoarding and risk aversion, the gov is the institute of last resort. In the language of individual finances since that’s what people understand, there is no better plan because there is no other realistic plan except to starve and hope for the best in the absence of a dole.
This country was founded on freedom. Freedom to worship as we choose. To move about freely. But most of all freedom FROM government. Yes, we need some government to maintain our personal liberties.
And that’s the catch, isn’t it? Where do your personal liberties start and someone else’s end? Where do the liberties of the powerful intersect with the weak? Where, precisely, do we draw the line?
Than this is where government, like it or not, comes in. Because that line isn’t a line at all, it’s a squiggle, one that moves and shifts a twists and, god help us, knots up. The shifting, fluid nature of society more or less ensures that this will be the case. And that’s what we’re defining here: where the needs of some line up versus the needs of others.
These aren’t absolutes, and nor should they be. That we can change and twist and reinterpret them is a good thing, and a testament to the flexibility inherent in democratic(ish) governments.
That’s why American have a constitutional right to bear arms. Not to shoot the shit out robbers or deer. To protect ourselves from our own government.
Actually, wasn’t it a bone thrown to the Slave states so that they could organize militias to put down slave revolts without having to address tricky things like law and due process?
Just sayin’.
psharjinian: Where do the liberties of the powerful intersect with the weak?
Considering that the weak are individual taxpayers, and the powerful are GM and Chrysler management, the UAW and the bondholders, I don’t think that the answer to this one is quite what you had in mind…
psharjinian: Actually, wasn’t it a bone thrown to the Slave states so that they could organize militias to put down slave revolts without having to address tricky things like law and due process?
No. People in all of the colonies owned guns for hunting and self protection. Gun ownership wasn’t seen as being limited to one section of the country.
Gun control, however, was instituted by the Southern states after the Civil War to disarm freed slaves and prevent them from defending themvselves against the Klan and asserting their right to vote.
psarhjinian
How in the world do you see the federal government’s control over Chrysler and GM as an assurance of personal liberty?
And no, the right to bear arms wasn’t a political sop. It has a long history as an important aspect of freedom that predates the founding of America.
Robert,
I think much of the frustration of non-libertarians (and I’m not talking about fascists or communists here) is the tremendous imbalance in libertarian complaints about excessive government.
A true libertarian surely favors freedom for gun ownership, freedom for abortions, freedom for indentured servitude (and selling oneself into slavery perhaps?), freedom for lunch counter owners to discriminate, freedom from warrantless wiretaps, freedom from warranted wiretaps, freedom from rendition, freedom from Guantanamo Bay, and, well, you get the point.
The problem is that the libertarian mantle is often abused because people are greedy and selfish. They don’t want to pay more in taxes and they don’t want their money going to the unemployed people people that – as TTAC commenter CarShark put it a few weeks ago – “Don’t have any marketable skills? Too bad. Not my fault.”
Other than the Cato Institute, I didn’t see many self-titled Conservatives protesting the Patriot Act. And yet the entire bill was designed to enhance government power against individuals. To those who did, my congratulations on being philosophically consistent.
This distinction – rage and fury about money for GM versus apathy over the government’s ability to kidnap citizens and hold them indefinitely without trial – is hypocritical. I’d much rather the government take my tax money or fire GM’s CEO than kidnap me without trial or seize my guns.
Libertarian arguments (like their mirror welfare state arguments) are easy to make and easy to make fairly eloquently. Political philosophers have done the heavy lifting for the last few hundred years.
As for the libertarian “markets rule” ideology itself, I really have no comment. I think it’s the wrong policy because it doesn’t work and I find it unethical. But what does it matter? These are the types of beliefs people hold very deeply and the debate tends to be little more than two ships passing in the night.
To protect ourselves from our own government.
This is a subtle but critical misinterpretation of the constitutional rules.
In any reasonably representative gov, the people ARE ostensibly the gov.
The primary object of those rules are there to protect us from ourselves, eg oppression from the majority. Likewise, our entire body of laws are set to enforce some sense of fair play as a goal.
It’s arguable where the irrational hatred of “government” ie centralized governance comes from, but it seems like a pretty clever way to try to avoid being regulated to those standards.
The era, and the possibility of a small and limited government has long end with the embrace of a sustainable mixed-mode capitalism, ironically.
—
Is there anyone amongst you who seriously wants the federal government to be in the business of making cars?
No, but frankly, at this point, it’s not about making cars anymore. Nobody is going to be buying them anyway without substantive ongoing central corrections to the economy.
“Are we really that weak, cowardly and naive?”
YES! – because we did not elect Ron Paul!
We’re it not for the intelligence of many of the B&B I would have stopped reading TTAC by now. It’s more about the comments – much more- than about the editorials.
How in the world do you see the federal government’s control over Chrysler and GM as an assurance of personal liberty?
In a round-about way. Economic freedom walks more or less in lockstep with personal liberty: if you’re beholden to poverty, you’re not particularly “free”, regardless of what the legal framework looks like.
Now, I’m not advocating Soviet-style ‘seize the means of production and oil them with the blood of the bourgeousie’ here. What we are saying is that we’ve got a situation with regards to the erosion of the middle class, and we’ve got to do something about it. We could either a) let them fail spectacularly, and suffer the consequences, or b) let them fail (or succeed, who knows?) in a slow, controlled fashion until such time as we can absorb the social cost.
I’m being pragmatic, I really am. Perhaps it’s because I’m not particularly far removed from the kind of social problems that the collapse of a major employer would create that gives me this perspective, but I don’t think that the middle of a recession is a good time be strict about ideological principles
Later, once the dust is settled, sure. Right now I don’t want to see the slide into indentured servitude and desperation made a reality because of ideology. You can’t eat ideology, as the dedicated Marxists utterly failed to learn.
Stein X Leikanger: You aren’t really linking to a dailykos story claiming that it tones down wingnuttia, are you?
Isn’t Microsoft essentially a monopoly existing in the free market without government regulation to support them?
No, it is not. You have many, many options to MS Software
http://en.wikipedia.org/wiki/List_of_operating_systems
Of course that many of them are not going to offer you some of the conveniences you get from MS offerings, but you can live pretty well without MS Software if that is your wish.
I use Mozilla Firefox instead of MS Explorer, Open Office instead of MS Office. I can switch from Windows to Linux id necessary. No, MS is not a monopoly.
Free (or even semi free) markets destroy monopolies. GM sold half of the cars in the USA half a century ago. Nowadays it sells less than 1 in 5.
It’s arguable where the irrational hatred of “government”…
I do not hate irrationally the government.
I hate rationally Statism, i.e., the idea that the state has a function beyond protecting life, liberty and the pursuit of happiness.
we’ve got a situation with regards to the erosion of the middle class, and we’ve got to do something about it
I am going to tell you ALL that can be done about that “situation”. Is a very simple recipe: Work harder PLUS Work smarter. If you have to choose one “smarter” is much better than “harder”.
* It is true that the government has (nasty) means to make people work harder.
* The government is absolutely impotent to make anyone work smarter. In fact it makes people work dumber and dumber. I have had my share of interaction with the (Spanish) government and I know what I am talking about. Public Clerks are the exact antithesis of the flexible minds required to work smarter.
Please take a look at the cars from the defunct Socialist Block. From the Trabant to the Zaporozhets…
http://en.wikipedia.org/wiki/Zaporozhets
…those were dreadful cars. But the were out of the reach of most workers, because those worker were shackled under a extremely inefficient Statist system.
Where do your personal liberties start and someone else’s end? Where do the liberties of the powerful intersect with the weak? Where, precisely, do we draw the line?
The “line” is to do not infringe other individual´s rights. I mean so called “negative rights” (“positive rights” are sel contradictory)
For instance:
* If you Bailout GM, you are infringing the right to property of the tax payers.
* If you force people to wear seat belts you are infringing their right to the pursuit of happiness.
* If you create a “Universal Healthcare” system you are infringing the property rights of those forcibly enrolled. When (not “if”, but “when”) that healthcare system starts killing patients, you are infringing their right to life.
* If you reinstate the draft, you are infringing the right to life and the right to liberty.
* If you instate bans on drugs you are infringing the right to the pursuit of happiness.
I take no drugs at all and I always (always!) wear my seatbelt, but I see no valid reasons to compel other individuals to behave like me.
agenthex: No, but frankly, at this point, it’s not about making cars anymore. Nobody is going to be buying them anyway without substantive ongoing central corrections to the economy.
Not enough people were buying GM, Ford and Chrysler vehicles BEFORE the economic downturn for them to earn a profit.
Ford formulated long-range plans that took into account a possible economic downturn, and took steps to prepare for it.
GM and Chrysler didn’t.
Ford negotiated with debt holders and obtained concessions from the union – without a nasty strike.
GM is still spinning its wheels on both counts. Chrysler isn’t doing much better.
That smells of poor management, and no amount of government money will correct that problem. Many of us have figured this out. Getting rid of Wagoner helps, but, having worked in large organizations, I am certain that the rot extends FAR below his level.
One of the “substantial corrections” the economy needs to undergo is the restructuring – or outright elimination – of the money pits known as GM and Chrysler to free up the capital for more productive uses.
For the past several years, people have not wanted to buy GM and Chrysler cars in sufficient quantities at high-enough prices for these companies to earn a profit. They certainly don’t want to do that now, given the headlines of the last three months.
Shoveling money at them only delays the inevitable.
psharjinian: What we are saying is that we’ve got a situation with regards to the erosion of the middle class, and we’ve got to do something about it.
The middle class will survive a restructuring of GM and/or elimination of Chrysler.
By Edward Niedermeyer
March 30, 2009
Economics (the free market variety, anyway) is all about creating wealth and expanding “the pie.” Politics is about dividing wealth up in a zero sum game: someone wins, someone loses.
————————————————
I totally disagree.
Economics is about dividing “the pie” in such a way that encourages the growth of the pie.
The growth of the pie depends on technology and resource and is not always sustainable even with the best policies.
Thus, governments should never count on the growth of the pie; the focus should be maintaining a fair sharing of the pie. This is to avoid class conflicts caused by unfair redistribution. The conflicts, we know, will shrink the pie.
Considering that the weak are individual taxpayers, and the powerful are GM and Chrysler management, the UAW and the bondholders, I don’t think that the answer to this one is quite what you had in mind…
That’s actually an interesting point. Are GM and Chrysler “the weak”, or is the taxpayer? I think it’s safe to say that they are, as are (potentially) the bondholders and/or the UAW, but it highly depends on the circumstance. It’s probably safe to say that they became weak, and that the citizenry, perhaps if only by proxy, became somewhat stronger.
That was my point about the line not being a line: positions of weakness and strength can shift, sometimes very quickly and in an uncomfortable way. The only hope, I feel, is to maintain an accountable authority that can act to stabilize matters.
geeber :
March 30th, 2009 at 4:44 pm
Considering that the weak are individual taxpayers, and the powerful are GM and Chrysler management, the UAW and the bondholders, I don’t think that the answer to this one is quite what you had in mind…
———————————————–
The bond holders, IMO, are the weak. They invested their money, cannot get the full value back. It’s OK that they lose money due to wrong judgment.
But right now, the government is trying to deprive them of the liquidation value they deserve. That is not OK. That is robbery in daylight.
I don’t think that the middle of a recession is a good time be strict about ideological principles
Later, once the dust is settled, sure.
Hopefully not as it was this ideology of absolute economic freedom that got us in the mess.
You can either have high leverage for growth with strict controls, or more freedom for speculation without leverage. We just saw the leading edge of the result of allowing both.
–
Shoveling money at them only delays the inevitable.
Sure, but that’s exactly the right plan for now.
To better understand it, we’re not shoveling money at the corp entities but the social-economic ecosystem they’re propping up.
Now granted, this can be done more efficiently if the gov were more directly involved, but again ironically, it’s the “the market is king/ down with gov” people who are preventing this.
agenthex :
March 30th, 2009 at 5:34 pm
Hopefully not as it was this ideology of absolute economic freedom that got us in the mess.
—————————————-
It’s government intervention (for the benefit of certain groups) that got us in the mess.
In a truly free market, this bubble would never occur.
I’ll get back to my central point: Government control is driven by political control. Governments typically don’t make decisions (at least not in the larger sense) in the same way businesses normally do, that is, based on P&L factors, markets and competition, and calculated or estimated FINANCIAL risk/return trade offs. And whereas private companies usually render accountability for business failure in the form of “you’re out of a job”, and markets do so in the form of “you’re out of business”, in government policy failure often doesn’t manifest itself for years or decades, and the guilty are by then either long gone or too dead to be held accountable. Even the worst CYA-buck passing politicians often escape judgment at the ballot box. How else do you explain the reelection of so many idiot congress persons who make really stupid choices in law making?
Governments make decisions primarily based on calculated POLITICAL risk/return trade offs, since politics is what governments are all about. At best, the politics involved will serve to at least advance an agenda that will benefit a broad range of constituencies, at an inevitable cost to a relatively small number of other constituencies (more winners , fewer losers, or at least fewer losers who have political clout). At worst, the politics involved will ultimate serve to benefit only very narrow set of constituencies, at a substantial cost to a lot of others (oops, we tagged the wrong losers. Sorry!). Any way you look at it, it’s a thin “zero sum” gruel.
The nub of the problem is that the government deciding usually gets done by a small group of politicians, or worse, over-educated policy wonks who are in fact human, and therefore very fallible. Nobody, even a collection of the most wonky wonks DC has to offer, can claim total prescience or omniscience, or even partial P&O, and most of all they can’t control human nature.
As a consequence, with politically driven decisions, as in physics, for every action there will be equal and opposite reactions, of which the wonks have no way of knowing what that/those will be. Scheme and plan as they might, the iron law of unintended consequences is public policy’s “law of the jungle” that ultimately dispenses its judgment on even the most well-thought out public policy agenda.
And THAT is the central problem of central planning, and precisely why any amount of government intervention to “save” a company or industry with a fundamentally bad business model is destined to fail. And fail at great taxpayer cost and wasted human time and effort.
But the framers of our constitution realized that the single greatest threat to personal liberty is not poverty or prejudice or greed or economic chaos. It’s the government itself.
If they truly believed that, then they wouldn’t have been so quick to pass the Alien and Sedition Acts when the ink was barely dry on the Constitution.
The founders were ahead of the curve and brilliant people, and we should learn from them. But they were also pragmatic and happy to compromise when necessary.
Perhaps more importantly, they wrote the Constitution in a deliberately vague, open ended fashion so that successive generations would be free to interpret it. They understood implicitly that they could not anticipate everything that would occur in the future, so they created a framework that was meant to be flexible and adaptable. The goal was to maintain the spirit of the Constitution, not to ape it as if it was an unwavering religious document.
More to this editorial’s point, do any of you interventionists seriously believe that the federal government will surrender the power that it has so easily usurped?
When it comes to this sort of thing, the federal government actually has a very good track record of putting business affairs back to the private sector in a timely fashion when possible. If you look at how the FDIC operates, it seeks to fix banking defaults by finding new private sector owners as soon as possible. Similarly, the RTC used the private sector every step of the way in sorting out the financial collapse of the time, and dissolved itself when its mission was completed.
This is not American Leyland. The feds are obviously looking to marry off Chrysler to whomever will take the poor wench, and they are dealing with GM just as a private equity firm would, not like a lumbering government agency might mishandle it.
It strikes me that the government is being realistic. Their reports posted here show a clear understanding that this is not really a cyclical problem, but symptomatic of bad management, and they are looking to fix those underlying problems. No ideology gone wild or mindless happy talk are to be found in those summaries.
During the first Chrysler bailout, Uncle backed away once his obligations were met. I’d have to see compelling evidence as to why it would be different this time, or why they wouldn’t attempt to eventually dump GM if necessary, just as is happening now with the Fiat-Chrysler deal. The Soviets would not have handled it like this, not at all.
h82w8, your analysis is the best I have seen so far.
It’s amazing how many people are brainwashed to believe free market caused all this mess.
It’s people like Bush and Paulson who distort free market that caused this. We can’t expect them to be Saints, so we need a better system to keep them in check.
In a truly free market, this bubble would never occur.
Even the briefest scan of history would discredit this. Sound monetary policy has been able to stabilize markets even in the face of far greater leverage than the primitive economies you speak of.
Speculative bubbles are THE feature of laissez faire economics. Pricing and value are not so closely coupled as your leaders hypothesize. In fact, they can be very profitable to purposely de-couple, and there certainly won’t be a lack of incentive nor responsible constraint in that system.
—
Governments typically don’t make decisions (at least not in the larger sense) in the same way businesses normally do, that is, based on P&L factors, markets and competition, and calculated or estimated FINANCIAL risk/return trade offs.
It’s exactly because they’re not limited to this criteria that they’re fit to solve problems which cannot be solved by market means.
This point is critical to understand: Not all problems are best solved by profit-driven motives. That’s so self-evident it’s a clear sign of indoctrination when something so simple bears repeating.
—
Their reports posted here show a clear understanding that this is not really a cyclical problem
I don’t know what you mean by this, but they’re clearly trying to prevent the larger issue from turning cyclic.
Business is amoral. It values money/wealth over all.
Government is amoral. It values power over all.
Trust neither. We, the people, should demand accountability from both business and government. We should also demand it of each other as members of this society. Unfortunately, we, the people, have failed in our “check and balance” role here. Now we all pay the penance for these sins of omission.
So we’ve ended up at the same place we always do. Those who see things as black and white versus those who see things as a million shades of gray. Fascinating.
I’m more worried about the gray. Always have been. When will it end? When will the pursuit of the so-called “common good” finally trample individual liberty once and for all? Will anyone notice? Will anyone care? Some people will lose. Some people will suffer. All this crap going on right now won’t prevent it, it’ll just push it down the line. But that is what people want isn’t it? To push the problem down the line so they don’t have to deal with the consequences of ten plus years of overspending and overleveraging. It’s typical. It’s human. I’d dare say it’s contemporary American. Not right, but still…
For those noninterventionist types: if you take the bailout monies as a given what is the role of the government in doleing out of said monies? It is a caretaker of the purse and as such must be responsible. If it disperses an amount and that amount is wasted then it isn’t practising good governance. If, after dispersement, it attaches preconditions for further monies isn’t that good governance and what you’d want with someone using YOUR money?
Yes, not doing it in the first place would probably be wiser but this adminstration had no voice in the first wave. I would say that it really couldn’t stop once the process was started.
Now that the process is in motion, NOT insisting in changes to the companies receiving this largess would be irresponsible at best and almost criminal at worst.
As it stands right now, the PTFOA has forced a change at the top of GM not nationalized the company. If GM gets delisted and the majority bondholder becomes the US gov’t, what then? It may not be the greatest move but really, there’s no choice. I can’t (and really can any of you seriously not agree?) see a nationalized GM existing in 2011? It would be an IPO faster than the Flash in the 1st quarter of profits.
And whereas private companies usually render accountability for business failure in the form of “you’re out of a job”, and markets do so in the form of “you’re out of business”, in government policy failure often doesn’t manifest itself for years or decades
You apparently don’t see the irony of this statement in light of the subject at hand. GM has been failing for decades, not days, weeks, months or even a few years. This very company that we are discussing disproves your thesis.
The mechanisms of accountability to which you refer exist in textbooks, not reality. Large badly managed companies take years or even decades to fail, because failure is usually a multi-faceted drawn out process, not attributable to any one single cause.
The United States of America has outlived virtually every company that has ever operated within it. Despite some severe mistakes along the way, it has been better designed for long-term sustainability than virtually any business that you can think of.
Governments make decisions primarily based on calculated POLITICAL risk/return trade offs, since politics is what governments are all about.
Again, a simplistic statement that doesn’t hold up to scrutiny. Gather a body of people together, for whatever reason, and politics will soon emerge. This frequently occurs in business, it is by no means limited to government.
We call it “office politics” for a reason. Most businesses exhibit cultures in which the motives tend to be self-serving for the individuals within them. The key difference is that in a republic, the government is accountable to the voters, while businesspeople are rarely accountable to anyone. You can’t just vote the bums out at GM; it isn’t a democracy, and God help us, it shows.
Ayn Rand’s many disciples have only a novel to point to as an example of their theories succeeding in practice. It is curious that these libertarian leaning thinkers point to the abject failure of the Soviet Union as the ultimate proof that all government is evil, and yet have no example to point to of their theoretical utopia in action.
Consider the very notion of private property, the most sacred cow of right wing economic thinking. How does said property become “private” in the first place? By a government giving a piece of paper to someone declaring that said property belongs to them. Every piece of private property in the USA got that way through a “government handout”. Just something to think about. After you get your mind around that one, think carefully about “intellectual property”. It exists because a government hands a person or company a piece of paper saying that said individual has the exclusive rights to a thought.
Robert, I completely you agree with you. However, it’s usually easy to call Republicans out on this due to hypocrisy; Republicans want freedom from government, but the majority support legislation to ban same sex marriage. Remind me again how that works? From my eye, it seems that Republicans base freedom on convenience (when it suits them, they’ll take freedom, if their ideals are at risk, regulate).
Honestly, I’m tired of this becoming a political debate though. The bailout is a mess, but it’s the mess of an administration, not a political ideology. It seems that many commentators here are quick to pin this decision on all liberals. I’m sure liberals are guilty of the same crimes (read: Bush administration), and it’s a shame online forums always end up this way.
Does it have to be a government to do that? Why isn’t it (or can’t it) be an independent (non-government) authority or business?
Consider the very notion of private property, the most sacred cow of right wing economic thinking. How does said property become “private” in the first place? By a government giving a piece of paper to someone declaring that said property belongs to them. Every piece of private property in the USA got that way through a “government handout”.
Not quite. It became private property by someone clawing their way to it before anyone else, and staking their claim. These people were the first free-market capitalists, and the government supported their effort. It did not force them to share their claim with anybody who sat on their ass on the other side of the pond.
We have to get over this absurd notion that the government owns everything, and is qualified to “intervene” as it pleases. The government works for us, folks, not the other way around.
“Politics is about dividing wealth up in a zero sum game: someone wins, someone loses”
Can someone explain to me how the United States government paying $15 billion for the Louisiana Territory was a “zero-sum” game? How much is that land, all of the infrastructure on it, and the lives of the people who lived there and are living there worth today?
W.R.T. Libertarianism – I consider it proof that the Divine has a great sense of humor that Libertarians use the Internet/World Wide Web (which was created by a government agency and which incorporates numerous anti-Libertarian principles) to evangelize for Libertarianism, and are utterly unaware of the irony of that situation.
Nice discussion, in its way.
But I really wish this cult of “free enterprise” would take a break. The idea that the U.S. was founded on some sort of philosophy of guns, religion and laissez-faire capitalism is incredibly naive, at best.
The agrarian society of 1776, one that accepted slavery, but would have been aghast over the thought of universal suffrage, is hardly relevant to the troubles of General Motors and AIG.
As for Mr. Wagoner, he was given an opportunity to present a coherent plan for G.M., couldn’t, so now must live out his days as a million in a town made up of former auto workers. I think he’ll do OK.
As for G.M., now they have another 60 days to come up with something. I hardly see the sky falling because the Obama administration said “boo” and recommended that one of the worst CEOs to ever collect a paycheck leave the scene. If G.M. can not figure something out (frankly, I’ll be surprised if they do) then they go to court in order to seek the shelter of big, bad government.
Strange how it works: government is bad when there is money to be made; but good when the bill collector comes around.
Not quite. It became private property by someone clawing their way to it before anyone else, and staking their claim. These people were the first free-market capitalists, and the government supported their effort. It did not force them to share their claim with anybody who sat on their ass on the other side of the pond.
No, what it did do was protect their claim from a stronger power. Without government intervention, it becomes a dog-eat-dog situation, and when government ought to become involved is really an open, debatable question.
John’s point about intellectual property is a good one: it’s a completely fictional construct that owes it’s existence purely to the laws passed by various governments. The alternative, which libertarians want and which communists have, is ostensibly a bad system that stymies progress and limits creation of wealth based on knowledge.
There’s no hard-and-fast rule that says government involvement is always or never bad, or to what degree. The nature of democratic government is always one of compromise, and yes, that means that occasionally the decisions are going to be unpleasant for some. The trick is for people to remain engaged in government and not allow it to be accountable to only one group.
In this case, I think the government made a reasonable, if rather hollow step. I think they ought to have done more and done it earlier, but this is far better than bridge loans to nowhere.
You’re all nuts, but I otherwise agree with jakecarolan and PCH101.
The ‘purity’ of any economic system fails when the concerns of the people to which it should serve become secondary in importance.
Unless you start from a premise that you should care for and about people, your neighbours, then you have no consumers.
Otherwise, we should retreat to the trees naked and for nothing but fornication’s sake…..
Can I interest anyone in some Existentialism?
Very well said, Justin. I agree 100% and wish I could have expressed it so eloquently.
One more thing. I can respect Ron Paul and Lew Rockwell because they are on the record for have being against the Bush regime’s belligerence, torture policy and attack on civil liberties for years. I disagree with their basic philosophy, but I can read lewrockwell.com for entertainment purposes and I appreciate their clear worldview. But I find it downright annoying when people who were silent throughout the Bush years get all worked up just because Obama is not a libertarian.
“This country was founded on freedom. Freedom to worship as we choose. To move about freely. But most of all freedom FROM government.”
I disagree. The US was founded on the belief in an elected government as opposed to a hereditary monarchy. This is not the same thing as freedom FROM government. It is instead a different view as to how government gets its legitimacy.
In fact, the constitution lays out a rather sweeping set of powers for the federal government, including the regulation of trade with other nations, regulation of commerce between the states and so on. The government was also specifically empowered to create a post office.
The notion that America was founded on the principle of freedom from government has little basis in fact.
As an aside, said constitution also explicitly endorsed slave-holding … and institution far worse than the present debate over how much the government should be involved in the car business. I find it hard to hold up as divinely inspired a compromise document which explicitly endorsed slavery.
The idea that the second ammendment was enacted in order to enable the citizens to overthrow the government is a rather fantastical stretch. Here is the Second Ammendment as ratified by the states: “A well regulated militia being necessary to the security of a free State, the right of the People to keep and bear arms shall not be infringed.” Nothing in there about the right to bear arms being included in order to enable citizen resistance movements. That rather odd juxtaposition of the two phrases in one sentence has caused no end of argument about what exactly the words mean, but it is hard to find words in there which support an anti-government agenda.
In fact, section three of article three of the constitution sets up a framework for dealing with treason: “Treason against the United States, shall consist only in levying war against them, or in adhering to their enemies, giving them aid and comfort. No person shall be convicted of treason unless on the testimony of two witnesses to the same overt act, or on confession in open court. The Congress shall have power to declare the punishment of treason, but no attainder of treason shall work corruption of blood, or forfeiture except during the life of the person attainted.”
This hardly sounds like a document designed to protect individuals from the government. Picking up your gun and having it out with city hall is not what the founders had in mind.
More hilarious myth busting:
I use Mozilla Firefox instead of MS Explorer, Open Office instead of MS Office. I can switch from Windows to Linux id necessary. No, MS is not a monopoly.
Free (or even semi free) markets destroy monopolies.
They clearly don’t. Anti-trust legislation was a reaction to historical events, and your homework is to find out which ones. That and find a proper definition for “monopoly”.
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I hate rationally Statism, i.e., the idea that the state has a function beyond protecting life, liberty and the pursuit of happiness.
Maybe functions like maintaining the monetary and legal/judicial systems and physical infrastructure which make a sophisticated modern society possible?
But I will agree the lack of education about these issues is a failure of the Statist educational system.
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Is a very simple recipe: Work harder PLUS Work smarter.
You are right. Our Statist education system is terrible. They are teaching people that all our problems are linear ones, and the solution always comes in the form of doing more of (fill in the blanks): [specious means] to an [ideological end].
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* If you force people to wear seat belts you are infringing their right to the pursuit of happiness.
Where happiness is defined as serious injury or death, apparently.
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* If you create a “Universal Healthcare” system you are infringing the property rights of those forcibly enrolled. When (not “if”, but “when”) that healthcare system starts killing patients, you are infringing their right to life.
Healthcare kills patients! Damn the government conspiracy that prevents our children from learning these important facts!
Healthcare kills patients! Damn the government conspiracy that prevents our children from learning these important facts!
Statized Healthcare kills patients, sir. It is a sad fact. If this fact is not part of your experience I congratulate you for your luck and I invite you to get the facts.
If you have a knowledge of Spanish I suggest you this googling:
http://www.google.es/search?hl=es&lr=&ei=rOHRSffrEYW7jAfAw4H3Bg&sa=X&oi=spell&resnum=1&ct=result&cd=1&q=%22doctor+montes%22+%22sedacion+terminal%22+%22legan%C3%A9s%22&spell=1
This one man Doctor Death Crusade is going to be (by law) the SOP for Public Hospitals in Spain.
* A Private Hospital has an economic interest in keeping you alive, because the moment you die they stop collecting money from you.
* OTOH, a Public Hospital is part of the same corporation (the State) that pays you a pension until you die. I live in a country (Spain) with Socialized Medicine since the 1950s. We have a lot of experience about how the system works and for some things we always, always, always go private.
In its essence, politics are the allocation of happiness in-the-moment, and systemic arrangement to support growth in the gross ammount of happiness to be allocated in the long run. Put another way, a government is as motivated to expand the pie as you are, but styles of governing differ sharply on the the question of whether happiness should be allocated equitably or not. Fundamentally, inequitable allocation of happiness can be by intent, or in some systems simply a consequence of an unmanaged system. The idea that government is organized to distribute a fixed pie while free markets exclusively expand the pie is balderdash. Unfettered free markets have dashed innumerable hopes during brutal contractions and diminished opportunity with nearly the frequency that they buoyed aspirational enterprise. That free markets performed just well enough to net a civilizational profit does not negate the hard reality that the deep dysfunctions imposed by contraction eventually demanded mitigation. It’s not an accident that a protracted period of government mitigation of free market social oscillation aided and abetted the long period of stairstep prosperity enjoyed by Americans since the Great Depression.
From the longstanding mortgage tax deduction to the GI Bill, responsive monetary policy, investment in mobility and communications infrastructure, the mid-19th century land-grant colleges, space exploration and tax law favoring investment, the governments of the United States have a long and enviable track record of channeling politics into relentless *expansion* of the economic pie underpinning happiness to be allocated.
The mitigation of free market excess is controversial to ideologues but as a practical matter one can admit its sometime ham-handedness while recognizing its asset, on balance. As some others have noted here, the framers of the US Constitution organized the foundation principles for a government. The freedom-from aspect derives from the recognition that both popular democratic and monarchical authoritarian governments (even when benevolent) tend toward tyranny. Yet government was and remains necessary. So they made it difficult for natural tyrannies to take root. In our system, dictators-in-waiting are relatively easily undermined by dissidents and the sharers of power subject to checks and balances, and tyrannical majorities are constrained by law and eroded by information and social dynamism. The framers of the American Constitution upheld liberty, accountability, community and responsibility for organizing the mass polity into a force that can defend itself in a balance that blended in unprecedented assimilation for dynamic change.
Hence, the organizing principles for 3 million people living on a fat but challenging 1 million square miles of land can both persist more than 200 years later while not unduly constraining the adaptability of a government reconciling the vastly more complex requirements of 305 million more variegated people living on 3.5 million square miles of land, in a world they cannot be so isolated from as were forebearers living within a thousand miles of the Atlantic shore of North America 10 weeks by ship from anyone else who could materially affect them.
The idea that “mission creep” for government is inevitably an expeditious sacrifice of principle for convenience or comfort would be both familiar and derided by the framers of the Constitution. They crafted the rules to be vague and accommodating to change while drawing a hard line around a relatively few specific protections. While the full sweep of human organizational history renders the stupefying illogic and callousness of bureaucracy environmental, the United States has a comparatively good record for its economic interventions by government authority being dynamic rather than static or worse yet, inexorably cumulative. The then-unprecedented interventions of the Franklin Roosevelt years faded as energy to intervene lost its vigor as expansion eventually resumed. RTC came and went. Follies like Nixon’s wage & price controls were quickly extinguished. In the 1980s, the Federal government ponied up half a billion dollars to ensure creation of a robust American flat panel display industry, which neither succeded nor distorted the market, and the initiative faded. Some of what the Obama administration tries in combating a plunging economy will persist, but much of it will be quite temporary and die. American history argues against alarmism and worry.
It’s not that anyone in the government believes GM is “too big to fail.” They believe instead that it is both unnecessary and misguided to allow failure *under these circumstances*. Economic purists nearly always ignore or neglect the human reality in politics and in the American case, that the human reality derives from the governors and the governed, for they are one and the same. The precipitous unwinding of GM as a manufacturing enterprise has social, political and economic costs that are vastly more expensive than bridging it through both a serious reform and hostile economy. There is a fantasy often articulated here that somehow a large and new American automotive manufacturing sector will arise from the ashes of a destroyed GM, Chrysler and Ford. I wish it were so, but almost certainly such will not be the outcome. First, incentives for foreign makers to manufacture automobiles in the US will weaken, particularly in the context of rising unemployment in their domestic markets. Second, automaking will be seen by capital sources as risky, capital-intensive and onerous if undertaken anew in America. Third, a vanquished market will be compromised by predatory pricing. We forfeited the television industry 30 years ago. Where is the entrepreneurially-energiezed American television manufacturing sector that was to have risen in its place? That’s correct, it’s nowhere to be seen.
Free market purists will say capital flows to people and places who can maximize its value so why should we care if automaking is considered onerous in the US but not in India and China? We care because manufacturing is a primary pump for social mobility and is a pillar for expansion and sustenance of a majority middle class.
The rights and freedoms codified in the American Constitution are elemental to American life, but they are not alone the essence of the United States. Opportunity stems from the core values laid out in our founding documents, but only as an ideal. As a practical matter, opportunity is made real for great numbers by the fostering of mass middle class. A true mass middle class does more to make our ideals both within reach and real to the majority than any other single element of America’s long success. American life was much rockier, and its promises much more abstact to most people, before middle class expansion made the egality of opportunity viscerally feasible to anyone looking in. It was in emergence of mass middle class during the 20th Century that the United States made freedom accessible, and found the generosity to resolve some of its deeper remaining societal divisions, and fund the remaking of a broken world. A middle class expansion that Federal intervention fostered, just not exclusively.
Our Federal government, as bridge loan banker to a behemoth business entity in distress, put a condition on its money: Rick Wagoner cannot continue as CEO of General Motors. It’s what any banker would ask for, under the circumstances. Don’t make too much of it.
Phil
* A Private Hospital has an economic interest in keeping you alive, because the moment you die they stop collecting money from you.
In that case, privatized healthcare have the perfect scenario to maximize profit if the alternative is death.
Health in general is far from a negotiable commodity and tends to monetize poorly.
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We have a lot of experience about how the system works and for some things we always, always, always go private.
That’s fine. The argument is never about making the gov an exclusive source of care.
What you may not have experience with is one of the wealthiest nations neglecting to provide a basic level of service to its citizens.
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We care because manufacturing is a primary pump for social mobility and is a pillar for expansion and sustenance of a majority middle class.
Phil, good post in general, will read again, but the specific claim above is not true beyond a certain point in development and arguably not a prerequisite for development at all. I don’t know if your attachments to manufacturing are sentimental or what, but once the methodologies of economic growth are abstracted, there is no concrete archaic setup that magically safeguards society.
For example, you can try to claim the same for agriculture, but the empirical reality is that nations sustain themselves fine as an importer as long as they produce greater value elsewhere.
In this case, we care enough about the auto industry only because by coincidence it’s a large employer, and we cannot afford spiraling unemployment.
Health in general is far from a negotiable commodity and tends to monetize poorly.
That´s correct for Health.
That´s incorrect for HealthCare.
The argument is never about making the gov an exclusive source of care.
Once the State enters the fray, it distorts the Health Care market.
What you may not have experience with is one of the wealthiest nations refusing to provide a basic level of service to its citizens.
The “Nation” does not refuse health care. The Taxpayer does, until the State forces himm/her to pay for other persons problems.
There´s no reason for the taxpayer to bailout GM or Chrysler. Equally, there´s no reason to bailout the Emphysema of your uninsured neighbour. He/She choose to smoke and to do not buy insurance.
I suggest you to google (lets say) “NHS disaster” to learn what happens when the government starts to run hospitals. It is fascinating to see how NHS rules actually force Doctors to cheat.
Could you please cite a good car designed and built by a State run company?. That car does not exist. State-built cars are uniformily awful. Why do you think that the state can do a better job running hospitals?.
That´s correct for Health.
That´s incorrect for HealthCare.
So what do you take healthcare to be about?
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Once the State enters the fray, it distorts the Health Care market.
So? It’s interesting in light of the last statement that some people just can’t see the point of human existence outside of the demands of commerce.
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The “Nation” does not refuse health care. The Taxpayer does, until the State forces himm/her to pay for other persons problems.
That’s rather the point of civilization in general. Somehow that goal gets to be distorted by some to be a pathological selfishness.
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There´s no reason for the taxpayer to bailout GM or Chrysler.
At this point I’m thinking you haven’t even bothered to read the prior posts and there’s no reason to repeat myself or advance further until you do.
He/She choose to smoke and to do not buy insurance.
Sure, some people are terminally stupid, perhaps a corollary to being poor and not being able to afford food much less insurance, and perhaps there is a point to allowing natural selection to prevent them from perpetuating their genes. However, framing it as a “choice” is disingenuous since we are already very experienced in the manipulation of social memes, and we can certainly regulate what we see fit. The only choice here is whether we choose (and allow the choice) to profit off of the misery of others.
And those dumb people in your own family and possible offspring? I hope you also accept their demise at the hands of an uncaring society so we won’t take you for a hypocrite.
psharjinian: That’s actually an interesting point. Are GM and Chrysler “the weak”, or is the taxpayer? I think it’s safe to say that they are, as are (potentially) the bondholders and/or the UAW, but it highly depends on the circumstance.
GM and Chrysler (and the groups depending on them – dealers, bondholders, the UAW, management) may be weak in the marketplace, but they are stronger than taxpayers within the halls of government. Polls have repeatedly shown that a majority of taxpayers – Republicans, Democrats, independents – oppose any aid being given to either company. But the companies received it anyway.
Pete Moran: The ‘purity’ of any economic system fails when the concerns of the people to which it should serve become secondary in importance.
Many of the people who opposed the bailouts are concerned about taxpayers who will ultimately pay for it. They have legitimate concerns, too.
After all, if they wanted to help GM and Chrysler, they could have gone to their local dealer and bought a new vehicle at full sticker.
agenthex: They clearly don’t. Anti-trust legislation was a reaction to historical events, and your homework is to find out which ones. That and find a proper definition for “monopoly”.
The trusts developed during a time when the government used tariffs to either make foreign products uncompetitive, or keep them out of the market altoghether. The government was also talking about “laissez faire” while it was making sweetheart deals with corporations and individuals. That is why the Gilded Age is rememembered for its corruption, not the free market running wild.
The free market didn’t end any monopolies because a truly free market didn’t exist.
agenthex: Sure, some people are terminally stupid, perhaps a corollary to being poor and not being able to afford food much less insurance, and perhaps there is a point to allowing natural selection to prevent them from perpetuating their genes.
If people can afford tobacco products, they can afford food. Tobacco products are hardly inexpensive, given the taxes that states have levied on them to discourage their use over the past 15 or so years.
And please note that obesity is much more of a problem among the poor than among the upper middle class or the very rich. When was the last time you saw a fat heiress or Hollywood starlet? Go to a place where poor and low-income people congregate. Unless they have a drug or alcohol problem, they aren’t rail thin. Quite the opposite…
agenthex :
March 30th, 2009 at 6:05 pm
In a truly free market, this bubble would never occur.
Even the briefest scan of history would discredit this. Sound monetary policy has been able to stabilize markets even in the face of far greater leverage than the primitive economies you speak of.
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If “the briefest scan of history would discredit this”, then what’s holding you back from giving me an easy and convenient example?
There is only one type of “sound monetary policy”, and that is free market. Free market is the most sophisticated type of policy; a central dictatorship is the most common and primitive economy type.
In a truly free market, this bubble would never occur.
The Panic of 1907 is an obvious example that disproves your point. A crisis induced by rampant speculation that led to bank failures. There was no Federal Reserve — in fact, it’s this event that led to the creation of the Federal Reserve — but we saw a market crash, bank failures and deleveraging.
The Panic of 1873 is another. Again, a speculation effort that blew up, and that one turned into a depression. Again, no Fed to kick around for this one, either.
I would suggest that the conservative purists learn their economic history. The United States experienced numerous depressions and major crashes during the 19th and early 20th centuries, during periods when there was no central bank. Reading some of these comments would lead one to believe that the US has had one depression since its formation, but that would be false.
The economic revisionism among the political types is getting to be a bit much. It needs to stop now before more truth gets tossed out the window. Facts are facts, and ideology can’t change them, no matter how badly we may want them to.
Pch101 :
March 31st, 2009 at 11:31 am
The Panic of 1907 is an obvious example that disproves your point. A crisis induced by rampant speculation that led to bank failures. There was no Federal Reserve — in fact, it’s this event that led to the creation of the Federal Reserve — but we saw a market crash, bank failures and deleveraging.
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I am afraid that you mixed up the terms “free market” with “illegal conduct”. Otto Heinze had the right to create a short squeeze, but it’s an illegal conduct to not reveal this collateral risk to people who put deposits into his banks.
It’s like, I propose “free marriage” when you proposed “sound arranged marriage” and cited a case where the woman is beaten and forced to marry as a proof that “free marriage” doesn’t work.
What’s more, the stock market dropped only 50% in 1907. After the birth of the Fed, the next big drop occurred in 1929, when 90% of the market value was lost. So much for the sound policies of the Fed.
I am afraid that you mixed up the terms “free market” with “illegal conduct”.
Now you’re contradicting yourself. A laissez faire capitalist wouldn’t want to put constraints on attempts to corner the market.
Bubbles occur when private actors attempt to make money to the point that prices are bid up to unsustainable levels. Without restrictions and regulations, some people go for the gold, and miss badly.
You’ve stated that bubbles don’t occur without government, and that’s obviously wrong. These examples disprove your argument handily. Don’t try to rewrite history here.
Pch101 :
March 31st, 2009 at 12:01 pm
I am afraid that you mixed up the terms “free market” with “illegal conduct”.
Now you’re contradicting yourself. A laissez faire capitalist wouldn’t want to put constraints on attempts to corner the market.
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Nothing wrong with cornering the market. If you have proper reading ability, you would have read my statement that “Otto Heinze had the right to create a short squeeze.”
But a laissez faire capitalist would also emphasize on the importance of honoring a contract. It’s viable market economy if Otto Heinze tried to corner the market with his own money. It’s not market economy if Otto Heinze used the money that people saved to corner the market without letting the savers know. It’s breaking the market contract and the law.
The existence of murderers in a democracy is not a valid excuse to adopt a dictatorship. A dictatorship always kills more than a few murderers.
The existence of contract breakers in a free market is not a valid excuse to adopt a Fed market. The Fed always steals more than a few contract breakers.
Let me remind you again, the stock market dropped 90% in 1929, under the brilliant policies of the Fed. A feat that no outlaws ever managed to accomplish prior to the establishment of the Fed.
tbandrow :
March 30th, 2009 at 2:00 pm
I say we kicked out every goddamned foreign manufacturer of any kind in the USA. Screw them.
It will be Deja Vu, GM will make Corvairs, Vegas,Ford Pintos etc.
Foreign car manufacturers do hire locals to make cars here.
Is increaingly difficult to identify what part is made in USA, Canada, Mexico, China, Asia etc.
Mr Archie Bunker please wake up smell the coffee.
But a laissez faire capitalist would also emphasize on the importance of honoring a contract. It’s viable market economy if Otto Heinze tried to corner the market with his own money. It’s not market economy if Otto Heinze used the money that people saved to corner the market without letting the savers know. It’s breaking the market contract and the law.
I’d like to see the section of the Laissez Faire rulebook that devotes such lavish affection upon contract law.
In any case, you are still contradicting yourself. You claimed that only government causes bubbles, and I provided you with two examples in which you are absolutely, clearly wrong.
Two examples are one more than is needed to disprove your statement that asset bubbles don’t occur in free markets, for if you were correct, there would be no examples at all. You can try to deflect and talk around it, but you are still wrong on the facts, no if’s, and’s or but’s.
Phil
Good post
Pch101 :
March 31st, 2009 at 1:15 pm
I’d like to see the section of the Laissez Faire rulebook that devotes such lavish affection upon contract law.
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Laissez Faire is about free trade. Trade is, generally speaking, voluntary exchange of goods or services.
If one side delivers and the other side doesn’t, i.e. breaking a contract, then the trade is failed. People who lover free trades won’t like failed trades.
BTW, “Laissez Faire” and “anarchist” are two separate entries in the dictionary, because they mean different things. Go back to your high school teacher, if you are not sure. Your prior reference to “Laissez Faire” treated the term as if it’s “anarchist”.
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Pch101 :
In any case, you are still contradicting yourself. You claimed that only government causes bubbles, and I provided you with two examples in which you are absolutely, clearly wrong.
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You really need to improve your reading ability. Please do not lie about what I said, OK?
I said “in a truly free market, this bubble (i.e. the big crash of 2008) would never occur.”
I didn’t say “in a truly free market, no bubble of whatever magnitude would never occur.”
Of course there will be bubbles with any economy. But with a free economy, it quickly balances itself, so the bubble will be relatively small. Whoever made misjudgment will fail without too much collateral damage.
Again, compare 1907 with 1929. In 1907, (it’s not Laissez Faire at the time either) the stock market droped 50%. After 22 years of increased government policy making, the stock market dropped 90%.
Creating the Fed to combat the problem in 1907 was like helping addicts off the hook of weed by injecting heroine. As you mentioned, learn the history. Please.
The free market didn’t end any monopolies because a truly free market didn’t exist.
There’s no point to discussing this any further since no “true” free market can ever exist, both in the logistically impossible sense, and more importantly because you’ll never admit to there being one since they’ve all failed.
There is no real logical or academic or intellectual or historical support here because the only adherents for lassiez faire is within a few political outcasts whose party long abandoned them. At this point, you would be wise to actually learn something about economics outside of old party doctrine. As I’ve said before, if you’re going to pretend to channel Adam Smith, at least read and understand his book first, because it doesn’t claim what you’ve been told it does.
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If people can afford tobacco products, they can afford food.
Tobacco products are (or least used to be) heavy marketed and fairly addictive. You seem to be able to draw a distinction for “drug” use, so why must the world be so black and white?
As a corollary, I posit we deny social service to any ignorant people, because after all they choose not to avail themselves of perfect knowledge (the mandatory prerequisite for citizenship in the lais utopia) and thus in the long run they’ll just be a drag on society. But on the other hand they are likely great sources for profit due to their relative deficiency. Hmm… decisions
I said “in a truly free market, this bubble (i.e. the big crash of 2008) would never occur.”
If that’s what you meant, then you’re still wrong.
There’s nothing fundamentally different about this bubble with respect to core causes. It’s always the same thing: aggressive investors who buy too much, too late, and then get stuck left holding the bag when the floor drops out.
In 1907, (it’s not Laissez Faire at the time either) the stock market droped 50%.
In that case, perhaps you should specify which years met your definition of laissez faire.
And you really seem fixated on stock market capitalization, when the impact of depressions is measured by GDP, evidenced by widespread banking failures, and suffered by the average person through high unemployment.
Look at the history. The 1929-era Fed made classic conservative mistakes, contracting the money supply and spending instead of expanding them. That didn’t work, obviously, even though the (failed) response was an Austrian economist’s wet dream come true.
Again, compare 1907 with 1929. In 1907, (it’s not Laissez Faire at the time either) the stock market droped 50%. After 22 years of increased government policy making, the stock market dropped 90%.
Many lessons were learned from 1929 and elsewhere (tho most of them NOT supporting MORE free-market), which is why ALL modern economies have similar protection structures. If you actually read other people’s posts you would know the core error (high leverage PLUS speculation) behind the recent crash, and it should be obvious to anyone except the ideologue that such behavior is far more promiscuous if not standard operating procedure in your ideal world.
No doubt your excuse is that somehow the fed touched it therefore they own it, but there’s no need for a through rebuttal involving the legal and policy decisions that catalyzed this (btw, well documented anywhere like glass-seagell), since it’s pretty damn obvious at this point.
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Of course there will be bubbles with any economy. But with a free economy, it quickly balances itself, so the bubble will be relatively small.
Backtracking already I see. The fact is “free” econs with their inherent lack of regulation of the sources of instability that they tend to tank/reset well before they can reach anywhere near the size of an economy managed with modern methods, so it’s a moot point anyway.
I will note to all that the main line of argument for free-market given the lack of any empirical success is to “trust us, it all works out in our heads even tho we tend to get basic facts wrong”.
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ps. For some reason I didn’t get PCH’s post when I refreshed and wrote this one, so, sorry for any overlap.
To better understand it, we’re not shoveling money at the corp entities but the social-economic ecosystem they’re propping up.
Now granted, this can be done more efficiently if the gov were more directly involved, but again ironically, it’s the “the market is king/ down with gov” people who are preventing this.
Late to the party and not enough time to read all of the comments, but this one made me smile. You know its a true beleiever socialist talking when they take as a basic assumption that the government is the most efficient way to distribute money. Yes, and we’re from the government, and we’re here to help. LOL
…but the specific claim above is not true beyond a certain point in development and arguably not a prerequisite for development at all. I don’t know if your attachments to manufacturing are sentimental or what, but once the methodologies of economic growth are abstracted, there is no concrete archaic setup that magically safeguards society.
I haven’t said that manufacturing safeguards society forevermore, but generally having a layer of jobs in the an economy that offer better than living wage without a high bar regarding education does substantially contribute to social mobility. And popular belief that socio-economic mobility is within the grasp of most who seek it safeguards society by channeling discontent or restlessness into focused productive action. Manufacturing has proven uniquely robust as an instrument for expanding the ranks of the middle class over many decades, arguably faster than a population can be educated for advanced intellectual endeavors.
Further, manufacturing intrinsically accumulates wealth in addition to money, and its results tend to give people otherwise on the margins a stake in the system. Manufacturing put a huge number of people in home ownership, a civic benefit our government fostered to great effect long before the recent housing bubble.
For example, you can try to claim the same for agriculture, but the empirical reality is that nations sustain themselves fine as an importer as long as they produce greater value elsewhere.
Agriculture yielded to vast improvements in productivity, and in the beginning of this transition from agri-economy to manufacturing and services, farming wasn’t making many people rich. Manufacturing assumed its role as a pump to lift people into relatively better circumstances, with progressively more leisure time. Farming for the most part did not. We got to the point swiftly where less than 2% of our population was/is feeding not only our nation but a fair piece of the world. Yes, just as oil importers like Europe, Japan and the US pay by performing greater value elsewhere (or not), food importing nations can do fine not growing much of what they eat. That alone doesn’t make them high performance opportunity societies. Manufacturing yields (or at least has yielded) social benefits out of scale to its economic percentage.
Services and non-material intellectual output have assumed greater relative and aboslute value in the last 45 years or so, but the lucrative endeavors, like software development, finance, animation for examples don’t offer manufacturing’s relatively low entry level education (or knowledge development) requirements for good pay. The parts of the services sector that are wide open to anyone, like telemarketing, retail sales and food service for examples, generally lack manufacturing’s wealth and value accumulation and therefore lack the income potential to equal manufacturing’s role in the mobility pump.
I fully accept that something else might arise to assume this role in civic stability and social good that manufacturing has aided and abetted for decades, but I don’t see evidence yet that something *has*. What I do see is that where manufacturing remains in the mix, its benefits both economic and social spread quite far. Manufacturing still carries great leverage in modern economies and I think it’s worth exceptional effort to preserve it competitively. Clearly, some here disagree.
In this case, we care enough about the auto industry only because by coincidence it’s a large employer, and we cannot afford spiraling unemployment.
This is not the only reason I care about sustaining a domestically-owned and headquartered automotive manufacturing industry, but it’s certainly one.
Phil
Afraid of the Government?? Obama wants to parallel the ideals of Lincoln as you all seem to know. What ideals are those??
“The legitimate object of government is to do for the people what needs to be done, but which they can not, by individual effort, do at all, or do so well, by themselves.”
The pro-Depression, anti-FDR, capitalist small government, Ayn Rand conservatives aren’t even sure what they’re afraid of right now. I’m sure they don’t want economic activity or asset values to completely collapse however.
I haven’t said that manufacturing safeguards society forevermore, but generally having a layer of jobs in the an economy that offer better than living wage without a high bar regarding education does substantially contribute to social mobility…
While I do empathize with those most disadvantaged by the march of globalization along with traditional technological automation, such is the inevitable. The best solution is to prepare citizens for the future. It may be possible to dam progress, but the conservation of volume is maintained in the analogy.
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Further, manufacturing intrinsically accumulates wealth in addition to money, and its results tend to give people otherwise on the margins a stake in the system.
It’s a reasonable point there if you leave out the specification for manufacturing. If enough people agree the result is a desirable goal, then a greater shift to euro-style social democracy will probably come naturally.
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Manufacturing yields (or at least has yielded) social benefits out of scale to its economic percentage…..The parts of the services sector that are wide open to anyone, like telemarketing, retail sales and food service for examples, generally lack manufacturing’s wealth and value accumulation and therefore lack the income potential to equal manufacturing’s role in the mobility pump.
I don’t see the differentiator at all. A boring desk/service job seems as adequate as its similar physical counterpart, at least economically.
I think we already agree more or less on the first point in this post. Sure manufacturing will exist “in the mix”, but like agriculture, it’ll seem just as primitive in another step of civilization from now, and the exact ratio will similarly be a matter of historical interest.
Late to the party and not enough time to read all of the comments, but this one made me smile. You know its a true beleiever socialist talking when they take as a basic assumption that the government is the most efficient way to distribute money. Yes, and we’re from the government, and we’re here to help. LOL
If you actually bothered to read the thread, you’ll find that the joke’s on those parroting popular memes.
Carshark, interesting take on the black & white vs gray mentality.
To my mind compromise and pragmatic dealing with reality resides in the gray area. That is where maximum freedom exists. If we attain absolute black and white, that is where tyranny exists.
Lumbergh21 Do you believe all socialism is inherently bad? Can you not see areas where in an organized nation, a collective, non profit way is the best answer? We need both the public and the private realm. Additionally, is the government not ultimately you and I showing up at the ballot box with knowledge? You speak of government as some sort of “other”. I agree it is and has been in many ways just that. We The People are to blame for being too lazy, uninterested, and simply choosing to be sheep.
To all the posters here, my sincere gratitude for the high levels of sincerity, mutual respect, and intellect on display here. Truly enjoyable and enlightening.
Sources such as this on the ‘net is why my TV has been cold and dark for years now.
Pch101 :
March 31st, 2009 at 6:12 pm
If that’s what you meant, then you’re still wrong.
There’s nothing fundamentally different about this bubble with respect to core causes. It’s always the same thing: aggressive investors who buy too much, too late, and then get stuck left holding the bag when the floor drops out.
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Of course there is a fundamental difference.
In a free market, the aggressive investor would invest his own $1B, and lose it. No bailout. No big deal.
If he tries to borrow more from another investor, he probably would have to pay 15% interest for another billion, 25% interest for the third billion.
The interest rate goes up quickly, since there are not too many savers and they jack up interest rates when demand for loans grows. So, for his own risk/return, he won’t borrow too much.
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In a Fed market, the Fed lends him $30B (maybe indirectly) at extremely low interest rate (say, at 5%) to gamble. Then, there is massive collateral damage and we have a big problem.
FYI, the leverage is typically 30~40 multiple the principle at a investment bank such as Lehman Brothers. That’s how I come up with the 30x figure.
Of course, Fed didn’t lend to Lehman directly. But with the Fed supplying paper money to commercial banks to prop up real estate and stock market, that money is channeled to Lehman at a low interest rate.
Without Fed, Lehman would never have so many investors putting money in and would never be able to borrow money at a low rate, and as a result would never have mattered if it bet wrong.
ttacgreg :
April 1st, 2009 at 8:42 pm
Lumbergh21 Do you believe all socialism is inherently bad? Can you not see areas where in an organized nation, a collective, non profit way is the best answer? We need both the public and the private realm.
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Do you understand the concept of ESS (Evolutionary Stable Strategy)?
Here is one example, if you don’t: let’s say, if no one in the society steals, then we don’t really need locks, right? Imagine all the cost savings by not having all that security. So, it must be a win-win for everyone.
However, in a such a society, a thief would have great success and bred more thief offspring. Before long, there will be so many thieves, the original system just break down, when people are forced to use locks again.
So, when we speak about “common good”, we need to consider if it’s an ESS. I am not against “common good”, I am just a messenger telling you that there is no good at attempting “common good”, unless it’s an ESS model.
Given any social context, there could be more than one ESS possible. So, our mission is to establish a better than existing ESS model. However, socialism, so far, is not stable, and is not an ESS.
okay wsn . .
You have my curiosity piqued.
Can you give any historical examples of ESS’s ?
Can you document or propose any ESS’s that might accommodate your ” not against”common good” ” statement?
However, socialism, so far, is not stable, and is not an ESS.
Nor is anarcho-capitalism, unless by stable you mean a permanent cesspool.
Social democracies OTOH are quite stable, both evidenced by representative societies around the world.
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In a Fed market, the Fed lends him $30B (maybe indirectly) at extremely low interest rate (say, at 5%) to gamble. Then, there is massive collateral damage and we have a big problem.
FYI, the leverage is typically 30~40 multiple the principle at a investment bank such as Lehman Brothers. That’s how I come up with the 30x figure.
Yes, the gov screwed up in allowing excessive unregulated speculation, because they followed the profiteers who argued the case for free market. Good job.
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As a PSA to all, here’s how these crackpot theories work: A great new meme call factor X is invented. X is a cure-all for society’s ills. Any problem can be solved by increase the level of X. Of course, practical application of X seems to bring failure, but faith must be maintained, because this only arises out of insufficient purity of the X.
Apparently this works as well for economics as snake oil, evidenced by the posts above.
It’s really very simple, folks.
http://www.youtube.com/watch?v=RWsx1X8PV_A
I’ve never been provided a good (or any) job by a street person. You? I bet not.
I’ve never been provided a good job by the government (believe me; I’m a veteran and have worked for a county for 18 months, as well).