Do you want a depression? Because if you do, it's easy to get one. Just rail against bailing out the auto industry. Or just argue that the industry should get a blank check. Either one will bring us to a depression. Well, I shouldn't say that's definitely the case, since this is virgin territory no one really understands, I'm no expert (not that the experts know what's going on) and as a friend told me, 'You can only cry 'depression' so many times before the public gets skeptical'.
Still, this problem is really sad and really difficult. While Wall Street got a $700B bailout, the auto industry is looking for a bridge loan because auto sales just crashed in October from a run rate of around 16 million vehicles to 10 million vehicles. That's not something that can really be managed away in a short period of time, it's the equivalent of demobilizing a small war. That's overhang of factories, management, people, capital, and expertise of six million vehicles a year. The auto industry reaches into every community in America, with car dealerships, supply chains, and parts makers sustaining millions of jobs a year. Beyond that, as Wes Clark notes, there's the national security element of electrifying our armed forces, a project the auto industry is moving forward.
Yes, the auto industry has been badly managed, and labor has fought against reasonable environmental regulations. And the management doesn't really 'deserve' a bailout. But what's going on here is not a normal market failure; auto companies have done done surveys which show that consumers will not buy from companies in bankruptcy, and GM is going to be in chapter 7 not chapter 11, which means full liquidation. People won't buy from a company that looks like it'll go bankrupt, but a company without customers will go bankrupt. That's a feedback loop we don't want to see, because liquidation of the auto industry will probably cause a depression. Millions of retirees with pensions and health care will lose it, consumers with domestic cars will lose benefits associated with those cars, the secondary car market will be destroyed, and consumers will lose confidence about all major consumer purchase.
In other words, the auto industry, and really the entire economy, is in the midst of the same dynamics that take hold in a bank run. I just read Paul Krugman's The Return of Depression Economics, and this is the scenario that he draws out in economies system-wide. The temptation here from policy-makers is to cut the baby in half, which is the wrong strategy. Either the government should decide to defend the auto industry at all costs, and tell consumers their car purchases are safe, or the government should let the auto industry die. A bridge loan must be accompanied by a government guarantee,because without it the industry is just in limbo and the underlying confidence problem remains.
The politics here are tough. Democratic leaders want to save the domestic carmakers because it's a large source of union jobs, while the Republicans want to crush the domestic auto industry because they hate the UAW and want to move the auto jobs to the South (their base), where non-union foreign carmakers are building plants. The UAW, meanwhile, basically conceded all wage and cost advantages over foreign carmakers in 2005 and 2007, such that its current contract arrangements mean that labor costs between union and non-union carmakers will soon be at parity. It's just awful to see 45 year old career automakers take pay cuts of 50%, horrible inhumane stuff.
At the same time, the UAW is mostly unwilling to admit that it has a bad track record on environmental problems, and so there's very limited credibility among progressive whites who should be a political base for overhauling it. The industry as a whole just doesn't seem credible, so shoveling money its way doesn't feel like a good idea, and it's not a popular political move either, though it's a little more popular than the Wall Street bailout. Younger members are not necessarily on board with an auto industry overhaul, having heard from constituents they don't want yet another bailout. If Obama's first action is to save the domestic automakers, which might actually be his move, it could hurt.
But this really isn't about saving a group of coddled workers, that's just right-wing propaganda. Basically workers at auto plants are at this point no better off than non-unionized workers, and they really are only making a middle class salary (if that). But as with the bailout, it is about confidence, and leadership, and an overhaul of the industry will take more than just a bridge loan. It's going to take a total shift in industry leadership and a genuine commitment to reform. Without such a shift, the bank run will continue, and we're headed for a depression.
As an anti-spam measure, there is a 24-hour waiting period after registering before new users can comment. blog advertising is good for you
blog advertising is good for you
