$25 Billion
Part of what makes the auto bailout conversation difficult to have realistically is that this $25 billion number is hanging out there. That’s a lot of money, yes, but it’s actually a relatively small amount of money relative to the scale of the Big Three’s operations. Under the circumstances, a bailout looks a bit like a good deal.
But by the same token, I don’t see any reason to think that $25 billion would actually turn these firms around or even forestall collapse for very long. The car industry in general is in a big slump, and these companies in particular have been on a downward trajectory for a long time. You could buy General Motors for $1.75 billion or Ford for $4.11 billion. Asking for loans that are many times the total value of the enterprise seems to me like a mark of a very, very unsound underlying enterprise. And rather than “saving” whatever promising initiatives — Volt, etc. — may be happening in Detroit, I worry that using those as a rationale for bailing out enterprises that are still primarily oriented around selling trucks and SUVs will keep those programs shackled to dysfunctional institutions. Bankruptcy could liberate whatever elements of GM have real value so that they can be incorporated into different, more viable firms.
74 Responses to “$25 Billion”
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November 18th, 2008 at 1:39 pm
GM has apparently canceled the Chevy Volt, according to Steve Parker on HuffPo.
November 18th, 2008 at 1:40 pm
If a blogger chooses to go the “pragmatic” route in analyzing the proposed auto bailout, he might attempt to justify (or at least acknowledge), the vastly larger amounts that have already been sunk into “dysfunctional institutions” like AIG–sums which I suspect are also “many times the total value of the enterprise.” Otherwise, one might suspect that such a blogger was missing the entire point of the debate.
November 18th, 2008 at 1:41 pm
Whoa, I think we’re done here. $25B for companies that could be purchase five times over with the money. How could this possibly be a good idea?
November 18th, 2008 at 1:42 pm
I’ve been wondering for a while why we would loan them huge sums of money rather than just buying them for significantly less. Maybe it’s worth $8 billion to the government to avoid owning GM, but in the long run we’re going to own their problems — especially pension & health care for their retirees — anyway.
November 18th, 2008 at 1:48 pm
Something that is being left unsaid here is that if GM is left to bankruptcy, we taxpayers get to take over their $100 billion pension liability. Add in Ford’s $70 billion pension and we get a massive need for additional subsidies to the PBGC.
November 18th, 2008 at 1:48 pm
“The car industry in general is in a big slump”? Is that really true? All I’ve been reading about is the approximately one billion new drivers coming on the roads in India and China, among other BRICy places. Maybe its in a slump in the same way every other industry in the world is in a slump? Or maybe its just these three are in a slump? But I would be very surprised to learn the car industry as a whole is in a slump.
November 18th, 2008 at 1:57 pm
The important thing is to keep a bad recession from turning in to a depression. If that takes lending $25 billion right now, it’s worth it.
November 18th, 2008 at 2:06 pm
I worry that using those as a rationale for bailing out enterprises that are still primarily oriented around selling trucks and SUVs will keep those programs shackled to dysfunctional institutions.
Stop thinking about it that way and start thinking of the Big 3 as primarily oriented around providing hundreds of thousands of high paying manufacturing jobs to reliable Democratic voters.
November 18th, 2008 at 2:06 pm
Actually, the big three’s global business is doing well. Their problems are specific to the US market.
November 18th, 2008 at 2:10 pm
“Whoa, I think we’re done here. $25B for companies that could be purchase five times over with the money. How could this possibly be a good idea?”
Consider the three possible actions:
1) Do nothing, let GM (and possibly others) go bankrupt.
Some pieces will get picked up. But many workers, at GM
and at parts manufacturers and dealers, will lose their
jobs. Government loses the revenue stream from their
payroll and income taxes. Government ends up paying them
unemployment benefits, subsidizing health insurance for
their kids, etc etc. Not cheap. Estimates of the number
of layoffs range from 100K up to 3M, so it’s not easy to
figure out exactly how bad it would be.
2) Government buys GM outright. Congratulations, you are now
responsible for all the wages and benefits and oustanding
debts of GM. By the way, your product sales have crashed
45% since last year and you’re bleeding about $6B (?) per
quarter in cash.
3) Government provides a $25B bailout. GM is now solvent for
year or so: possibly long enough to bring out new products
which may or may not generate increased revenue.
Personally, I’m very skeptical on the Volt, but the
Chevy Cruze, with 1.4L turbo gasoline-direct-injection
engine might be both peppy and fuel-efficient enough to
compete well against Corolla/Civic.
None of the options is good. None is cheap. It’s possible
that option 3) might be the least-bad. Though I tend to
think any such bailout should force the departure of the
senior management who drove GM into this ditch, especially
since you really don’t want to give $25B to a global-warming-
denialist like Bob Lutz who’s in a position to influence
vehicle designs.
November 18th, 2008 at 2:15 pm
“A good deal.”
So the government stands to actually make money off this? Wow. You heard it here first, folks.
November 18th, 2008 at 2:18 pm
But by the same token, I don’t see any reason to think that $25 billion would actually turn these firms around or even forestall collapse for very long.
So what? If it buys us only ten months it may be worth it. If it ultimately costs $75 billion (probably something under 2% of what Keynesian measures are ultimately going to cost the government over the next few years) but buys us three years, I think it will definitely be worth it. Letting all of the big three go under precipitously at the present time is extremely risky. Sure, maybe the economy would make the adjustments to post-big three life smoothly, but I’d rather not tempt fate. Nobody’s arguing we shouldn’t structure the best deal possible — one that is optimal with respect to the national interest (and that unfortunately means a lot fewer automobile-related rust belt jobs).
Handing out a million and a half pink slips in gradual fashion over the next, say, four years (even if this costs the taxpayers a lot of money), is a safer course of action than handing out two million over the next twelve months. It may be a cheaper (for us taxpayers) course of action, too, although our lack of easily observable parallel universes will make it impossible to prove either way.
I think this is basically our choice.
November 18th, 2008 at 2:20 pm
Read Andrew Ross Sorkin? Hell, it doesn’t seem like he’s even reading our comments. My pardons if this seems harsh, but MY seems stuck on an Econ 101 level of thinking.
November 18th, 2008 at 2:20 pm
Nonsense. It is vital that we give as much money as possible to companies that have displayed terrible judgment in the marketplace so that these companies can continue making terrible decisions. Didn’t you get the memo?
November 18th, 2008 at 2:22 pm
I’ve been wondering for a while why we would loan them huge sums of money rather than just buying them for significantly less.
Read Jim Manzi.
November 18th, 2008 at 2:24 pm
I agree with Jasper
November 18th, 2008 at 2:25 pm
DTM,
sorry for my outrage here, but
is just silly. Those revenues are sales, not sales net of operating costs. GM senior debt is now trading at less than 15 cents on the dollar, so the enterprise value of GM, debt plus equity, is now less than $20 billion.
See the latest quarterly earnings report and the value of the 2041 senior note.
November 18th, 2008 at 2:25 pm
In any case, were GM, Ford, and Chrysler to go Chapter 11, the parts that probably would survive intact are their overseas operations. AFAIK, they’re still profitable, and the host countries seem to comprehend the value of an industrial infrastructure.
But the stuff in the US? Toast. You’d have thousands of industrial robots on eBay within months. Best case would be that Chery would buy a plant or two to disassemble and ship back home.
November 18th, 2008 at 2:29 pm
Bankruptcy could liberate whatever elements of GM have real value so that they can be incorporated into different, more viable firms.
Ah. Now I see. It’s just Matt’s frame of reference. All of his misguided commentary on this topic is based on his own life experience, bouncing around from blogging job to blogging job, doing essentially the same thing as nothing but the stylesheet changes.
Similarly, if GM is liquidated, the Malibu will be made by Toyota, the CTS by Mazda, and the Corvette by Porsche – all you have to do is change the nameplates!
Industrial policy is so easy, even an ignorant man-child can do it.
November 18th, 2008 at 2:35 pm
So Matt, what is it like to not have a job? Or prospects?
November 18th, 2008 at 2:37 pm
By going through the Chapter 11 process, the auto companies could take care of many of the problems that are causing them to lose money – onerous dealerships that they can’t get rid of, excessive labor costs, bad management, etc.In any event, since the column supports Matthew’s prior posts on the subject so well, I thought I’d point it out
My reading of Matt’s prior posts is a lot closer to, “Fuck Detroit, Chapter 11, Chapter 7, as long as I never have to see a domestic car again, I’m good.” He might have been the last person in the blogosphere to figure out that Chap. 11 won’t work for GM.
I dunno. Maybe Matt thinks he’s playing Bad Cop here – he hinted at it the other day – but to me it reads a lot more like his Econ 101 streak rearing its ugly head. If another blogger wrote as ignorantly and simplistically about IR as Matt does on econ and regulatory issues, Matt’d have a field day with him.
November 18th, 2008 at 2:46 pm
Misconceptions:
Enterprise value includes the value of the debt. If a bank lets me borrow $4 against my factory (or the market, in the form of bonds) and it has a market cap of $1, the total enterprise value is $5, not $1. But, yes, it is stupid to lend money to a company whose bonds are at 20 cents on the dollar with a miniscule equity market cap.
Revenue does’t mean anything if it’s not profitable. Who cares that GM has $38 billion in revenue when it’s losing money? This is an indication that the company is too big, and needs to downsize to a level where they can make a profit on the revenue they earn.
I don’t get what’s with all the ad-hominem attacks in the comment section lately. Surely intelligent, educated people can have differences of opinion about this issue. If you have such a low opinion of the author, why are you reading his blog and taking the time to post nasty comments? Don’t you have better things to do?
November 18th, 2008 at 2:47 pm
Another couple of bits that might survive for a bit are the Corvette and Viper plants, much as the Avanti soldiered on with a Studebaker chassis and Chevy drivetrain until 1987. It depends, as with Avanti, if they were left with a significant store of spare parts from the corporate bin.
November 18th, 2008 at 2:50 pm
The basic idea that I keep comping back to is this: why in the world would we ever bail out the shareholders of these companies? It ought to be a priority to completely wipe out the shareholders.
No, Al, the priority ought to be doing everything in our power to prevent this increasingly destructive downturn from becoming a 1930s-style calamity. If taking an effective action in pursuit of this goal makes a lot of GM shareholders richer, great. If taking an action in pursuit of this goal wipes out a lot of GM shareholders, that’s great, too.
November 18th, 2008 at 2:51 pm
JRoth: I think we saw with the whole ‘why-license-plumbers?’ thing that Matt has a big fucking hole in his head when it comes to discussing manufacturing and the skilled trades. Now, he’s not an isolated case, because work (especially union work) has been deemed icky in the US, and No Serious Pundit talks about blue-collar work, even as they expostulate about blue-collar stereotypes.
This division of the topic into ‘economics’ and ‘labor’ — not just two desks, but two separate buildings, where people like David Sirota who talk about work and workers are treated as somehow weird — is frankly harmful.
November 18th, 2008 at 2:57 pm
““The car industry in general is in a big slump”? Is that really true? ”
Yes. Renault did cut his production worldwide by 25 percent, even Tata and Toyota are cutting production and GM halted the production of its plants in Brazil.
November 18th, 2008 at 2:58 pm
what’s with all the ad-hominem attacks in the comment section lately
IMO, the volume of attacks against the author aren’t any heavier than the usual typo bitch and moan. What motivates me now is that, although Matt is attempting and succeeding at provoking debate and to suggest alternative directions, he doesn’t seem to be recognizing the weaknesses in his initial Chapter 11 suggestion as time goes on.
Since getting this wrong has enormous consequences, and Matt’s opinion gets play beyond this blog, I feel compelled to point out my take on said weaknesses.
November 18th, 2008 at 3:00 pm
Read Jim Manzi.
Why the hell would I do that? Because his insights at NR are so valuable? Or because he seems to know just as much about industrial policy as our boy Matt?
You know what’s more likely than the Econ 101 fantasia of Toyota operating GM’s plants (but with more efficiency!)? Toyota buying GM’s plants for firesale prices with the express intent of tearing them down so no one will compete against Toyota with them. And if you think I’m joking, you should look into the history of the steel industry.
Also likely: Chinese automakers buying up Jeep (and its plant) and Corvette (and its plant) and few others in order to get a foothold in the market, then gradually shifting production back to China*. Wouldn’t that be a triumph for the Free Market!
* I know this has been mentioned before; I’m just reiterating that it’s a far more likely outcome than any of these jobs or productivity staying here. 90% of these workers will never see $10/hr again, retraining or no. But at least we’ll have saved %0.6 of the budget.
November 18th, 2008 at 3:05 pm
Who would you rather bailout? The Big 3, or the Wall Street banksters? Sure, the Big 3 have screwed up, but they’re not guilty of the out and out crookedness and mendacity of Paulson and Bernanke’s buddies on Wall Street.
Besides, autos use many manufacturing techniques that are vital to other industries as well. Do we really want to give all this up?
Conditions:
* Suspend dividends until loans are paid back in full.
* Reduce exec. pay, no bonuses, no golden parachutes and other crap.
* UAW – some posters have said they’ve already made big concessions. If so, they deserve our support. I don’t how much more they have to do to make the Big 3 competitive, but they should do it because the other choice is losing their jobs completely
November 18th, 2008 at 3:08 pm
I don’t get what’s with all the ad-hominem attacks in the comment section lately. Surely intelligent, educated people can have differences of opinion about this issue. If you have such a low opinion of the author, why are you reading his blog and taking the time to post nasty comments? Don’t you have better things to do?
This is at least Matt’s 10th post on the topic, and each one is almost as ignorant as its predecessor. This is why the ad hominem is creeping in – we’ve been telling him his ideas and facts are wrong for days and it isn’t sinking in, at which point maybe the problem isn’t with the arguments, but with the arguer.
As for why I’m here, I like Matt’s writing, and think he has interesting and smart things to say about a lot of topics. On this topic, he hasn’t got a fucking clue, and I’m really hoping that, just maybe, we can pound one into him before he convinces someone with actual power that his ignorant opinions should be acted on.
As pseud-in-nc and cmholm say above, this is a giant gap in Matt’s understanding; maybe – just maybe – we can straighten him out (or at least convince him to STFU on these topics) before he becomes Yet Another Beltway Pundit spouting off about economic issues without any understanding of economics.
November 18th, 2008 at 3:17 pm
“I don’t get what’s with all the ad-hominem attacks in the comment section lately. Surely intelligent, educated people can have differences of opinion about this issue. If you have such a low opinion of the author, why are you reading his blog and taking the time to post nasty comments?”
The disingenuous of Matt’s “free market! no socialism!” arguments is really grating, since he’s (rightly) argued in the past that the government needs to spend money to prevent and recover from an economic downturn: funding infrastructure, preventing foreclosures, etc. But cars are so obviously a bugbear of his that he refuses to apply that logic here. Hey, I’m anti-car and pro-urban too, but I know that massive losses of jobs and assets while we’re teetering on the brink is a nightmare scenario that must be avoided.
November 18th, 2008 at 3:25 pm
Toyota buying GM’s plants for firesale prices with the express intent of tearing them down so no one will compete against Toyota with them.
Or, as you and Marcy Wheeler suggested, SIAC buying the bulk of GM, keeping a few boutique US factories and shuttering the rest, selling Chinese-made Buicks to a domestic market that adores them, and importing foreign-made cars to the US under the Chevy marque. It’s also not hard to imagine a feasting frenzy on the foreign ops: an Asian maker grabbing Holden, European makers nabbing Vauxhall-Opel, and some kind of carve-up of LAAM.
That’s the ‘liberation of value’ which comes from forced restructuring at firesale prices: it’s like selling a good kidney so that you can pay for a transplant.
November 18th, 2008 at 3:26 pm
Matt, when you read Krugman, and he talks about the need for massive scale stimulus to keep the economy moving, what exactly do you think he’s talking about?
November 18th, 2008 at 3:29 pm
Was this comment by a previous poster a true statement?
November 18th, 2008 at 3:33 pm
Christ, people. What’s the plan going forward?
GM is hemorrhaging money to the tune of $24b per year. They have not made money for a long, long time. A loan of $25b puts them $25b deeper in a hole while not changing anything. Providing DIP funding allows GM to amputate a great deal of its obligations — and, yes, I mean obligations to retirees — which it needs to do if it wants to remain a viable economic entity.
November 18th, 2008 at 3:36 pm
This is at least Matt’s 10th post on the topic, and each one is almost as ignorant as its predecessor. This is why the ad hominem is creeping in – we’ve been telling him his ideas and facts are wrong for days and it isn’t sinking in, at which point maybe the problem isn’t with the arguments, but with the arguer.
You have established that there is no plan other than shovel taxpayer money into a failing enterprise in order to support the employees. There’s no plan to remedy the failure of the enterprise, except for your pound-the-table assertions that the enterprise is not actually failing.
Whining and special pleading by GM executives has not impressed on me that they have any capacity to remedy the underlying problem.
November 18th, 2008 at 3:41 pm
Interesting to read all of these comments insisting that an “Econ 101 mentality” is all that’s standing between Matt and the truth.
Comparing $25B to the economic cost of a Chapter 11 bankruptcy is NOT a valid cost-benefit analysis. The relevant analysis is whether $25B is greater than the difference in the present value of those bankruptcies at the future date when the Big Three finally fail.
At $2B/month, $25B could keep GM alive another year. Pick your favorite discount rate — let’s say 5% — and if the cost of a GM Ch 11 bankruptcy is less than about $490B (constant over time), then it isn’t worth it. I find it hard to believe that a GM bankruptcy would cost us half a trillion — that’s 4% of GDP! — or that the consequences of a bankruptcy would get better, or that GM will be any more sustainable in a year, or two, or three.
November 18th, 2008 at 4:34 pm
Could the government spend the 25 billion on 625,000 Detroit vehicles that they then distribute to the people currently driving the most polluting vehicles? We could scrap those smelly old cars and employ the same number of people, and potentially have something to show for it.
November 18th, 2008 at 4:39 pm
Matt,
A bailout of the US auto industry is crucial. It should be a no brainer after bailing out AIG ($125 b and counting), Bear Sterns ($90 B), the most recent “rebate” to tax-payers that did NOTHING for the economy ($140 B); The Iraq War ($400-600 B and counting); I could go on all day about the dim-witted decisions our government has made the last eight years. Why are the same people who spent tax-payer money like drunks suddenly budget hawks? Further, why are liberals enabling the utterly incompetent Paulson and that traitor to his country, the Hyundai spokesmen Senator Shelby in the argument that 25 billion is too much money to throw a lifeline to a companies that are the linchpin to as much as 1/10 of the economy? Mr. Yglasias was dumb enough to go along with the Iraq War. Don’t be just as stupid in opposing this bailout.
November 18th, 2008 at 4:40 pm
The inhumanity of technocrat Yglesias and his legion of blogger friends has gotten out of hand.
Lets ignore all the lives and communities that will be destroyed for a moment to focus on MYs interest: namely cost efficiency and bankruptcy.
The upfront cost of $25 Billion pales in comparison, as others have noted, to the externalities of allowing a failure. When you add three million more people to the unemployment roles, a second round of bankruptcies (auto suppliers) and potentially a freeze in the automobile industry. Yes, allowing GM to fail, and subsequently the suppliers that depend on GM, will freeze Toyota and other companies plants because of a lack of supplies.
So in addition to the cost of millions of unemployed and their benefits (and their children!), you are essentially calling for a freeze in auto production and increase in joblessness and bleeding of local and state budgets during a recession. Bravo.
Further, your point about bankruptcy is such a canard. The automobile sector is nowhere near the airline sector. That is, A car purchase is among a family or an individuals largest purchases, so it is investment (not for MY, i am sure). As such, people are loathe to purchase from a bankrupt manufacturer. They just cannot trust it. In fact, polling suggests that over 3/4 of Americans would not buy a car from a bankrupt manufacturer.
So, as a result the grand Chapter 11 reconstruction MY pontificates about does not exist. If GM cannot purchase parts and cannot sell cars, it cannot restructure. Rather, it enter CH 7 liquidation.
What all this austerity nonsense makes me realize is that Yglesias is really no different than the Milton (and Uncle Tom) Friedman’s of the world. It was Milton Friedman who wished to make Chile, and Latin America, “scream” through economic shock. And this is no different. Matt would just prefer to make American communities scream for the vagaries of his green economy.
Pretty disgusting.
November 18th, 2008 at 5:20 pm
I find it hard to believe that a GM bankruptcy would cost us half a trillion — that’s 4% of GDP!
Yes, the US auto industry is about 4% of GDP. (1)
In addition, automotive exports are 10.4% of total, imports 13.3% (2). The unmet demand for vehicles would therefore come from abroad, exacerbating our balance of payments issue.
November 18th, 2008 at 5:25 pm
What Capturedshadow said. Put in an order for $25 billion worth of Chevy Volts (or whatever.) At least we’ll get something for the money.
November 18th, 2008 at 5:59 pm
So, to recapitulate, the problem we have is the difference between an acutal chapter 11 reorg and a bankruptcy-lite pseudo reorganization? And we’re getting furious over this distinction?
And the only difference, really, is that we want the union contracts not to be voided, because it’s not their fault/they’ve given back enough already, right? Does anyone have a problem with shredding dealership contracts? Supplier contracts are probably fine because their suppliers have mostly already gone bankrupt (e.g. delphi). Does anyone have a problem toasting the bondholders? Or the stockholders, who have already lost 90% of their money this year?
Also, where does anyone get the idea that GM has a 100 billion pension liability? Look at their actual balance sheet. They have a 6 billion dollar pension surplus. Ford has a 3 billion deficit — not enough to allow it to get discharged to the PBGC in bankruptcy.
November 18th, 2008 at 6:54 pm
I agree with Jeff. Megan McCardle wrote an interesting and typically smug post about how all the bloggers she knows who are in the beltway types oppose the bailout, cause they all know Congress! which, of course, is the typical, slimy contrarian viewpoint certain liberals, especially of MY’s stripe, just love. Congress is icky cause it earmarks things, and does porkbarrel stuff, and doesn’t let the market go free. The idea that 25 or 75 billion dollars shouldn’t be carved out of funds already committed to the Treasury – remember, we are not talking about whether to give GM new funds, but we are chosing whether to loan GM or the commercial bank of your choice funds – is a classic conflict between an investment class that has grown to demand quick profits and high yields, and hence sucks at investing in long term R and D, and an industrial base for which the “inside the Beltway” people have a cultural distaste. If that funding was carved out for one of the liberal symbol-pusher causes – some Disney train that would go from D.C. to Chicago or something – MY would be all for it, having imbibed, when young, a love of toy trains. Of course, it wouldn’t be used, but that’s besides the point, isn’t it? Whereas the opportunity offered to make the car industry do the kind of investment that could truly create energy efficient cars – which might have to be matched by the government’s willingness to underwrite major changes in the delivery of power sources, if, as it turns out, the best way to go is, say, diesel – is not going to come again – and if the U.S. just jettisons its car industry, it will have no say over whatever happens. Notice that the British contribution to the future of the car is – zilch, since Leyland, mismanaged and underfunded, is dead in the U.K.
It really is impossible to think of a stupider policy to apply at the moment, when we are on the brink of a great recession, than continuing the de-instrialization of the U.S. The incoherence of MY’s position speaks to the continuing serious cultural divide between the inhabitants of the gated community in Think tank happy d.c. and the real world.
November 18th, 2008 at 7:12 pm
Well GM produces too many cars. They build so many that they can’t sell them all without zero percent financing, which, since GM borrows for more than zero, amounts to borrowing money just to move the inventory. So I just don’t understand how a supply side bailout is going to help the situation.
November 18th, 2008 at 7:26 pm
A bailout of the US auto industry is crucial. It should be a no brainer after bailing out AIG ($125 b and counting), Bear Sterns ($90 B), the most recent “rebate” to tax-payers that did NOTHING for the economy ($140 B); The Iraq War ($400-600 B and counting);
The suggestion has been that those are evidence that this would also be a waste of money. Citing to their existence isn’t an argument against that. There are arguments against it, but not those.
It really is impossible to think of a stupider policy to apply at the moment, when we are on the brink of a great recession, than continuing the de-instrialization of the U.S.
The United States has fewer industrial jobs. This isn’t the same as de-industrializing, Matt was right about that last week. The rest of what you write is equally unsupported. What is it about industrial jobs which makes them more valuable than other types of jobs? Perhaps you have an answer for that, but then I’d like to hear it.
November 18th, 2008 at 8:11 pm
Washerdryer
1. If we grant, as you seem to, that the money the Federal government has used to bailout AIG was a bad use of Federal money, then your argument against bailing out the auto industry has to be that it is a worse use of money, since we are talking about money that has already been allocated to the Treasury. So your argument that one stupid bailout doesn’t justify another doesn’t cut it – unless you are saying that the money should be, a la Inhofe, given back.
2. Matt’s argument that we aren’t de-industrializing was interesting. It actually supports my argument that, as far as MY goes, he is part of the groupthink of D.C. bloggers, which lean libertarian/right economically. Boldly, he pulls out of this group at time to advocate for public transportation. That is about it. As for the chart he references, what the hell? It goes back to 2002? Deindustrialization, as he should well know, refers to a trend line going back to 1980, when the fundamental features of Reagonomics were put together. The free trade buffs and neo-liberals always shift the statistical focus away from the number of people employed in manufacturing towards output – which, even so, has declined as a percent of the GDP in 1980. Between 2000 and 2003, manufacturing shed about 2.5 million jobs, according to the encyclopedia of U.S. Labor. That meant about 14.5 million people were working in manufacturing. Contrast this to 19 million in 1988. And those job losses are multipliers – one of the key reasons wages stagnated for the bottom 80 percent in the U.S. from 2001 until now, that is, did not really increase when you take out inflation, is that we are – yes – deindustrializing. In Michael Lewis’ fun autopsy of the Wall Street managed fleecing of america via bets on securitized mortgage pools, he casually mentions that housing prices went from 3 times bigger than the yearly income of the household to 4 times bigger, nationally, going from 1999 to 2007. We have concentrated on the price factor – we should be as concentrated on the income part of that ratio. If incomes had risen as they had risen in the 90s, it is doubtful that we would look at the inflation in the housing market the same way. Take away jobs that are high paying in manufacturing and substitute those jobs as MY would like, and watch blue collar america excitingly flex up its labor power – you know, getting he and his friends lattes while they blog away about how to use the market to get America going again, with maybe some great training programs so that the latte servers are more polite! – is dumb liberalism. It is the kind of elite liberalism that makes one sympathize with Palin. Especially as the financial services sector, which is where the investor class that MY, McCardle and all the D.C. bloggers come from, has shown itself massively unable to allocate capital for our real needs, instead of chasing las vegas like yields.
Now, I actually can’t stand car culture. I ride a friggin’ bike. But I have the sense enough to know that it isn’t going anywhere, and that keeping American car manufacturers going isn’t like keeping, say, Leyland going. A car manufacturer can change pretty rapidly. Chrysler did in the late 80s and 90s, and was very, very successful until it was sold, stupidly, to Daimler, mostly to satisfy the vanity of the then Chrysler CEO. The question is, how to do this right – and I am very, very unimpressed by the idea that it can’t be done right, since that seems to go back to the magic idea, beloved of conservatives, that the guv’mint can’t do nothing right – which, of course, given the way conservatives govern, is a self-fulfilling prophecy. MY’s argument basically comes down to that magical kind of thinking.
November 18th, 2008 at 9:08 pm
F GM’s pension liability. It’s time for these fake workers to feel the burn. You cannot retire in comfort for twenty years of installing windsheild wipers. The global economy can’t afford it. The American economy can’t afford it. The auto industry can’t afford it. GM can’t afford it. Why should my taxes go to pay for some union asshat’s retirement home?
November 18th, 2008 at 9:45 pm
That was part of the deal with the Chrysler bailout in the 70s. The government bought preferred stock, which gave it the exclusive right to all proceedings of a liquidation if it came to that. Until the government was repaid, the shareholders stock was worthless.
An interesting note, the government made a profit on the Chrysler bailout.
November 18th, 2008 at 10:30 pm
roger, when you say “deindustrializing,” you just mean that we’re not maintaining the number of industrial jobs we formerly had, not that we’re reducing production itself. And really, you’re not even concerned with manufacturing employment per se; you’re only concerned with the typically higher wages of the industrial jobs.
So what’s the point? There is simply no conceivable future for the US auto industry that includes the same number of high-paying jobs that it used to have, or even those it has today. How is it “dumb liberalism” to acknowledge that? Or are you only saying that as a stimulus measure, we should keep GM staggering on until the recession ends, and let it go bankrupt when times are better?
November 18th, 2008 at 10:41 pm
So Cobb, your solution is that old people should be thrown out into the street to find new work in a recession, or to live off of Social Security? Which brings me to the point that you already pay for “some union asshat’s retirement home” because condemning senior citizens to a life of poverty is immoral, and runs against every principle of progressivism and liberalism.
Just to throw in on the industry/manufacturing question:
It’s important because it’s one of the few remaining sectors that provide middle-class wages to high-school graduates, because it’s one of the few remaining areas of the private sector that is unionized, and because – in the wake of our current collapse – our nation cannot survive on the FIRE industries (Finance, Insurance, Real Estate) plus high tech. It’s about diversifying our economy so that we’re not completely dependent on industry-specific bubbles for prosperity.
Here’s where this all links up with a progressive vision of the economy: fundamentally, progressives aspire to a high-wage economy of unionized workers whose economic security is assured through a strong social welfare state, and whose economic fortunes are not completely at the mercy of the market. Then the question becomes – how do we get from here to there, and does eliminating three million of the kinds of jobs we want to create fit in there?
November 18th, 2008 at 11:06 pm
Actually, you have the terms of this argument backwards. What is not going to come back in my lifetime is the eminence of the financial sector in America. It will not ever take up 30 percent of the gains of the stock market again. All the king’s horses and all the king’s men won’t do that.
On the other hand, we can be pretty confident that the car market will flourish in the U.S. once again. Whether that market is supplied by the Japanese, the Americans, or both, it will come back.
Your argument that there is something irreversible about the loss of highpaying manufacturing jobs just isn’t true. What can happen, however, is that America does not reverse the tendency not to invest in the kind of R and D that creates high end manufacturing. At the moment, we are on the edge of a shift in which we will have to have much more energy saving technologies, from transport to the way energy is used in the house. Probably the whole fleet of American autos will have to be replaced in the next decade. And this is not unlike the way in which, in 1991, when manufacturing was down, people did not see that the boom was going to come – from manufacturing. From the computer industry, to be specific, which accounts for almost all of the reason that the soft decline in America’s industrial “output” has diverged from employment.
To reverse American neglect, we have to shatter the ideological notion that only private enterprise can play a “creative” role in the economy. That’s never been true about the American past, and it won’t be true in the future. In fact, the government could easily invest in the kind of R and D in the auto industry that is needed to bring autos out of the Henry Ford age, but it would certainly be over the dead bodies of the Detroit old guard.
The idea that we are condemned to increasing inequality, that we can simply trade away the residual, that part of the economy that consists in knowledge – which is not something in people’s heads alone, but in the connections made in communities, in the system of factories and parts distributors, etc., the thing that won’t ever come back once it is destroyed – because it will bring a short term profit to Wall Street investors is, frankly, crazy. Why, if this is how you think the U.S. economy should go, would any American want to support it? It is the combination of free market fundamentalism and this magical fatalism that has been the very essence of Bush’s reign – and MY seems happy with that. But I think it is nutty.
November 19th, 2008 at 2:40 am
But I have the sense enough to know that it isn’t going anywhere, and that keeping American car manufacturers going isn’t like keeping, say, Leyland going.
Not when British Leyland was having to compete with Ford and GM (aka Vauxhall) on home turf, and then with Nissan.
cmholm made the point upthread: if GM goes under, the foreign operations presumably get bought at firesale prices — possibly by the Euros with government backing, possibly by the Chinese, since they have the cash on hand — and aside from a few legacy operations in the US (the ‘vette actually gets good review from Europeans for what it is) you end up with foreign-made Chevys right up the product line being sold to Americans.
Of course, if that happens, it’ll put the squeeze on foreign-owned assembly plants and their non-union workforce.
November 19th, 2008 at 5:22 am
roger, I didn’t say that there wouldn’t be any high-paying manufacturing jobs at all. I said that there wouldn’t be the same number that there used to be in the automotive sector. More investment will just decrease the number of workers needed per car, and building better cars means that you don’t need to build as many because the cars you have last longer (unless we really do replace all the current stock in the next decade, which strikes me as highly unlikely).
November 19th, 2008 at 9:03 am
The UAW needs a little tough love. It derailed the Cerberus deal at Delphi. Today GM suffers a loss of about $2,000 per vehicle sold. On the other hand Toyota whose employees are not part of the UAW earns a profit of about $1,200 per vehicle sold. If GM was able to operate with labor prices near Toyota’s it would have pocketed an additional $29,715,200,000.
GM bailout nonsense
November 19th, 2008 at 10:01 am
Jason:
Again, the key is that “labor prices” is not the same thing as wages. It wasn’t the UAW’s fault that GM decided to provide private health care, pensions, and unemployment insurance as a way to reduce turnover and increase company loyalty – Reuther and the UAW wanted universal health insurance and a stronger Social Security system so that they could bargain in a more social democratic direction over shop stewards, making labor part of the running of the firm with access to the financial books and a voice in pricing, etc.
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