"Would you care for some rot-gut red, with your crow, sir?"
These are confusing, trying and muddled times. Several weeks ago, Henry Paulson, aka The Harbinger of Death, threatened our country (in a sniveling, poorly written two-page memo) with mayhem, cultural dissolution, financial disaster and the end of American life as we know it, if we did not consider and immediately approve, post haste, a bailout for Wall Street bankers and financiers, in the amount of $700B. The country rose up in a loud voice and said, "NO!", the Congress backpedaled for a few days, then re-grouped and instead approved a bail-out bill for more than $850B. Weeks later, we are all still scratching our heads about exactly what happened. Unless you have been completely isolated from recent news reports, you know a number of events have since transpired, none of which are particularly encouraging or heartening. The off ice the GAO has reported that there is virtually no oversight for how this money is being spent; there are reports that Paulson, et al, without any oversight, have doled out some $2T that is unaccounted for; AIG has used large amounts of its' cash for parties; we have had to rescue Citibank; most of the $850B is still not apportioned; the stock market has tanked; mortgages and still foreclosing, nation wide; 401K plans are shrinking faster than anyone could imagine...the list of consequent, contingent and ongoing disasters goes on and on. This is what we might chose to call "The Big Swindle".
There is a rumor that there is a new economic team on the way, but their impact is some months off, their effectiveness is still mere speculation and we have no leadership in this tumultuous transition period between the Bush and Obama administrations (W has been hiding behind a Christmas tree in the Whitehouse, revealing his "regrets" to Charles Gibson. That is really helpful.) But the scenario ripens with both age and the reported availability of mountains of disposable cash from the treasury. Now, as it happened, at the end of November, the CEO's of Detroit's Big Three (which are not as big as they used to be...or think they are) came, hat-in-hand, via private jet, to Washington to make their own plea for survival funding. They brought with them a myriad of problems, conundrums, contradictions and perplexing issues. What they did not bring was any humility.
Their lavish method of travel notwithstanding, these three titans of industry also appeared with their hand out, pleading poverty, with a silk top hat in which to collect the funds and wearing silk suits. In a manner nearly as obscene as the one Paulson used in demanding funds for the original $700B, they had no plan for what they would do with the money, other than to keep on "doing what they have always been doing". In the only smart move any congressional body has made in at least a decade, the auto industry moguls were sent home. They were told to come back when they had a plan, a strategy and some vision of the future which had any shred of credibility. Recently some plans have been leaked, including the bald-faced insult that they will all forego their annual multi-million dollar salaries (maybe) if their companies get government money, that they will all travel by hybrid vehicle this time and they have considered the future (at least a little) in their plans for use of the funding (Ford has actually promised a very small percentage increase in their CAFÉ standards within five years. Wow.).
There remain some glitches in the procedure. First of all, on this return trip, the "guys" have had time to think up reasons to increase the originally proposed bail-out/loan/bridge loan/grant/funding proposal from $25B to $34B. While Ford says it would only like their share to be in the form of a $9B line of credit (to be used should one of the other two fail, which is a fall-back position no one understands), Chrysler just simply says that it needs the money to survive and GM promises that this money (they want $18B) will ensure plant closures and the layoffs of up to 30,000 workers over the next few years. On top of this, GM has suddenly announced that with out at least $4B before the end of the year, they will collapse completely. Somehow, I find it very difficult to believe that the army of bean counters at GM did not have any clue that this collapse might take place before it became clear that the Feds were loosely throwing money around. These guys from Detroit must really believe that we are as stupid as we look. After how we responded to Paulson, we must look pretty stupid.
At any rate, the polarizing discussion swirling about for the last two weeks or so has been something like Hamlet's dilemma, with each side asking the other, "To bail-out or not to bail out?" You can (and probably have) read stories in Newsweek, MSNBC.com, the MSM, in blogs and on numerous web sites, either vehemently urging the demise of these dinosaurs (and how they got to be and stay alive), as well as those wailing about the millions of sub-contract and supplier tier jobs that will be lost if the Big Three go Big Belly Up. (Michael Moore, whether you like him or not, did a nice job of summing it all up last night on "Countdown", with Keith Olbermann, on MSNBC-TV; you can watch it on your computer). But we may be missing the boat, here.
Whilst everyone has been looking the other way, hoping for gas prices to go down, buying more and more goods produced in China and ignoring the 800 pound reality gorilla in the room, everyone has also known (but wouldn't admit) that Detroit can not seem to build cars that anyone wants, its' cost structures were non-competitive, it had little R&D in the pipeline for needed future transportation technologies, had too many brands and had made too much money for the last 60 years without planning effectively for old age. They just seem to have woken up and started wondering where their 401K had gone.
My name is not Krugman or Reich or Friedman or Keynes, but it occurs to me that the boat we might catch might look something like this:
To begin with, if everything I have read is true, last year the government approved a $25B grant for the auto industry to work on new electric and hybrid auto technologies. It is my understanding that Japan has made the same effort for their auto industry. This would push ahead some competitiveness and forestall complete disaster in the industry, here. WE SHOULD GIVE IT TO THEM, NOW. But there should be accountability strings attached, and progress reports. We deserve to know how they are spending our money. If it is mal-appropriated, it should be returned. Secondly, and with as many strings attached, we should pull another $25B out of the sum already allocated (since Paulson has no real plans for spending it anyway) and set it up in an interest bearing account. The Bogus Three can draw upon it as a line of credit, as needed, to keep things afloat and weather the current storm, as best they can. And this money should be put into a repayment schedule, to begin in 18-24 months. We should also recognize that this will only limit layoffs and lowered productions, not stop them. The general state of the economy right now indicates that very few people will be out buying new cars in any record numbers, any time soon.
A third bold move would be to change the name of the UAW to the United Manufacturing Workers (the UMW) and get them to join in the re-training (help provide funding) of their members to build, assemble and manufacture other and more diverse goods. For instance: The hot ticket everywhere these days seems to be wide-screen HD, digital televisions sets. I cannot help but believe that with the creativity and resourcefulness of Motorola, GE, Hitachi, Panasonic, and Sony (to name just a few) with deep roots and pockets in the US, we could not manage to assemble those TV's in this country. In fact, we could even think about using our vast resources to supply the raw materials. It might push a few low-end Korean manufacturers out of the spotlight, but there would be some immediate consequences and benefits to our economy and employment statistics. Look at it this way: An auto assembly line worker making $26.00/hr. is currently an endangered species (that $70/hr worker is a myth). Were he/she to be re-trained to assemble/manufacture the thousands of HD TV sets that are in such huge demand, they might only make $16/hr., but they would not be out of work and in danger of losing their home. The money would run back through the economy and eventually the new "hybrid" vehicles that Detroit would be selling by then could be a much needed purchase by the people who would now have the money (from jobs) to pay for them. The Obama administration is (already) talking about (finally) paying attention to rebuilding our crumbling infrastructure. We will need more skilled workers to rebuild electrical transmission lines, gas lines, bridges, tunnels, roadways and sewer and transportation systems. We will need to build windmills and water transmission routes. We will need communications workers, more draftspeople, more environmental researchers and more teachers. And all of that means that we need more earth moving machines (Caterpillar can't build them all, and Komatsu shouldn't), dump trucks (hello, General Motors: nobody needs a Cadillac), surveying gear, cranes, steel production, rebar and electronic measuring devices. There is no reason that all of this cannot be manufactured and produced in the United States. There is no reason the 30-50,000 auto workers, whose jobs are at risk cannot be trained to do these jobs and save their homes and send their children to college. And we should not forget that we may a nearly endless supply of empty, under or un-utilized manufacturing facilities which could be pressed into service, in very short order. And the nations' governors just m et with the President elect, and they told him that their states were literally days, weeks and months way from being able to put "shovels in the ground" for rebuilding projects.
But we will need to face some tough realities (you thought I forgot about the crow by now, didn't you?). Initially, we need to put a harness on greed and the seemingly insatiable appetite Wall Street has for instant profits and shareholder "overnight" wealth. That may never happen in America again. The Dellionaire/Microsoft phenomenon may never occur again, ever. Secondly, that US –made TV set may cost 5-10% more than the one we used to buy at Circuit City from Indonesia...but the worker will have the money to pay for it. And Circuit City will not make the retail profit it used to, but it will still be in business as a retailer. Wal-Mart may have a problem if they cannot buy everything from China. Sorry.
GM may eventually have to file for bankruptcy and restructure, despite the federal aid dollars. That would not be the end of the world. Too much has been written recently about what will happen: other companies will move in to the vacuums created and address the new needs: the small company that paints plastic bumpers for GM can move on to paint plastic parts for TV's from Motorola. It will take some time, but Rome was not built in a day (and the US will not go away in one, either). Ford will most likely soldier on or at least plans to. Chrysler is a lame duck on life support. When Daimler Benz gave up on it, and Cerebrus bought it, their clear intention was to either make a go of it or write it off. It was their risk, they took it, and they lost. The tax payer should no more be held accountable or responsible for that gamble than they would be if Proctor and Gamble gambled on a new laundry detergent and failed. The only difference is in the scale of the economies involved.
Mary Ann Keller, a noted automotive journalist, has been saying for years, that there would eventually only be two or three automobile companies in the world. Every day it becomes clearer that one of those will be Toyota (or some Japanese conglomerate with Toyota at the center). We are witnessing manufacturing Darwinism as the world gets "flatter" (Friedman) and GM's position as the center of (their own) universe is passing. Must I remind you of the old adage about throwing good money after bad?
This discussion about saving the US auto industry, as I alluded to earlier, is quite polarized. As many people want to save it (for many of the wrong reasons) using tax payer money (a very wrong solution) as want to see it die (for some other wrong reasons, like spite); the Michigan legislators are screaming for it (their job security) and many others (including many members of congress) are screaming against it (which has something to do with our nose in spite of our face). I am suggesting a middle ground.
I am left with three principal thoughts. Right up front, we should recognize that the model employed by Wall Street for the past several decades simply does not work. The events of the past several weeks and months have borne this out, without contradiction. Short-term, high yield greed is no way to build and maintain a robust economy. It should not be difficult for anyone to see that the net loss in earning power without reasonably equal accumulations of wealth for the traditional middle class has been both destructive and counter productive. And as far as the auto industry debate is concerned, GM, Ford, Chrysler and their minions are representatives of this failed model. Simple life support and prolongation of life as it has been is no remedy.
I must add to that a quote I read in a NYT editorial this week by Prof. Krugman. An Indian economist, Prabhat Patnaik, said that, the "free market system [demonstrates] the incapacity to distinguish between speculation and enterprise." Put simply, greed ( unfettered speculation) is what prompts GM to have far too many "brands" (who the hell needs a Hummer, anyway?), and for Wal-Mart, Home Depot, Lowes and Handy Andy or some other home supply company or discount outlet to have a big box store on every available scrap of land in America. As Michael Moore pointed out (again) last night on "Countdown", if no one has a job, who will there be to buy the automobiles, shop at Wal-Mart or buy even discounted clothing? If we engaged in and invested in real growth-oriented enterprise, we would not be confronted so bluntly by this dilemma. It seems that you can buy anything at Wal-Mart except logic.