I agree with much of what you say, but, in fairness, I don't think you can absolve capitalism for our current economic problems quite to the extent that you imply. While capitalism deserves much credit for the high level of wealth and jobs creation, and world-leading innovation, in terms of new products and services, it's success is supported by other factors in the U.S. This country, more than most others, is blessed with a synergy between capitalism and our form of governance, the rule of law, respect for human rights, a relatively low level of corruption, plus a can-do spirit. However, the tradeoffs for the benefits of capitalism probably include more exaggerated booms and busts than with a more socialistic system.
Social programs redistribute wealth and soften the effects of booms and busts, but they also tend to diminish entrepreneurial spirit, foster an attitude dependency and entitlement, and tend to contribute to higher levels of unemployment.
The bottom line is that there is no perfect economic system. Since pure capitalism and pure socialism tend to produce nasty results, most people prefer a mixed system. The argument for most people, then, is how much capitalism and how much socialism should this mix contain. I prefer the model we've had, at least until recently, to, say, the Western European model. Just look at where most of the innovation comes from, and where more new industries tend to be created. It's not in Europe or even Asia. It's right here, in the U.S.
Yes a good balanced viewpoint IMO. Our system, in fact nearly all modern economies, are some form of blended capitalistic/socialistic system...even Russia and China now.
Socialism defined: Socialism refers to any one of various theories of economic organization advocating state or cooperative ownership and administration of the means of production and distribution of goods, and a society characterized by equal opportunities/means for all individuals with a more egalitarian method of compensation based on the full product of the laborer.[1][2] Modern socialism originated in the late 18th-century intellectual and working class political movement that criticized the effects of industrialization and private ownership on society. http://en.wikipedia.org/wiki/Socialism
Not much of that applies to the US. Or one could even say that much of that applies to the US. On NPR today one commentator noted that Eisenhower may have been the most socialist President following FDR.
advocating state or cooperative ownership and administration of the means of production and distribution of goods
The Eisenhower Interstate Highway system is probably his lasting legacy, as a direct result of his military background. But in fact the US Gov't owns the largest means of distribution in the nation.
Thank you for your nice comments and very well thought out reply torque.
It seems that our history is repleat with a battle between freedom and slavery, those who want control vs. those who believe in live and let live.
As far as I know, capitalism in the pure form has never existed in the US. To the degree that it has we have experienced a massive increase in the standard of living that the world has never seen. Our life span has doubled since 1900 when the average person died at 42.
There is a great study by CATO that demonstrates a direct correlation between economic freedom and prosperity per capita.
So if our objective is to have everyone achieve the highest level of prosperity than we must have a high degree of economic freedom. This of course includes property rights and the rule of law.
My read of history demonstrates that the boom bust cycle in the US were much milder and shorter before government intervention such as in the Great Depression. Other depressions in the 19th century lasted two years.
A massive deleveraging has to take place in the US now and the more that Washington intervenes the longer the Depression will take to run its course. The only hope that we have are potential new industries like nano technology that could generate trillions of new revenue.
The program that we are discussing, Cash for Clunkers is another attempt to provide a Free Lunch, to print our way to prosperity.
DeTocquevill had a very timely quote from the 19th century.
" In a democracy, once the public finds out it can vote itself largess from the public treasury, every election becomes an advanced auction of stolen goods. This process continues until bankruptcy, usually followed by a dictator to restore order".
It seems that human nature creates a natural cycle of behavior from Freedom to Slavery.
My suggestion is that if we do not influence the politicians to slow down on "The Road To Serfdom", than our fate is sealed.
As for the C4C program, I've been critical of it from the outset, for numerous reasons. The upshot is that the disadvantages will outweigh the advantages, for the reasons you've stated, plus others. In addition, it sets a bad precedent. That said, I predict the programt will be hailed as a success, by employing half-truths, and will either be extended or will be followed by a sequel. I expect many of the incremental sales of new vehicles will be due to pent up demand created, in part, by this program.
You mentioned DeTocquevill. I would add the Austrian economist Friedrich von Hayek and Milton Friedman as two who have influenced my thinking regarding the perils of excessive reliance on government in our economic and social affairs. As you probably know, the teachings of these two economists and social commentators support what you said about DeTocquevill.
The main reason underlying my concerns about big government is that government has monopoly powers, and monopolies are traditionally inefficient allocators of resources.
Programs such as C4C achieve popular acceptance and support because the alleged benefits are easy to explain and comprehend, while the deficiencies of the program are easy to discredit and ignore. Look, everybody is against layoffs and unemployment, but as you said, the auto industry bailouts are likely, in the end, to prolong the misery.
The crushing of many still useful vehicles is the the component of this program I object to the most, although I've mentioned other flaws in previous postings.
Thank you both for laying out so eloquently the downside to programs like C4C. Hopefully the dollar does not get diluted into oblivion by these wasteful spending programs. India has joined China and Russia in questioning the dollar as a dominant World currency. What happens if no one buys these stimulus dollars? They become worthless IOUs.
July 6 (Bloomberg) -- Russia and India said the world economy is too reliant on the U.S. dollar and called for changes in how $6.5 trillion in currency reserves are managed, as Group of Eight leaders prepare to meet this week.
Really ? While the surge in borrowing has prompted calls for alternatives to the dollar as a reserve currency, emerging- markets policy makers aren’t near consensus on a plausible option. Chinese Deputy Foreign Minister He Yafei said July 2 the dollar will reign supreme for “many years to come.”
How much U.S. debt to keep remains in dispute. Russian President Dmitry Medvedev and Indian economic adviser Suresh Tendulkar have questioned the dollar’s dominance of the world’s $6.5 trillion in currency reserves.
The BRIC get-together failed to endorse a Russian call for diversification from the dollar, showing it is easier to denounce the U.S.-led world order than come up with a viable alternative.
“The credibility of the Anglo-Saxon model is under threat,” Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., said in a Web commentary last month. “Yet there are no ready substitutes that are able and willing to step in.” July 7 (Bloomberg)
Current events are a wake-up call to the American economic system that it does, in fact, need some serious tinkering. This is a far cry from some massive swing to a so-called "socialist" system of economics, for which Americans neither have the inclination, mentality or talent.
C4C is just one form of medicine for a sick economic model that needs serious re-thinking.
To paraphrase, our economic practices may be awful but they seem to be better than anyone else's. :P
I agree with your last line, Shifty, but would substitute "imperfect" for "awful." If it were awful you'd have more people leaving our borders and fewer risking their lives, and leaving family and friends behind, to enter.
Could our system be improved? Probably. However, when tinkering it's useful to keep in mind the saying that "perfect is the enemy of the good."
I know many would disagree, but I believe the current financial crisis is attributable to lax oversight and management of our institutions (eg. Fanny and Freddy were implemented as social programs to encourage home ownership) rather than to capitalism. Also, hindsight suggests that the Federal Reserve kept interests rates low for too long. It would be a stretch to argue that this was the fault of capitalism.
To capitalism's credit, it has given us the highest standard of living the world has ever known, and unprecedented innovation. I believe the government should act as an enabler; that is, it should enable capitalism to do what it does best, and curb the excesses through regulation. It shouldn't be in the business of picking winners and losers, ot aiding failed companies. The federal government has already pumped $60,000,000,000 into GM and Chrysler, and chances are that won't be the last of it. I read that this comes to something like $337,000 for every auto worker. Does this seem like a sound investment? Not to me, it doesn't. While acknowledging that things were so bad in the auto industry by the end of '08, that there were no good options, only less bad ones, I believe chapter 11 or 7 would have been preferable, in the long run, to the bailout.
People immigrated here to make money. If there was easier money to be made in Albania, or New Zealand, they'd have gone there. It says more about money than it does about America. America's economy is based on 20th century forms of carrot + stick which are no longer sustainable IMO.
New thinking and new box is needed. Old game is over.
Denying incentives, vouchers and handouts to our economy right now is like denying vital medicine to a dying person because we are afraid of ill effects later on in their lives. It would be cruel to make American suffer more than they have to.
Tax cuts and expensive foreign wars have driven us to huge deficits, and unregulated, reckless greed to monetary collapse, but I personally don't see anything else that is appealing on the table for us right at the moment.
There's really no other choice but to risk further deficits for the time being; otherwise,a complete pullback on spending would prolong our problems for perhaps another 20--30 years. It's not a viable alternative IMO. I also don't see inflation as an immediate risk, because of the high unemployment.
So yeah, bring on those vouchers and similar stimuli ASAP or face further painful stagnation.
We're in agreement on some things. For example, the Viet Nam and Iraq wars were tragic, costly mistakes, not only in terms of lost and wrecked lives, but also in terms of the deficits. Better intelligence or interpretation of our intelligence might have prevented these errors, but we should acknowledge that it's always easier to second guess with the benefit of hindsight. I agree with President Obama's decision to pull our troops out of Iraq in an orderly manner.
"There's really no other choice but to risk further deficits for the time being..."
" I also don't see inflation as an immediate risk..."
True and true. While I agree with these statements, I don't agree with how the post TARP stimulus is being applied. Time doesn't permit me to get into details. Although inflation isn't an immediate risk, as you say, it certainly could quickly become one, along with the devaluation of our currency, if the stimulus isn't reigned in after the economy recovers. The real test of how this economic crisis is managed will be whether the government will have the will to take away the punch bowl when the party goers have imbibed enough.
"New thinking and new box is needed."
If this mean that government bureaucrats have better judgement and skills than individual citizens, and that government should replace free markets more, I respectfully disagree. If it means that we should do a better job of enforcing our existing laws and regulations, and perhaps carefully modify some of them, then I agree.
I don't think people realize how near-fatal a blow the US economy has suffered, and how sick it is. Of course the economy will recover eventually, because we are a wealthy and resourceful nation, but it's going to be a long, long road back because unfortunately the people who caused the problem are still fully capable of making more mayhem. It would be something like trying to run Great Britain in 1850 with 90% of Parliament still thinking the earth was flat. (I'm sure a few still do actually :P )
I believe that both Viet Nam and Iraq were intentional interventions rather than mistaken interventions. In both cases I think that the Administrations in power at those times wanted to propagate a war, whether justified or not.
I would differentiate between last fall and winter's near financial melt-down and the general economy. A massive injection of capital, in the form of TARP, was essential to avoid the melt-down, given the excessive, reckless and irresponsible levels of leverage in our financial system in '07 and '08. By contrast, I don't think that injecting $60,000,000 000 (and counting) into two failed auto companies is a wise allocation of resources, even though I have positive sentimental feelings for GM and Chrysler.
"...the economy will recover eventually, because we are a wealthy and resourceful nation, but it's going to be a long, long road back..."
IF the governments regulators had been on the job, Daimler wouldn't have been allowed to buy Chrysler and GM wouldn't have been allowed to become too big to fail... that goes for AIG and the banks.
I agree with President Obama's decision to pull our troops out of Iraq in an orderly manner.
Obama as Pres is merely following the path set by Bush. When Obama was a Senator, he said the Surge would not work and he wanted to "recklessly" pull all the troops out in 2008.
This c4c program is a drop in the bucket in dollars compared to the huge, irresponsible and mostly misdirected stimulus Obama and Congress pushed last Feb.
True, the C4C is a relatively small program. However, it's one of the few relevant ones for an auto site. Ethanal is another misguided, wasteful program.
>> There's really no other choice but to risk further deficits for the time being; otherwise,a complete pullback on spending would prolong our problems for perhaps another 20--30 years. It's not a viable alternative IMO. I also don't see inflation as an immediate risk, because of the high unemployment. >> Then you must have been AWOL during the 70's. Double digit inflation and unemployment. Too much of what I see today is a replay of back then.
>> I bet you'll see all kinds of stimuli coming up, from these vouchers and even to a modern form of WPA, CCC, etc. >> Then we are in for a very long recession. FDR's policies prolonged the great depression, they didn't shorten it.
>> RE: Senselessness of junking "good" old clunkers. Again, that's not the point. The point is to sell cars. This is a goal line head-butt, not a ballet. >> It's not only senseless, and IMO, immoral, it's not even good economics. It robs peter(used car market, tax payers, prospective indigent car owners) to pay paul(UAW, Gov't Motors). The best economic program is the program that does not try to skew the market. This entire recession was caused by a program of lending which was supposed to encourage consumption and homebuying(Fannie/Freddie), but instead just engaged in an orgiastic explosion of bad loans at teaser rates that came crashing down like a house of cards as soon as the market went in any direction other than up.
The end result for C4C is going to be pretty obvious. 1)The poor will no longer be able to afford anything other than a hatchback, new or used. 2)New Economy Cars will no longer be as economical, as new car prices rise as a reaction to inflationary pressures caused by gov't subsidies, and most ironically, 3)prices for new gas guzzlers will fall due to price competition with subsidized smaller cars.
BEIJING (AP) -- China surpassed the United States as the world's biggest auto market for the first half of 2009 after June sales soared 36.5 percent from a year earlier, according to data reported Thursday.
China's vehicle sales in June rose to 1.14 million, the second-highest month to date after April's 1.15 million units, the China Association of Automobile Manufacturers said. Passenger car sales hit a monthly record of 872,900 units.
Total sales for the first half of the year rose to 6.1 million, up 17.7 percent from a year earlier, the industry group said. That outpaced the United States, where passenger car sales in the same period plunged to 4.8 million amid an economic slump.
China's auto sales weakened in late 2008 as the global financial crisis hit but rebounded after Beijing launched a stimulus package with sales tax cuts, subsidies to trade in older cars and other incentives.
I guess we get our economic cues from China now. What does that tell you? Is that why we spend a lot of time in China, to see how a government should be run? What's next killing dissident conservatives having tea parties.
Since you are not President of the entire United States, in your mind you have the luxury of sending hundreds of thousands of workers home and putting their companies into liquidation. That must be a wonderfully easy world to live in where your ideological preferences have little or no effect on real people.
If however you were responsible for the well-being of every state in the Union and all the citizens of the US then you would likely have a very different and less rigid viewpoint. Your shortsighted view that $60 Billion is not a worthwhile investment in three midwestern states, hundreds of thousands of ..direct workers, ..suppliers all over the country ..downstream companies and employees in every one of the 50 states shows a distinct lack of sensitivity, not to mention lack of knowledge about how closely intertwined our nation is. This was not simply about GM and Chrysler.
Luckily both the recent past President and the current President have a broader perspective than you do.
We can only hope If conservatives really cared about dissidents instead of their own personal well being China would not be the economic force it is now. Anything for the mighty dollar !!!
Nobel Prize winner Paul Krugman is against the stimulus bill because it's 50% too small. Instead of $800 Billion his calculations estimate that $1.2 Billion was needed. In his view the $800 Billion doesn't do enough and will only prolong the pain not solve the problem.
Everyone who supports all these stimulus packages seems to forget that SOMEONE will have to pay back the money. What "appears" to be compassion for one is sadism to another. It is our children who will pick up the tab and live lifestyles that we don't want. As the debt grows does the insolvency of the whole country.
This is conservative pablum that you've swallowed from the party of negativity.
It's not immoral. That's religious right code wording. It's business.
It robs no one. Do you somehow think that the entire used car market is going to dry up? Do you have any sense of reality in the numbers involved? Which vehicles are being scrapped? It's mostly older trucks and SUVs that nobody wants and that have little or no value. You don't understand the mechanisms involved here as regards the retailing of autos. And it's all voluntary.
This skews nothing. It's a 5-10% bump in new vehicle sales.
The financial crisis developed because Alan Greenspan led us down the path of 'unfettered markets' which encouraged the banks to take risks that they shouldn't have taken. It was greed for profits on Wall Street with no one watching what they were doing. Greenspan apologized in front of Congress for his mistakes over 30 years. The mortgage loans were only one bad facet of this overall lack of responsibility. It was the entire system not one department. But in the right wing world it's good to place the entire blame on those that should have stayed in their places and not tried to be upwardly mobil.
The end result of C4C??? You simply have no idea of what you're writing about. (1) A short term 10% bump in total demand is not going to affect anything long term. New or Used (2) How you come to this conclusion is beyond me. You're just looking for a negative viewpoint I guess. Did you happen to miss the last 9 months? Auto sales have fallen 35% on average, prices are at the lowest point in this decade....for all vehicles. (3) This one is a doozie. Did you miss the statements from the D3 that they are getting out of the gas guzzler vehicle market? That happened last year. Truck sales have fallen by over 60% since the beginning of the decade. Midsized BOF SUVs are being discontinued by every maker or being cut by 90%. Large BOF SUVs have gone the way of the dinosaur. The US buying public has spoken.
When you're being fed pablum it often means that you're sitting in a highchair, not expected to think for yourself. It's amazing what a different picture you might see if you actually looked at real facts.
It's not immoral. That's religious right code wording. It's business.
That's a joke. If we really had "it's business" the big 3 would have been gone years ago. Selective compassion? Those who complain about the immorality of waste, filling our landfills unnecessarily, and wasting energy needed to produce new cars are deemed to be "religious right". Then those wanting the government to pour tax dollars to shore up a failing industry claim it is the "moral" thing to do because it will save jobs and help others.
What you are missing is that the national debt will never be paid back - ever. It's not intended to be paid back - ever.
We are borrowing from our own future. Yes that is true. But we are borrowing it with only the commitment to repay interest on the debt, it's called leverage. As long as the economy grows and our growth can cover the interest it's like it never happened.
If you want to whine and cry about about a really serious subject affecting your children's future then consider this. Over the last 6 years Mr Bush's Personal War has cost us........ $5 Billion per week ( you can look it up ). None of this money was available. He borrowed every cent of it and put the burden on your kids.
This program is at most $4 Billion total for the entire year. And it's coming back into our own pockets with the result that tax revenues increase both to the IRS and to the states in income taxes and sales tax revenues.
Here's a picture. Let's say that the $4 Billion incentive does bump sales by 10% as it's planned to do. a) Either companies profits will be 10% higher - so tax revenues will be 10% higher - or this will serve to minimize losses that the IRS has to subsidize at the rate of 50%. Either way tax revenues increase to the US Treasury. If a million units are sold this year at an average price of $20000 with a typical profit of say $1000 per units then how much does the IRS get? The individual 50 States? Overall it probably will be about 50% or $500 per vehicle. That's $500 Million in additional taxes back into the Treasurys. b) Sales Taxes at the state levels will increase by 10%. How much is this? Well if 1 million units are involved at an average sales price of say $20000 with a typical state tax rate of 5%, then that results in.... 1,000,000 x $20,000 x 5% = $1 Billion in extra tax revenue to the states. c) But what about all the suppliers and ancillary business that also will benefit from the program... suppliers, truckers, railroads, dealers, aftermarket companies...and millions of workers at these companies. All of them get a 10% boost in wages and revenues. More taxes back into the government coffers all over the 50 states.
Then on top of that the nation as a whole loses 1 million of the worst performing vehicles replacing them with 1 million better performing vehicles. If.... the average clunker being taken out of service now uses 15 mpg and the new replacement on average uses 25 mpg then at 15000 mi/yr on 1 million vehicles each new vehicle will save 400 gallons of fuel NOT used every year for at least the next 5-10 years. 400 gal x 1,000,000 units = 400 million gallons NOT used every year.
400 million gallons x $3 per gallon = $1.2 Billion NOT spent on fuel per year. Multiplied by 5 or 10 years and your looking at a fuel savings of at least $6 Billion to $12 Billion over the next 5-10 years. Hello...
I have no problem with your arguments about C4C being bad economics. You might well be right "in the long run". My point was that things like "fairness" or "morality" are extraneous to an economics stimulus discussion.
As to your points, which are thought-provoking. I'm not sure that the "poor" can afford to drive anyway. Most truly "poor" people (by government income standards) probably don't drive, or if they did, it would have to be in death traps and without insurance. One simply can't run a safe, clean insured car while making $7 an hour.
If you're talking about lower middle class people competing in the $4500 used car market, you may have a point there, although I have to tell you that from my experience, about 90% of all cars listed for sale under $4000 today are pretty much worn out pieces of junk that will just suck up more of the working man's money.
Besides, we aren't talking about enough cars to really affect the used car market.
As for the price of gas guzzlers falling---they are bound for extinction anyway.
As for new economy car prices rising, I think there are places like Korea and India and China who are readily to step into the fray to provide the answer, if the D3 can't sober up and face the music here, and re-invent themselves.
Really we are not at all apart on believing (I think) that regardless of any stimulus packages, any industry or agency that is being propped up so as to catch its breath, has got to stand on its own two feet sooner than later.
I hope the Chinese aren't reading this post which says the US National Debt does not need to be repaid.
Isn't your idea that "as long as the economy keeps growing" exactly why we are in the mess we are in now? Buy a house now that you really can't afford, but manage to hang on to it for 5 years and it will have appreciated so much that you can sell it, pay off your mortgage and make to ton to boot. Sounds familiar. And we never learn.
I refuse to make this into a Dem-Rep war, its about the C4C.
The unnecessary using of resources is always costly in the long run. Whether that be gas or the materials needed to produce a car. If these cars still have valuable life on them I submit that it will consume more resources to build a new one than to keep on using the old one. If everyone doubled the number of miles they got out of their cars we would use up half the resources needed to produce a car. Lots of oil is used to produce cars in both raw materials and energy required.
Just imagine -- driving past your local junk yard and seeing it double in size. Can't wait. Manufacturing produces pollution too. I'm not a greenie, but I know waste when I see it.
The Chinese already know this. Greenspan said that very thing on TV some years ago, when asked by a reporter as to when the US would have to repay these debts.
He said "never", because if China called them in, their economy would collapse as well as ours.
We call scratched our heads over that one, and said, quietly and in awe: "hey, wait a minute, that doesn't sound right". :P
They buy our treasuries to keep our interests rates low so we can buy more of their junk including cars. Perhaps that is why the Big 3 need to go under. If we buy American, we don't buy Chinese. If this happens they won't buy our treasuries anymore so we then see inflation and interest rates sky rocket.
Glad to know that when I take US C4C money to buy Japanese (who also own lots of US debt) that I am being very Patriotic afterall and helping America.
China and our debt: Not at all. Every Administration and every Treasury Department simply rolls over the current debt when it comes due into new borrowings due 10 or 20 or 30 years down the road. It's never paid back - ever. We just pay interest on it. Now the interest expense does grow as the amount of debt grows.
Our economy always will grow. This current situation will pass and our native and imported creativity will design new and better ways to make money from sources that none of us can ever consider. As long as we don't lose our creativity and willingness to take risk then we will grow much faster than the interest expense.
C4C is a tiny tiny gift to the whole auto industry ( from steel and glass supplier to the cleanup crews at retail stores ) which will likely pay for itself in many ways over the next 5 years. I enumerated a few above. If I told you that we were going to spend $4 Billion today to save $6 Billion over 5 years would you be in favor of that?
Sorry your last paragraph is just more morality being injected into a business discussion about cold hard filthy money. It's out of place. Your moral viewpoint that we should leave well enough alone and keep the clunkers just as they for the sake on not producing new products is a 'let's go back to living on the farm and tilling our own fields with horse and oxen'.
In fact the reality is that these vehicles get recycled every day into steel beams, rebar, steel plate for construction, fasteners, and literally a million other uses. The expensive metals get resold and reused; ditto the glass, fabric and rubber.
Sorry no points for morality here. It's only business.
The debt does grow. The percentage of the Total budget that is used to service that debt has gotten larger and larger over time. When it eats up about 75% of the total revenues the IRS collects - there won't be anything left to stimulate with.
As far as morality goes it is others saying we should bail out the Big 3 as a morality issue. Since when is bailing out with government money a "good business decision". Letting them go bankrupt is the better business decision.
It was you who first claimed "morality" because getting rid of bigger gas guzzlers in favor of more efficient was "better" in the long run. I simply countered your arguement.
Going back to horse and buggy is a personal choice. The issue changes when the government gets involved. Those who want to trade in perfectly good cars for newer more efficient ones are welcome to. But they should pay for it. Those who chose not to will pay at the gas punp. Both pollute equally and use up resources equally too.
First the money that was given to Chrysler and GM went back into the US economy. They didn't have a bonfire and set it ablaze. It went all over the place and likely kept a multitude of businesses afloat if only for a couple of more months ( Lear Corp ). It actually kept Chrysler and GM alive to fight another day as leaner companies with much better prospects of survival.
Your forgetting lost potential earnings. Since these scum sucking companies make no profits, they pay no taxes, and hence make no earnings. If they were real competent companies, they'd make a profit, and pay taxes. We'd of been better off letting these leeches on society die off than keeping them on life support.
It's not good for the US as a whole, because you are looking at the little picture. The big picture is the future, and this sets a terrible precedent. The key to success in US business is now to be as incompetent and reckless as possible, so that you are so bad that the government has to bail you out to survive. What a terrible way to bend the rules for the incompetent and reckless.
'18 Porsche Macan Turbo, '16 Audi TTS, Wife's '19 VW Tiguan SEL 4-Motion
Don't forget about the suppliers that would also collapse without GM and Chrysler. And the burden of the UAW pension fund on the federal government. Another million jobs lost. I guess it's easy for us to bad mouth this policy when the responsibility is not ours.
If this was 2006-07, I would tend to agree that bailing out GM and Chrysler makes no sense. But since it's 2009, the economy officially sucks (no you will not find this term in any economic book), unemployment continues to rise, foreclosures are still at record high which means banks (and the global market) are still on shaky ground....and the Mets are below .500. I forgot we have two wars going on in the Middle East; a lunatic in N. Korea; Ahminjined and his Pips are beating up their own people; and we all expected this to get better by summer...just like on TV and in the movies.
So instead of everyone complaining, what suggestions does everyone have for helping the auto industry? i hear people complaining all day on the 24 hour news stations but I have yet to hear any other good solutions.
First there are two questions here. 1. Bailouts to try to ensure the survival of the B2 and their suppliers and downstream operations. 2. The C4C program which is intended to give a 10% boost equally toward all segments of the auto industry from steel suppliers to aftermarket small businesses.
As far as morality goes it is others saying we should bail out the Big 3 as a morality issue. Since when is bailing out with government money a "good business decision". Letting them go bankrupt is the better business decision.
In the first question it is good business not to put hundreds of thousands of workers out of work if there is a reasonable expectation or even hope of the B2 recovering as smaller leaner companies. This isn't just the direct UAW workers but its also the workers at the suppliers to each of the B2 then the downstream workers at railroads and distribution points and dealerships. IF the plug had been pulled back in December every Chrysler and GM store in NA would have had to close. Every company that supplied these companies would have taken a massive hit. As it turns out there is now an uproar in Congress about a 20% reduction. Imagine if it was a 100% reduction.
It was you who first claimed "morality" because getting rid of bigger gas guzzlers in favor of more efficient was "better" in the long run. I simply countered your arguement.
The C4C program was designed by the auto industry but it will directly benefit every part of that industry with a 10% boost in business and tax revenues. It will partly pay for itself. Then as icing it will also save the nation $6-$12 Billion in the cost of money not spent on fuel. I don't attribute any morality or goodness to this benefit. It's just good business for the nation as a whole to spend less for fuel. We get to keep more of our money here rather than send it to Big Oil and help support producers who hate our way of life.
Sorry your post is too filled with anger. It doesn't make any sense.
What lost potential earnings are you talking about and how does this relate to the subject at hand?
Yes the B2 were horribly run companies and lost money hand over fist for 10 years because they made bad decisions. So? They were private and that cost us nothing unless you were a shareholder. They didn't live off society in any way while they were losing all that money.
OK now they are wards of the state, temporarily. If they go public soon as planned and all or most of our money is recovered in the IPO then the investments were brilliant pieces of statemenship. Hundreds of thousands of jobs and business will have been saved.
Pull the plug you say. Next time there's a fire in your neighborhood...'Use pails'.
Your rant about the big picture and precedents is noted but actually you are missing the big picture. Small business and small banks are being closed and liquidated every day and every week. These have little effect on the economy individually. So there's no precedent at work here.
Now as regards the huge banks and huge industrial companies...that's dicier. There is a serious question about how large does a company have to be and how significant does it have to be before it must be saved? Bush/Paulson answered the question regarding the banking industry. Obama/Geithner answered the question regarding the industrial sector.
More control does need to be foreseen so that we don't end up in this situation again. But then the 'free marketers' will begin screaming 'GET GOVERNMENT OUT OF BUSINESS AND BANKING'.
However I've said it here many times....government and business are one-in-the-same. They aren't just related. They are a single entity. One can't survive without the other.
Immediately it is 'worth' $15-$25 Billion. Hmmmm that sounds like a running headstart on an IPO for next year. Let's see if the value will be increased by next year when the planned IPO is to take place.
The restaurant down the street just went under too. Why don't they get a bailout? Yep, some lost jobs, but it wasn't making money so they went under.
Why is it that bankruptcy for the Big 3 is such an evil word for some? TONS of corporations have gone under -- any reason the Big 3 get special privileges?
If the Big 2 went under Ford would get more business, not sure why the government should show favoritism. If they can't compete, they need to go.
When they go under people will still need cars. A clever entrepeneur will buy up the GM and Chrysler factories and assets at fire sale prices and the creditors will get some of that. Then that clever entrepeneur will start his own car company. But they will have to compete - not just be propped up by the government. They really will have to produce good cars, clever ideas, their factory workers will have to "survive" on realistic non-Union wages, and their CEO's won't be able to pay themselves ridiculous salaries and wages. Their engineers and designers will have to be clever, capable and good.
The infrastructure will still supply no matter who makes the cars. If Honda makes cars and buys up GM's assets then the suppliers will supply to Honda instead of GM. The UAW will simply have to disappear but their former workers will now work for Honda at more competitive wages.
Bankruptcy gets rid of the dead weight. It exists for a reason. No special privileges for the auto corporations is a better business decision.
Comments
Social programs redistribute wealth and soften the effects of booms and busts, but they also tend to diminish entrepreneurial spirit, foster an attitude dependency and entitlement, and tend to contribute to higher levels of unemployment.
The bottom line is that there is no perfect economic system. Since pure capitalism and pure socialism tend to produce nasty results, most people prefer a mixed system. The argument for most people, then, is how much capitalism and how much socialism should this mix contain. I prefer the model we've had, at least until recently, to, say, the Western European model. Just look at where most of the innovation comes from, and where more new industries tend to be created. It's not in Europe or even Asia. It's right here, in the U.S.
Socialism defined:
Socialism refers to any one of various theories of economic organization advocating state or cooperative ownership and administration of the means of production and distribution of goods, and a society characterized by equal opportunities/means for all individuals with a more egalitarian method of compensation based on the full product of the laborer.[1][2] Modern socialism originated in the late 18th-century intellectual and working class political movement that criticized the effects of industrialization and private ownership on society.
http://en.wikipedia.org/wiki/Socialism
Not much of that applies to the US. Or one could even say that much of that applies to the US. On NPR today one commentator noted that Eisenhower may have been the most socialist President following FDR.
advocating state or cooperative ownership and administration of the means of production and distribution of goods
The Eisenhower Interstate Highway system is probably his lasting legacy, as a direct result of his military background. But in fact the US Gov't owns the largest means of distribution in the nation.
It seems that our history is repleat with a battle between freedom and slavery, those who want control vs. those who believe in live and let live.
As far as I know, capitalism in the pure form has never existed in the US. To the degree that it has we have experienced a massive increase in the standard of living that the world has never seen. Our life span has doubled since 1900 when the average person died at 42.
There is a great study by CATO that demonstrates a direct correlation between economic freedom and prosperity per capita.
So if our objective is to have everyone achieve the highest level of prosperity than we must have a high degree of economic freedom. This of course includes property rights and the rule of law.
My read of history demonstrates that the boom bust cycle in the US were much milder and shorter before government intervention such as in the Great Depression. Other depressions in the 19th century lasted two years.
A massive deleveraging has to take place in the US now and the more that Washington intervenes the longer the Depression will take to run its course. The only hope that we have are potential new industries like nano technology that could generate trillions of new revenue.
The program that we are discussing, Cash for Clunkers is another attempt to provide a Free Lunch, to print our way to prosperity.
DeTocquevill had a very timely quote from the 19th century.
" In a democracy, once the public finds out it can vote itself largess from the public treasury, every election becomes an advanced auction of stolen goods. This process continues until bankruptcy, usually followed by a dictator to restore order".
It seems that human nature creates a natural cycle of behavior from Freedom to Slavery.
My suggestion is that if we do not influence the politicians to slow down on "The Road To Serfdom", than our fate is sealed.
As for the C4C program, I've been critical of it from the outset, for numerous reasons. The upshot is that the disadvantages will outweigh the advantages, for the reasons you've stated, plus others. In addition, it sets a bad precedent. That said, I predict the programt will be hailed as a success, by employing half-truths, and will either be extended or will be followed by a sequel. I expect many of the incremental sales of new vehicles will be due to pent up demand created, in part, by this program.
You mentioned DeTocquevill. I would add the Austrian economist Friedrich von Hayek and Milton Friedman as two who have influenced my thinking regarding the perils of excessive reliance on government in our economic and social affairs. As you probably know, the teachings of these two economists and social commentators support what you said about DeTocquevill.
The main reason underlying my concerns about big government is that government has monopoly powers, and monopolies are traditionally inefficient allocators of resources.
Programs such as C4C achieve popular acceptance and support because the alleged benefits are easy to explain and comprehend, while the deficiencies of the program are easy to discredit and ignore. Look, everybody is against layoffs and unemployment, but as you said, the auto industry bailouts are likely, in the end, to prolong the misery.
The crushing of many still useful vehicles is the the component of this program I object to the most, although I've mentioned other flaws in previous postings.
July 6 (Bloomberg) -- Russia and India said the world economy is too reliant on the U.S. dollar and called for changes in how $6.5 trillion in currency reserves are managed, as Group of Eight leaders prepare to meet this week.
used------No
While the surge in borrowing has prompted calls for alternatives to the dollar as a reserve currency, emerging- markets policy makers aren’t near consensus on a plausible option. Chinese Deputy Foreign Minister He Yafei said July 2 the dollar will reign supreme for “many years to come.”
How much U.S. debt to keep remains in dispute. Russian President Dmitry Medvedev and Indian economic adviser Suresh Tendulkar have questioned the dollar’s dominance of the world’s $6.5 trillion in currency reserves.
The BRIC get-together failed to endorse a Russian call for diversification from the dollar, showing it is easier to denounce the U.S.-led world order than come up with a viable alternative.
“The credibility of the Anglo-Saxon model is under threat,” Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., said in a Web commentary last month. “Yet there are no ready substitutes that are able and willing to step in.”
July 7 (Bloomberg)
El-Erian and Bill Gross of Pimco resonate with me. They're very smart, independent thinkers, and I read their writings regularly.
C4C is just one form of medicine for a sick economic model that needs serious re-thinking.
To paraphrase, our economic practices may be awful but they seem to be better than anyone else's. :P
Could our system be improved? Probably. However, when tinkering it's useful to keep in mind the saying that "perfect is the enemy of the good."
I know many would disagree, but I believe the current financial crisis is attributable to lax oversight and management of our institutions (eg. Fanny and Freddy were implemented as social programs to encourage home ownership) rather than to capitalism. Also, hindsight suggests that the Federal Reserve kept interests rates low for too long. It would be a stretch to argue that this was the fault of capitalism.
To capitalism's credit, it has given us the highest standard of living the world has ever known, and unprecedented innovation. I believe the government should act as an enabler; that is, it should enable capitalism to do what it does best, and curb the excesses through regulation. It shouldn't be in the business of picking winners and losers, ot aiding failed companies. The federal government has already pumped $60,000,000,000 into GM and Chrysler, and chances are that won't be the last of it. I read that this comes to something like $337,000 for every auto worker. Does this seem like a sound investment? Not to me, it doesn't. While acknowledging that things were so bad in the auto industry by the end of '08, that there were no good options, only less bad ones, I believe chapter 11 or 7 would have been preferable, in the long run, to the bailout.
New thinking and new box is needed. Old game is over.
Denying incentives, vouchers and handouts to our economy right now is like denying vital medicine to a dying person because we are afraid of ill effects later on in their lives. It would be cruel to make American suffer more than they have to.
Tax cuts and expensive foreign wars have driven us to huge deficits, and unregulated, reckless greed to monetary collapse, but I personally don't see anything else that is appealing on the table for us right at the moment.
There's really no other choice but to risk further deficits for the time being; otherwise,a complete pullback on spending would prolong our problems for perhaps another 20--30 years. It's not a viable alternative IMO. I also don't see inflation as an immediate risk, because of the high unemployment.
So yeah, bring on those vouchers and similar stimuli ASAP or face further painful stagnation.
"There's really no other choice but to risk further deficits for the time being..."
" I also don't see inflation as an immediate risk..."
True and true. While I agree with these statements, I don't agree with how the post TARP stimulus is being applied. Time doesn't permit me to get into details. Although inflation isn't an immediate risk, as you say, it certainly could quickly become one, along with the devaluation of our currency, if the stimulus isn't reigned in after the economy recovers. The real test of how this economic crisis is managed will be whether the government will have the will to take away the punch bowl when the party goers have imbibed enough.
"New thinking and new box is needed."
If this mean that government bureaucrats have better judgement and skills than individual citizens, and that government should replace free markets more, I respectfully disagree. If it means that we should do a better job of enforcing our existing laws and regulations, and perhaps carefully modify some of them, then I agree.
"...the economy will recover eventually, because we are a wealthy and resourceful nation, but it's going to be a long, long road back..."
I agree
Obama as Pres is merely following the path set by Bush. When Obama was a Senator, he said the Surge would not work and he wanted to "recklessly" pull all the troops out in 2008.
This c4c program is a drop in the bucket in dollars compared to the huge, irresponsible and mostly misdirected stimulus Obama and Congress pushed last Feb.
I think fast action, even if say 30% wasteful, was much much better than no action.
I bet you'll see all kinds of stimuli coming up, from these vouchers and even to a modern form of WPA, CCC, etc.
RE: Senselessness of junking "good" old clunkers. Again, that's not the point. The point is to sell cars. This is a goal line head-butt, not a ballet.
There's really no other choice but to risk further deficits for the time being; otherwise,a complete pullback on spending would prolong our problems for perhaps another 20--30 years. It's not a viable alternative IMO. I also don't see inflation as an immediate risk, because of the high unemployment.
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Then you must have been AWOL during the 70's. Double digit inflation and unemployment. Too much of what I see today is a replay of back then.
I bet you'll see all kinds of stimuli coming up, from these vouchers and even to a modern form of WPA, CCC, etc.
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Then we are in for a very long recession. FDR's policies prolonged the great depression, they didn't shorten it.
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RE: Senselessness of junking "good" old clunkers. Again, that's not the point. The point is to sell cars. This is a goal line head-butt, not a ballet.
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It's not only senseless, and IMO, immoral, it's not even good economics. It robs peter(used car market, tax payers, prospective indigent car owners) to pay paul(UAW, Gov't Motors). The best economic program is the program that does not try to skew the market. This entire recession was caused by a program of lending which was supposed to encourage consumption and homebuying(Fannie/Freddie), but instead just engaged in an orgiastic explosion of bad loans at teaser rates that came crashing down like a house of cards as soon as the market went in any direction other than up.
The end result for C4C is going to be pretty obvious. 1)The poor will no longer be able to afford anything other than a hatchback, new or used. 2)New Economy Cars will no longer be as economical, as new car prices rise as a reaction to inflationary pressures caused by gov't subsidies, and most ironically, 3)prices for new gas guzzlers will fall due to price competition with subsidized smaller cars.
China's vehicle sales in June rose to 1.14 million, the second-highest month to date after April's 1.15 million units, the China Association of Automobile Manufacturers said. Passenger car sales hit a monthly record of 872,900 units.
Total sales for the first half of the year rose to 6.1 million, up 17.7 percent from a year earlier, the industry group said. That outpaced the United States, where passenger car sales in the same period plunged to 4.8 million amid an economic slump.
China's auto sales weakened in late 2008 as the global financial crisis hit but rebounded after Beijing launched a stimulus package with sales tax cuts, subsidies to trade in older cars and other incentives.
I guess we get our economic cues from China now. What does that tell you? Is that why we spend a lot of time in China, to see how a government should be run? What's next killing dissident conservatives having tea parties.
If however you were responsible for the well-being of every state in the Union and all the citizens of the US then you would likely have a very different and less rigid viewpoint. Your shortsighted view that $60 Billion is not a worthwhile investment in three midwestern states, hundreds of thousands of
..direct workers,
..suppliers all over the country
..downstream companies and employees in every one of the 50 states
shows a distinct lack of sensitivity, not to mention lack of knowledge about how closely intertwined our nation is. This was not simply about GM and Chrysler.
Luckily both the recent past President and the current President have a broader perspective than you do.
Wow, he's come a long way since "The Odd Couple" and "Quince, ME"
It's not immoral. That's religious right code wording. It's business.
It robs no one. Do you somehow think that the entire used car market is going to dry up? Do you have any sense of reality in the numbers involved? Which vehicles are being scrapped? It's mostly older trucks and SUVs that nobody wants and that have little or no value. You don't understand the mechanisms involved here as regards the retailing of autos. And it's all voluntary.
This skews nothing. It's a 5-10% bump in new vehicle sales.
The financial crisis developed because Alan Greenspan led us down the path of 'unfettered markets' which encouraged the banks to take risks that they shouldn't have taken. It was greed for profits on Wall Street with no one watching what they were doing. Greenspan apologized in front of Congress for his mistakes over 30 years. The mortgage loans were only one bad facet of this overall lack of responsibility. It was the entire system not one department. But in the right wing world it's good to place the entire blame on those that should have stayed in their places and not tried to be upwardly mobil.
The end result of C4C??? You simply have no idea of what you're writing about.
(1) A short term 10% bump in total demand is not going to affect anything long term. New or Used
(2) How you come to this conclusion is beyond me. You're just looking for a negative viewpoint I guess. Did you happen to miss the last 9 months? Auto sales have fallen 35% on average, prices are at the lowest point in this decade....for all vehicles.
(3) This one is a doozie. Did you miss the statements from the D3 that they are getting out of the gas guzzler vehicle market? That happened last year. Truck sales have fallen by over 60% since the beginning of the decade. Midsized BOF SUVs are being discontinued by every maker or being cut by 90%. Large BOF SUVs have gone the way of the dinosaur. The US buying public has spoken.
When you're being fed pablum it often means that you're sitting in a highchair, not expected to think for yourself. It's amazing what a different picture you might see if you actually looked at real facts.
That's a joke. If we really had "it's business" the big 3 would have been gone years ago. Selective compassion? Those who complain about the immorality of waste, filling our landfills unnecessarily, and wasting energy needed to produce new cars are deemed to be "religious right". Then those wanting the government to pour tax dollars to shore up a failing industry claim it is the "moral" thing to do because it will save jobs and help others.
"It's Business" = Bankruptcy for the Big 3
What you are missing is that the national debt will never be paid back - ever. It's not intended to be paid back - ever.
We are borrowing from our own future. Yes that is true. But we are borrowing it with only the commitment to repay interest on the debt, it's called leverage. As long as the economy grows and our growth can cover the interest it's like it never happened.
If you want to whine and cry about about a really serious subject affecting your children's future then consider this. Over the last 6 years Mr Bush's Personal War has cost us........ $5 Billion per week ( you can look it up ). None of this money was available. He borrowed every cent of it and put the burden on your kids.
This program is at most $4 Billion total for the entire year. And it's coming back into our own pockets with the result that tax revenues increase both to the IRS and to the states in income taxes and sales tax revenues.
Here's a picture. Let's say that the $4 Billion incentive does bump sales by 10% as it's planned to do.
a) Either companies profits will be 10% higher - so tax revenues will be 10% higher - or this will serve to minimize losses that the IRS has to subsidize at the rate of 50%. Either way tax revenues increase to the US Treasury.
If a million units are sold this year at an average price of $20000 with a typical profit of say $1000 per units then how much does the IRS get? The individual 50 States? Overall it probably will be about 50% or $500 per vehicle. That's $500 Million in additional taxes back into the Treasurys.
b) Sales Taxes at the state levels will increase by 10%. How much is this? Well if 1 million units are involved at an average sales price of say $20000 with a typical state tax rate of 5%, then that results in....
1,000,000 x $20,000 x 5% = $1 Billion in extra tax revenue to the states.
c) But what about all the suppliers and ancillary business that also will benefit from the program... suppliers, truckers, railroads, dealers, aftermarket companies...and millions of workers at these companies. All of them get a 10% boost in wages and revenues. More taxes back into the government coffers all over the 50 states.
Then on top of that the nation as a whole loses 1 million of the worst performing vehicles replacing them with 1 million better performing vehicles. If.... the average clunker being taken out of service now uses 15 mpg and the new replacement on average uses 25 mpg then at 15000 mi/yr on 1 million vehicles each new vehicle will save 400 gallons of fuel NOT used every year for at least the next 5-10 years. 400 gal x 1,000,000 units = 400 million gallons NOT used every year.
400 million gallons x $3 per gallon = $1.2 Billion NOT spent on fuel per year. Multiplied by 5 or 10 years and your looking at a fuel savings of at least $6 Billion to $12 Billion over the next 5-10 years. Hello...
As to your points, which are thought-provoking. I'm not sure that the "poor" can afford to drive anyway. Most truly "poor" people (by government income standards) probably don't drive, or if they did, it would have to be in death traps and without insurance. One simply can't run a safe, clean insured car while making $7 an hour.
If you're talking about lower middle class people competing in the $4500 used car market, you may have a point there, although I have to tell you that from my experience, about 90% of all cars listed for sale under $4000 today are pretty much worn out pieces of junk that will just suck up more of the working man's money.
Besides, we aren't talking about enough cars to really affect the used car market.
As for the price of gas guzzlers falling---they are bound for extinction anyway.
As for new economy car prices rising, I think there are places like Korea and India and China who are readily to step into the fray to provide the answer, if the D3 can't sober up and face the music here, and re-invent themselves.
Really we are not at all apart on believing (I think) that regardless of any stimulus packages, any industry or agency that is being propped up so as to catch its breath, has got to stand on its own two feet sooner than later.
Isn't your idea that "as long as the economy keeps growing" exactly why we are in the mess we are in now? Buy a house now that you really can't afford, but manage to hang on to it for 5 years and it will have appreciated so much that you can sell it, pay off your mortgage and make to ton to boot. Sounds familiar. And we never learn.
I refuse to make this into a Dem-Rep war, its about the C4C.
The unnecessary using of resources is always costly in the long run. Whether that be gas or the materials needed to produce a car. If these cars still have valuable life on them I submit that it will consume more resources to build a new one than to keep on using the old one. If everyone doubled the number of miles they got out of their cars we would use up half the resources needed to produce a car. Lots of oil is used to produce cars in both raw materials and energy required.
Just imagine -- driving past your local junk yard and seeing it double in size. Can't wait. Manufacturing produces pollution too. I'm not a greenie, but I know waste when I see it.
He said "never", because if China called them in, their economy would collapse as well as ours.
We call scratched our heads over that one, and said, quietly and in awe: "hey, wait a minute, that doesn't sound right". :P
Glad to know that when I take US C4C money to buy Japanese (who also own lots of US debt) that I am being very Patriotic afterall and helping America.
Our economy always will grow. This current situation will pass and our native and imported creativity will design new and better ways to make money from sources that none of us can ever consider. As long as we don't lose our creativity and willingness to take risk then we will grow much faster than the interest expense.
C4C is a tiny tiny gift to the whole auto industry ( from steel and glass supplier to the cleanup crews at retail stores ) which will likely pay for itself in many ways over the next 5 years. I enumerated a few above. If I told you that we were going to spend $4 Billion today to save $6 Billion over 5 years would you be in favor of that?
Sorry your last paragraph is just more morality being injected into a business discussion about cold hard filthy money. It's out of place. Your moral viewpoint that we should leave well enough alone and keep the clunkers just as they for the sake on not producing new products is a 'let's go back to living on the farm and tilling our own fields with horse and oxen'.
In fact the reality is that these vehicles get recycled every day into steel beams, rebar, steel plate for construction, fasteners, and literally a million other uses. The expensive metals get resold and reused; ditto the glass, fabric and rubber.
Sorry no points for morality here. It's only business.
As far as morality goes it is others saying we should bail out the Big 3 as a morality issue. Since when is bailing out with government money a "good business decision". Letting them go bankrupt is the better business decision.
It was you who first claimed "morality" because getting rid of bigger gas guzzlers in favor of more efficient was "better" in the long run. I simply countered your arguement.
Going back to horse and buggy is a personal choice. The issue changes when the government gets involved. Those who want to trade in perfectly good cars for newer more efficient ones are welcome to. But they should pay for it. Those who chose not to will pay at the gas punp. Both pollute equally and use up resources equally too.
Your forgetting lost potential earnings. Since these scum sucking companies make no profits, they pay no taxes, and hence make no earnings. If they were real competent companies, they'd make a profit, and pay taxes. We'd of been better off letting these leeches on society die off than keeping them on life support.
It's not good for the US as a whole, because you are looking at the little picture. The big picture is the future, and this sets a terrible precedent. The key to success in US business is now to be as incompetent and reckless as possible, so that you are so bad that the government has to bail you out to survive. What a terrible way to bend the rules for the incompetent and reckless.
If they fold, the jobs may go off-shore and the US will lose those potential tax revenues.
If this was 2006-07, I would tend to agree that bailing out GM and Chrysler makes no sense. But since it's 2009, the economy officially sucks (no you will not find this term in any economic book), unemployment continues to rise, foreclosures are still at record high which means banks (and the global market) are still on shaky ground....and the Mets are below .500. I forgot we have two wars going on in the Middle East; a lunatic in N. Korea; Ahminjined and his Pips are beating up their own people; and we all expected this to get better by summer...just like on TV and in the movies.
So instead of everyone complaining, what suggestions does everyone have for helping the auto industry? i hear people complaining all day on the 24 hour news stations but I have yet to hear any other good solutions.
1. Bailouts to try to ensure the survival of the B2 and their suppliers and downstream operations.
2. The C4C program which is intended to give a 10% boost equally toward all segments of the auto industry from steel suppliers to aftermarket small businesses.
As far as morality goes it is others saying we should bail out the Big 3 as a morality issue. Since when is bailing out with government money a "good business decision". Letting them go bankrupt is the better business decision.
In the first question it is good business not to put hundreds of thousands of workers out of work if there is a reasonable expectation or even hope of the B2 recovering as smaller leaner companies. This isn't just the direct UAW workers but its also the workers at the suppliers to each of the B2 then the downstream workers at railroads and distribution points and dealerships. IF the plug had been pulled back in December every Chrysler and GM store in NA would have had to close. Every company that supplied these companies would have taken a massive hit. As it turns out there is now an uproar in Congress about a 20% reduction. Imagine if it was a 100% reduction.
It was you who first claimed "morality" because getting rid of bigger gas guzzlers in favor of more efficient was "better" in the long run. I simply countered your arguement.
The C4C program was designed by the auto industry but it will directly benefit every part of that industry with a 10% boost in business and tax revenues. It will partly pay for itself. Then as icing it will also save the nation $6-$12 Billion in the cost of money not spent on fuel. I don't attribute any morality or goodness to this benefit. It's just good business for the nation as a whole to spend less for fuel. We get to keep more of our money here rather than send it to Big Oil and help support producers who hate our way of life.
What lost potential earnings are you talking about and how does this relate to the subject at hand?
Yes the B2 were horribly run companies and lost money hand over fist for 10 years because they made bad decisions. So? They were private and that cost us nothing unless you were a shareholder. They didn't live off society in any way while they were losing all that money.
OK now they are wards of the state, temporarily. If they go public soon as planned and all or most of our money is recovered in the IPO then the investments were brilliant pieces of statemenship. Hundreds of thousands of jobs and business will have been saved.
Pull the plug you say. Next time there's a fire in your neighborhood...'Use pails'.
Your rant about the big picture and precedents is noted but actually you are missing the big picture. Small business and small banks are being closed and liquidated every day and every week. These have little effect on the economy individually. So there's no precedent at work here.
Now as regards the huge banks and huge industrial companies...that's dicier. There is a serious question about how large does a company have to be and how significant does it have to be before it must be saved? Bush/Paulson answered the question regarding the banking industry. Obama/Geithner answered the question regarding the industrial sector.
More control does need to be foreseen so that we don't end up in this situation again. But then the 'free marketers' will begin screaming 'GET GOVERNMENT OUT OF BUSINESS AND BANKING'.
However I've said it here many times....government and business are one-in-the-same. They aren't just related. They are a single entity. One can't survive without the other.
The Cash for Clunkers - Does it Work for You? discussion is focusing more on the nuts and bolts as to how the program works. There's less politics in that one.
Immediately it is 'worth' $15-$25 Billion. Hmmmm that sounds like a running headstart on an IPO for next year. Let's see if the value will be increased by next year when the planned IPO is to take place.
http://dealbook.blogs.nytimes.com/2009/07/09/gm-to-close-sale-of-assets-on-frida- - y/?hp
Why is it that bankruptcy for the Big 3 is such an evil word for some? TONS of corporations have gone under -- any reason the Big 3 get special privileges?
If the Big 2 went under Ford would get more business, not sure why the government should show favoritism. If they can't compete, they need to go.
When they go under people will still need cars. A clever entrepeneur will buy up the GM and Chrysler factories and assets at fire sale prices and the creditors will get some of that. Then that clever entrepeneur will start his own car company. But they will have to compete - not just be propped up by the government. They really will have to produce good cars, clever ideas, their factory workers will have to "survive" on realistic non-Union wages, and their CEO's won't be able to pay themselves ridiculous salaries and wages. Their engineers and designers will have to be clever, capable and good.
The infrastructure will still supply no matter who makes the cars. If Honda makes cars and buys up GM's assets then the suppliers will supply to Honda instead of GM. The UAW will simply have to disappear but their former workers will now work for Honda at more competitive wages.
Bankruptcy gets rid of the dead weight. It exists for a reason. No special privileges for the auto corporations is a better business decision.