November 13, 2008

Over at Chronicles, Scott Richert comes to the defense of Tom Piatak and, referring to my last blog, accuses me of “€œindividualism”€ and of not properly understanding economics. Unfortunately, in his justification of the proposed 25-50 billion dollar bailout of Chrysler, Ford, and GM, Scott stumbles into an economic fallacy or two along the way”€”and classic ones at that.

Scott claims that I”€™m missing the big picture, that there aren”€™t just the 240,000 Big Three employees to worry about but hundreds of thousands more who are indirectly dependent on Chrysler, Ford, and GM. Sure. But we “€œindividualist”€ libertarian types are well aware that economic sectors are interdependent. Besides, this expansion of the circle of jobs Scott and Tom think the government should subsidize actually doesn”€™t affect my argument in the slightest.

Let’s say that we can determine that along with Big Three workers, there are an additional 240,000 whose livelihood would be adversely affected if the Big Three went under tomorrow. Fine. Let’s give each of them $50,000, bringing my welfare proposal up to somewhere between 37 and 40 billion. Again, I don”€™t support wealth redistribution; however, this new-and-improved “modest proposal” still strikes me as a better idea than rewarding bad management and bailing out the Big Three”€”particularly when we can count on them returning to Washington asking for more again and again in the years to come. 

But none of this gets at the fallacy at the heart of Scott’s and Tom’s reasoning. 

In his Economics in One Lesson, Henry Hazlitt asks rhetorically, Why, after the introduction of the telephone, are not telegraph operators destitute and homeless out in the streets? Why are not makers of buggy carriages not filling up the soup kitchens after the automotive industry put them all out of work? The answer is, of course, that these workers are doing something else”€”and any attempt through tariff or subsidy to “€œsave”€ the telegraph or buggy industries would have been grotesque.

Scott and Tom seem to assume that our economy operates under a caste or gild system in which hundreds of thousands of individuals in the Midwest are indentured as “€œJoe the GM Employee”€ or “€œPat the Parts Maker Who’s Forever Dependent on Chrysler.”€ But economies simply don”€™t work this way. Yes, if we don”€™t continue to prop up the Big Three, there will be some pain”€”at best Chrysler, Ford, and GM would shed jobs as they drastically change their business models, and at worst they”€™d all go under. But, again, in any case, the former employees can do other things”€”hopefully with businesses that are actually profitable and thus not requiring government subsidies every few years.

While Scoot seems to be ambivalent about industrialization due to its “€œanti-conservative effects,”€ I have no such qualms. Indeed, I”€™m positive that in the absence of what amounts to a government-granted monopoly for the Big Three, entrepreneurs would want to enter the market and, most likely, utilize in new ways the already existing auxiliary businesses and knowledge and skill base (though the UAW would simply have to go).

For years, the Big Three have produced big boats of the road, and in the past decade most of their sales have been in gas-guzzling SUVs and trucks. Needless to say, some drastic changes need to be made. The carmakers that are now thriving”€”that is, making profits and paying investors dividends”€”are companies like Tata motors: They”€™re lean and mean and offer vehicles that are small, cheap, and get great mileage.  

The Big Three business model of massive plants, massive unions, massive bureaucratic management structures is suited to the America in the immediate aftermath of the Second World War, when much of European heavy industry lay in rubble and there were no foreign competitors in the domestic auto market. For at least the past 30 years, this model simply cannot work.

Re-reading Scott’s and Tom’s pieces, I”€™m still struck by the question, What is so special about automotive workers that we need to make it a national priority to keep them in their present line of employment? 

According to government estimates, during the height of the housing bubble in 2006, construction comprised 5% of the economy. This past October alone, this industry shed close to 50,000 jobs, and certainly there’s more to come. Does anyone want to argue that we need to preserve the way of life of these workers by having the government fund the construction of more and more residential housing that we don”€™t need?

I”€™d imagine that with a little research, one could prove that in the late “€˜90s, more jobs in California were dependent on the dot-com industries than light manufacturing jobs are now dependent on the Big Three. Does anyone want to argue that the government should have stepped in and started subsidizing Global Crossing and so that their employees wouldn”€™t be affected and the Silicon Valley catering industry wouldn”€™t suffer loses in revenue? 

But, of course, the auto industry holds a particular sentimental value for the conservatives who want to “€œsave”€ it. In the comments board, Scott discussed his support of the bailout as part of his desire to preserve “€œa particular society that played a very important role in the best years that this country has seen.”€ I understand the emotional attachment; however, it’s delusional to think that we can will back into existence The Fifties by giving GM’s management billions in handouts.

And, more importantly, I seriously doubt that the Detroit bailout’s biggest supporter, President-elect Barack Obama, is much enthused with the idea of returning to the Age of Eisenhower. In my last article, I joked about the kind of PC car Washington might demand the Big Three build”€”Ester, The Post-Feminist Organic Diversity Mobile. I should have been more serious. With Greenspan’s bubbles bursting and Bush and Paulson having set the precedent for massive federal intervention, Obama is coming into office at a moment when it’s possible for him to install, with great public support, not just a new New Deal but the kind of nasty socialist economy he dreamed about as an undergrad. His proposed 50 billion to the Big Three would be a part of this. Obamanomics would not be good for either General Motors or America, and I”€™d expect self-described paleoconservatives to be some of the first to recognize this. 


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