Now the election is over, we can look back at the mess in the economy. I see the latest members of the queue at the federal trough are the auto manufacturers. Bail us out, they cry; we're too big to fail. What's bad for GM will be really bad for the country. Give us money or we'll make a big mess when we fail.
But I have to ask: why is GM in this shape? Why are Ford and Chrysler in such straits? And the answer that comes to my mind is, because for thirty years they've all been making stupid, short-sighted marketing decisions. They've been going for the quick, easy buck, selling oversized SUVs getting nothing to the gallon. Their vehicles are junk, too; they routinely score below average on the Consumer Reports reliability scale. It's true that Ford has recently produced a couple of vehicles that score better; but I haven't seen a sign of it from GM.
Worse, they've actively fought attempts to require them to make more efficient (i.e. higher gas mileage) products. The reason it's taken 25 years to get the CAFE standards raised is because of the money the auto industry has poured into lobbying against it.
So Congress says, show us a plan and we'll consider a bailout. Now, this is uncharacteristically business-like for Congress; but I don't think it's unreasonable. There isn't a lender in the world (especially now!) who would hand out money without some idea of what the borrower planned to do with it, and how they expected to pay it back. And the auto CEOs have slunk back to Detroit.
I'll be very interested to see whether they present a plan as requested. I don't think they will, because I don't think they have a plan. I'm not the only one, either - I heard John Boehner, the House minority leader, was quoted on NPR the other day saying he'd been talking to the auto execs, and he didn't think they had a plan. It's very unusual for me to be in agreement with John Boehner.
Does this remind you of Henry Paulson and the $700 billion? Give us a lot of money and we'll fix things. They're tottering on the edge of oblivion and they can't be bothered to convene a strike team to decide what they would do with bailout money if they got it! We'll see what they present to Congress next week, but by God, if they don't have a business plan - three business plans, one each - they shouldn't get any money.
I think it's perfectly rational to want results for the money one invests. But capitalism rarely works that way. Most real investment is gambling. The stock market, the bond market, the market for almost anything is really a gamble, whatever the odds may be (and sometimes they can get impossibly long!).
ReplyDeleteBanks gave up making good loans a long time ago. We let them do that. We removed all the restrictions on unsafe practices during the 1990's, when Democrat Clinton was in power. "Go ahead, Invent creative new ways to leverage paper so the economy will prosper. Make that cash flow, spin the levers, jimmy the account books."
And so they did.
Predictably, they got in over their heads, and when the mortgage paper they'd been trading began to sink, they didn't have an escape plan. Help!
What's needed now is new (old) banking regulation. But notice, does anyone in Congress or the media mention this? Has anyone shown the courage or presence of mind actually to present a new tablet of do's and don'ts for the financial sector?
Not that I've heard.
The American economy is basically built around the construction and use of automobiles. We've gotten a little schizophrenic about it, trying on the one hand to convince ourselves that cars are bad, while using the success of the auto industry as a gauge to measure our prosperity.
There were once more car companies. I'm old enough to remember how Nash, Studebaker, Rambler, Packard, Jeep, Plymouth, Oldsmobile, Kaiser, DeSoto once shared the road with the Big 3 models. The history of automobile manufacture is one of winnowing and consolidation. For anyone interested, check out Wikipedia's List of defunct U.S. automobile manufacturers; listed in alphabetical order, it runs to several hundred names.
Manufacturing a commercially viable automobile, actually making a going concern of it, requires a great deal of cash these days, and enormous systems of distribution and support.
It's unlikely that anyone could start a car company today, from scratch, anywhere in the world outside of Asia. It's just too big a risk.
So, what to do?
American automobile manufacturers employ directly hundreds of thousands of Americans in several types of positions. The support or allied industries employ several hundred thousand more. The steel, glass, rubber, plastic, petroleum industries all feed into this business. Quotations estimating the amount of tax revenue the American auto business generates are staggering, not to mention health and pension and charity systems, on a grand scale.
If we don't make the cars, who will? Obviously Japan and Korea and China and Germany and Spain all are anxious to see the American Big 3 fail. That would open up the biggest market in the world, with literally no competition!
Consider what effect this would have on our balance of payments. America already depends to a staggering degree on foreign investment to prop up our Federal budget. Our trade imbalance has been at alarming levels for a quarter of a century. America would lose trillions--not a misprint--of dollars in wages, corporate profits, dragging down our GDP to pre-WWII levels.
That would translate into an economy in which the standard of living of the so-called Middle Class would sink by some 15 to 40%.
Funding the baby boom generation's dependence upon Social Security and health care between 2010 and 2050 would no longer be an option. America would become a Third World nation, with a huge underclass of struggling poor, not unlike Brazil or Mexico.
Who among us idolizes the corporate fat-cats who've presided over the corrupt decline of their own industries? No one, obviously, unless you're trying to be one yourself.
But the unpleasant choice presented to us makes all that kind of bitterness and envy and impatience irrelevant. It really doesn't matter whether or not Detroit created and sold the SUV to Americans, or whether market research proved that that's what Americans wanted to drive. Gas was cheap, then it was expensive. Presently it's become "reasonable" again, but will soon rise once more.
The planet is suffering, due in large measure to the increase in the number of automobiles.
Like almost every problem we face, ultimately it's a question of numbers, and the numbers start with people. We won't be able to control the demand for cars until we reduce the number of potential consumers. We can make more efficient cars, but in the end that won't solve it. What will kill cars eventually will be the scarcity of the fuel to run them. That's the same thing that will kill commercial aviation. Were petroleum to go back up to $140 per barrel or higher, the skies will no longer be friendly, and we can go back to trains and boats. A lot of people would like that. There's still be corporate jets, and fighter jets. Curiosities. Barnstormers. Circus attractions.