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December 13, 2008

On the other hand...

Former Senator Fritz Hollings has a very interesting argument that bailing out the auto companies might be defended as part of a return to a sane policy of industrial protectionism.

Protectionism? Yeah, it's an interesting piece:

Of course, the economists for the global financial institutions and the big multinational corporations know this, but because their loyalties are more to their institutions and less to our nation, they continue their calls for ever more "free trade" and for continuing U.S. trade and current account deficits.

The irony is that economists learn in their very first class in school that it was a trade war which brought us our initial freedom as a country, and that semi-protectionism later helped build the United States. England started a "trade war" with the Colonies by adopting the Navigation Act of 1651 that required all trade be carried in British vessels. Manufacturing was forbidden in the Colonies, even the printing of the Bible, and then the Townsend Acts drafted by Adam Smith placed heavy import duties on a wide range of items. All of this precipitated the Boston Tea Party that started the Revolution.

While we obtained our freedom in 1776, it wasn't until 1787 that we empowered Congress, in Article I, Section 8, of the Constitution, to regulate commerce, both domestic and foreign. President George Washington's first message to the first Congress in 1789 warned that, "A free people should promote manufactories to render them independent of essential, particularly military, supplies." Thereafter, the United States was financed and built for 100 years with semi-protectionism, and we didn't even pass the income tax until 1913. At the advent of the Transcontinental Railroad, it was suggested that the needed steel be obtained from England - but President Abraham Lincoln strongly objected and required the steel to be produced in the United States. And Edmund Morris, in his remarkable book "Theodore Rex" about President Teddy Roosevelt, has TR exclaiming at the time the United States won the trade war with England, "Thank God I am not a free trader."

Under the new phenomenon called "globalization", the so-called "comparative advantage" which underpinned the early centuries is no longer God-given or determined by the weather, as was the case, two centuries ago, with David Ricardo's English woolens and Portuguese wine. Now commercial success is largely created, or not, by government policies, and the United States government refuses to compete for such success, even though, as The Economist magazine reported recently, "Business these days is all about competing with everyone from everywhere for everything."

Winter blahs

The winter blahs are a particularly bad problem when you're living in Chicago. Victims report wanting only to sleep, eat, and kill time on the internet. I've heard it called "hibernating," which is a good way to describe it.

There are only two ways to cure my own winter blahs. One: take a long vacation to someplace less blah-y. Arizona and Colorado come to mind.

Two: exercise. Even though it's only 12 degrees out and already dark by 4:30, get those wooly clothes on and go shuffle around outside until you think your face is about to fall off. Then come back home and have a big hot chocolate.

It worked for me in Ann Arbor, and it's working for me now in Chicago.

Short term

Re the auto bailout:

I wonder if the Big Three's pitiful performance can be blamed in any way on the American system of corporate governance? Were the incentives to maximize short-term profits to blame for Detroit's ills?

I'm thinking of how GM and Chrysler (and Ford to a lesser extent) were so eager to give up on the small car market in favor of big SUVs. They had to know that low gas prices were unsustainable. SUVs were profitable, but didn't anyone worry about long-term profitability if gas prices rose and SUVs became less attractive?

December 12, 2008

The guilty pleasures of watching GM go bankrupt

I don't think we should bail out the failing failed American carmakers. I admit that I'll feel a guilty pleasure watching them go down the tubes.

It isn't that I don't support a vibrant American auto industry, or that I don't want to cushion the blow of all the layoffs that a collapse of the carmakers would entail. It's just that throwing money at the Big Three won't do either of these things. It'll be like flushing money down the toilet. And even if it would postpone the inevitable, I want my guilty pleasures now, dammit. I want to watch Rick Wagoner go down with his ship.

The carmakers aren't in this mess because of a little liquidity crisis, or a run of bad financial decisions that leave them short of cash. They're about to go belly up because their basic business isn't viable anymore. I have to admit, it gives me a sort of perverse pleasure to see GM going down the tubes after decades of building crappy cars. Perhaps its products aren't as inferior to their competitors as they were in the 1970s, but if you peruse Consumer Reports at all, you know that Toyota and Honda are still flogging GM on reliability even now. Oh, free market, work your magic.

It's also sinfully delicious to see the Big Three begging for money after the bottom fell out of the market for gas-guzzling SUVs. All the lobbying muscle that once went into fighting increases in the CAFE fuel economy standards tooth and nail may not be enough now to get the government to help them build better small, fuel-efficient cars. Too bad, so sad, Rick. You bet the company on the Hummer when you had to know that gas prices weren't going to stay low forever.

I'm also a little giddy about the failure of Detroit's carmakers after years of watching them do too little to push for national healthcare. They like to whine about their high health care costs, but they did far too little to push for the government-funded national health insurance that would have relieved them of many of the financial burdens they're complaining about.

Of course, none of this is going to make up for the real pain of a failed American auto industry. But that pain should be treated with something other than a bailout for the Big Three's shareholders.

Friday Catbloggin'

So it's Friday; I'm back in Chicago. It's cold outside. I think I'll spend the evening inside, bloggin' with my cat Silver.

That cat sure does love to snuggle on cold winter nights!