(11 am. – promoted by ek hornbeck)
Insanity: Doing the same thing over and over again while expecting different results.
Trickle down economics will never get us out of the mess that trickle down economics got us into.
The immediate crunch that the automakers are facing is a loss of revenue due to dropping sales greatly exacerbated by less availability of credit due to banking mismanagement encouraged by deregulation over the past couple of decades.
If that is true then the immediate crunch that the automakers are facing is a symptom of a larger “disease”, and not the cause of the disease.
Throwing billions of dollars of taxpayer money at the automakers while their customers remain in large part unable to buy the cars they produce will not increase their sales and thus not solve any problem other than keeping the management from going bust.
Treating the symptoms of any life threatening systemic disease without addressing the causes will result in temporary comfort but the patient will die.
A simple answer just will not do.
The automakers can only be bailed out in a useful manner by retooling and regulating the economy, not by throwing cash at the automakers.
A large part of the reasons that the automakers sales are dropping is a simple one. Many people in this economy are simply no longer able to afford the cars the big 3 or any other manufacturers produce. The question is not what they might want to buy, but rather what they are able to buy.
Giving money to the automakers now, as we are seeing with the banking bailout, without first repairing and regulating to a “sane” economy is in my view simply stealing money from taxpayers who are now unable to buy cars, which will result in the short and longer term even further depressing the economy and auto sales along with it, and will start a habit of “returning to the well” by automakers to draw ever increasing amounts of money from the automakers own customers.
It would be artificially propping them up at everyone elses expense.
What are we? Crash test dummies?
Again, their problem is a symptom. Treating a symptom will not solve the problem.
I think that suggestions that the economy is dependent on GM and the other automakers are suggestions from fantasyland.
The complete and utter reverse is true. GM and the automakers are dependent on the economy. And propping up the economy as a whole is the surest way to save the automakers.
Hoping that shoveling billions of dollars into the hands of the same people who create the problems in the first place will solve the problems is hoping against all hope that somehow, magically, trickle down economics will start to suddenly work.
Trickle down economics… does not work.
Last month Nicholas von Hoffman writing at The Nation came up with what I think is one of the most cogent suggestions I’ve seen so far for dealing with the automakers and the autoworkers union problems.
Now it is the auto parts suppliers who want government money. They employ 600,000 people, more than work for the automobile companies themselves.
If the standard for giving out money to companies is the threat of lost jobs, the auto parts suppliers’ claim is as good as that of General Motors. The argument against subsidizing money-losing companies to preserve employment is that it would be impossible to think up a more expensive way of helping people.
There ought to be another way–and there is. Unemployment compensation should be expanded to ensure those losing their jobs will not lose their houses or their health insurance. Helping people on that scale will not be cheap, but helping them by propping up corporate losers is infinitely more costly: sooner or later people will find other employment, but the automobile companies will never turn a profit.
They have been steadily losing money for a generation. Their predicament has nothing to do with today’s credit crunch or the stock market crash. It has to do with their being incorrigible foul-ups.
Their record for money-losing is beyond comprehension. David Yermack, professor of finance at New York University’s Stern School of Business, has calculated how much capital the car companies have destroyed over the last few decades.
He writes, “General Motors and Ford…between them…destroyed $110 billion in capital between 1980 and 1990…. GM has invested $310 billion in its business between 1998 and 2007. The total depreciation of GM’s physical plant during this period was $128 billion, meaning that a net $182 billion of society’s capital has been pumped into GM over the past decade–a waste of about $1.5 billion per month of national savings. The story at Ford has not been as adverse but is still disheartening, as Ford has invested $155 billion and consumed $8 billion net of depreciation since 1998. As a society, we have very little to show for this $465 billion.”
von Hoffman’s suggestion would ensure that taxpayer money used for any “bailout” directly benefits those same taxpayers and would help them to continue being the engine of the consumer economy, as opposed to throwing it at big 3 management hoping against all reason that it will somehow “trickle” back down to the people paying for any bailout.
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Steep Grade Ahead
You make some excellent points. But letting the Big 3 fail is not an option. Emptywheel (who lives in Michigan) had a great couple of posts about this yesterday morning. The human costs are too staggering: and the GOP is not going to vote for enough unemployment to cover the lost wages of the estimated 3 million jobs lost (autoworkers plus parts suppliers plus dealerships going under–and then there are the folks who make the raw ingredients, like plastics and steel alloys).
You probably know this, but it bears repeating: unless the right steps are taken, pronto, we are entering a deflationary cycle on a global level. (roll out the animated characters going OMG OMG OMG ’cause that’s your government right now) Hell, even Bush has figured out that losing 3 million jobs by the end of this month is a really bad idea–although in his case, it’s probably ’cause he can’t blame the loss of those jobs on anybody but himself and GOP policies since 1980.
There’s a reason certain prominent economics bloggers at dKos have been calling this the Greater Depression.
We can abhor the management at the Big Three: the CEOs have earned their shame. But in a global financial meltdown, we cannot afford to lose any manufacturing capability–it needs to be reconfigured, yes. But not lost. Put the plants and the people to work building what we need in this century, much as FDR did when we entered WWII.
Otherwise, I am afraid the doomcriers: like Nouriel Roubini: will be proved correct.
want to cry. It is the human face of what’s going on: and we are talking middle class; it doesn’t even reflect the poor people, like us, Edger, who are used to privation:
http://www.dailykos.com/story/…
And this, which I overheard just before I went into work today:
http://www.dailykos.com/commen…
Krugman is off today. (heh)
Here’s a taste of Gail Collins:
http://www.nytimes.com/2008/12…
of your argument that I question. That is your statement that people don’t buy cars from the Big 3 because they can’t afford them.
That may be true now for alot of people, but didn’t seem to be the case prior to the last 1-2 months. Seems to me that the problem with the Big 3 has been quality and innovation.
A few months ago I began to contemplate buying a Prius. Those things are NOT cheap, but there was a 6 months waiting list to get one.
As another example, years ago I owned a Honda Civic. I remember watching a news show where they were comparing warranties for various cars. Honda came it as one of the worst. But the discussion about it was that people who buy Hondas aren’t worried about the warranty – they are unlikely to need it. That was sure the case for me for the 9 years I owned that car. Right now I’ve owned a Subaru for 7 years – not one problem in all those years. All I’ve done is recently buy new tires. This is not the kind of thing I’ve heard from friends who own cars made by the Big 3.
With all of that – I’ll say that I think US automakers have been working on this over the last few years. But with a purchase this big, it takes a long time to turn around a reputation like that.
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