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onlineuniversalwork

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onlineuniversalwork

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Incentives matter-

The big 3 aren't asking for a handout they are asking for loans, that they will pay interest on.

The interest costs alone is certainly incentive to innovate, American automakers are as innovative as the rest, offering hybrids and not just sardine cans but suvs also. Alone, the idea that foreign makers are outselling them is also incentive to innovate.

Compartive advantage-

Maybe it is less expensive to produce a car, when you aren't having to pay a real living wage with real benefits. Let's not forget the environmental standards that must be followed in the US that aren't enforced elsewhere. That doesn't mean the majority of Americans want to support other economies while their own suffers.

Effecient allocation of resources-

One thing that has contributed to the decline in the UAW is quite simply increased production effeciency. I mean really we are talking nearly 40 years, a lot of machinery that required people 40 years ago is now automated. Lastly part of that decline in membership IS due to down-sizing in the industry.

Economic Darwinism-

It is easier to be more effecient, again, when you don't have to be a responsible employer. Giving a loan does not say that the US does not stand for free trade, it says hey they are finally going to look out for their own. WHAT is the US trade deficit again? Not stand for free trade, puhleaze.

Benefits enjoyed by the few-

Do you know how much it will cost per capita for this? 49.50 less than fifty dollars per person.

Let me ask you this, What about the tax burden that we will see in the form of increase unemployment compensation, food stamps, welfare, medicade and schip. What about the loss of tax revenue in the form of payroll taxes and corporate taxes. Now let's look at the trickle down effect, what about the restaurants, grocery stores, clothing stores, parts stores, recreational stores (ie bikes, skates, skis etc) game stores, gas stations and any other retail outlet you can imagine? When those outlets lay off as a result of the loss of revenue from the auto workers, we get even more people in the line for the government to give them what they need to survive.

Moral hazard-

You again are speaking on the premise of a handout, not a loan with interest.

Would you let the people that raised you starve to death? The auto industry built this nation.

Market failure-

Whao! The financial industry and their greed and profiteering certainly did not deserve to be bailed out. They got money to open the credit markets and they went on vacations? It is the banks fault they have failed to thrive. Banks were around long before the auto industry, again the banks got greedy and stupid, now Americans are paying for it. The American auto industry is in the midst of reform, prime example being Ford, who by the way probably won't even need a LOAN from the government. Reform does take time, it doesn't happen over night. The auto industry is in fact more a victim of the market than the financial industry, if the financial industry had not collapsed, they would still be selling cars on credit.

Inflexible labor markets-

You are right, in that the union is part of the problem. Though not in any reasonable way.

That raises are demanded is part of the problem. That they protect their members standard of living, hooray for them. How about we cut your pay, because your neighboor decides they want to blog and write too, it doesn't matter that you just invested in that new office, just go back to working out of the spare bedroom, you'll be more competive if you do that.

ONCE AGAIN THE BIG THREE IS NOT ASKING FOR A HANDOUT THEY ARE ASKING FOR A LOAN ON WHICH THEY WILL PAY INTEREST. They unions should have to make concessions, ie not demanding raises every year. By the way bankruptcy will cost the taxpayers much more when we have to cover health care for retirees, unemployment and other such social benefits.

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So 300,000 jobs are being lost with the Big Three go bankrupt, I'll give you that. But, there are foreign companies like Honda in the south who would gladly welcome these potential employees. The depressed South could benefit particularly from increased production of foreign auto companies.

American needs change, a transition from the internal combustion engine to possibly the electric car. There are a bunch of start-ups out in Silicon Valley, funded by a bunch of venture capitalists already making efficient modes of transportation.

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Chester, while it's true that many auto workers would lose their jobs, bankruptcy for the Big 3 would not mean the end, only a reconfiguration. When they emerge from the other end, they will still require workers- and obviously the same workers who have been in the auto industry previously are the best candidates. There will be fewer and worse-paying auto jobs, but they won't simply disappear.

Alternately, we could simply keep bailing out Detroit until Japan succumbs to demographic collapse. We might not have efficiency but at least we have a comparative population advantage.

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I believe, however, that that could change. It is for this reason that I must dissent with his argument about Social Darwinism. While I do believe that foreign suppliers currently hold the advantage in the auto industry, I question wh/ether that will remain in the future. With public outcry over rising and falling gasoline prices, more innovative technologies are likely to take hold within the next decade. Even though the auto industry is not acting efficiently now does not mean that it will still be inefficient in the years to come. Provided that these firms increase their commitment to efficiency and innovation, it is possible for America to regain the advantage.

A 13 November article in The Economist supports my claim about America’s potential for growth in the auto industry. In the words of David Cole from the Center for Automotive Research, “The river [the Big Three] are swimming across has been getting wider and deeper, but the pot of gold on the other side has been getting bigger as well.” The article even supposes that the American auto industry will make a significant comeback by 2010 or 2011. With a growth in the market for cars in China and other countries, and the growth in demand for more efficient vehicles, the automobile industry will undoubtedly have many opportunities for change and for growth. With the aid of the auto bailout plan, the American industry will still be able to compete and possibly even gain comparative advantage in the eminent future.

The article is available at this link: http://www.economist.com/business/displaystory.cf….

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Thanks again! You've definitely given me more to think about and research! Thanks for keeping the conversation going! Happy Thanksgiving to you too!

Jason

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1. Too much household credit was one of the biggest factors in getting us into this mess. An economy build on 70% consumer spending and that financed by credit, is NOT sustainable, or an ideal position on the PPC curve. More of the same is NOT the way out.

2. The govt made arbitrary decisions in the financial bailout so why criticise it doing the same in the manufacturing industry? Eg Bear Stearns is let fail then the following day the Fed begging window is announced. Lehmann brothers is let fail, others bailed.

3.The financial industry was already grossly misallocating resources – 25% of the UKs company profits were coming from the City's financial firms, likewise in the US the banking industry was taking way more share of economy than ever before. For all the fuss over the auto-cos private jets, do you really think the Wall St bonus system is a better allocation of resources?

4. The fact that the bailout is now over $8t (yes its going up between posts!) which will be paid for by future generations in real taxes or by stealth taxes of inflation, means there is MASSIVE misallocation of resources as that money will be unavailable for more productive use elsewhere.

5. The bailouts are not because banks are ILLIQUID despite the press releases, its because they are INSOLVENT.

6. The money already put into the system also hasn't been used for extending credit as it was stated, but for paying bonuses and for buying up smaller financial firms.

7. The real problem is OTC derivatives, rarely mentioned. The BIS recently put their value at $1.1 QUADRILLION! As these start to melt down, we are all dead to some degree.

Anyway I'll stop this little rant!

Have a good thanksgiving!

Cheers

Darren

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The intent of a financial bailout, of course, is to increase the liquidity in the market, injecting cash into institutions whose purpose it is to, well, inject cash into the pockets of consumers and firms to finance consumption and investment. Government bailouts of banks is, I have to say, a little different than a bailout of a manufacturing industry that has failed of its own accord. (Not to say investment banks didn't make bad decisions that led to their own downfall as well). But if a financial bailout works, it will mean more credit available for the most credit-worthy firms and consumers. Once households have access to affordable credit again, THEY will be better able to decide which manufacturing industries will survive through their own consumption decisions.

When the government decides to chose which firms to bailout in the manufacturing sector, a large misallocation of physical resources results. Capital, land and labor resources in America will continue to be allocated towards the production of cars, which by most accounts we should NOT be producing based on the failure of American auto makers to compete with their foreign competitors. By propping up the banking industry, on the other hand, there is little or no MISallocation of physical resources, since the inputs and outputs of the banking sector are financial; cash and credit, which are needed to lubricate the REAL sector of the economy.

By supporting failing banks, the US government intends to make credit available to firms that DESERVE credit. If the auto makers were credit-worthy, they wouldn't be begging the government for a loan. For these reasons, I do believe that a bailout of banks is FUNDAMENTALLY different from a bailout of a manufacturing industry.

Thanks for your comments!

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http://bloomberg.com/apps/news?pid=20601109&s…

Since most of this money will never be seen again, and is not close to the final figure, to be arguing about $25b for the auto industry seems utterly trivial and pointless (in a macro-sense).

If AIG gets $150b, and Citibank $300b why shouldn't Detroit get another $25b? What's the difference? Does grosser mismanagement and greater losses qualify for govt help, while lesser mismanagement doesn't?

Darren

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Your most compelling argument is your last one on the "inflexible" labor markets. Businesses in the Free Market understand Economic Darwinism. Unfortunately labor unions do not. I am not opposed to labor unions, they have their place and they level the playing field against the wealthy capitalist who won the majority of the resources needed to produce. However, unions, like business have to stay competitive and at the risk of sounding like a team player, do what is best for their members by doing what is best for the business. We have a system in place that will work if we just let it. As you said, there are other businesses and entrepreneurs out there willing and able to assume control of a failed auto industry and make it competitive again. We need to stop thinking that we have to do things the way we did them 50 years ago and if other countries can build good, less expensive, fuel efficient, and desirable cars, so can we. I just showed my student the movie "Tucker", which brings this lesson home. The auto industry is acting monopolistic and they need world competition to make them better, not a government bailout. If you haven't seen Tucker, try it. It is a little old but a relatively true story.

Thanks

Paul

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"The Pension Benefit Guaranty Corporation (PBGC) protects the retirement incomes of nearly 44 million American workers in more than 29,000 private-sector defined benefit pension plans. A defined benefit plan provides a specified monthly benefit at retirement, often based on a combination of salary and years of service. PBGC was created by the Employee Retirement Income Security Act of 1974 to encourage the continuation and maintenance of private-sector defined benefit pension plans, provide timely and uninterrupted payment of pension benefits, and keep pension insurance premiums at a minimum. Defined benefit pension plans promise to pay a specified monthly benefit at retirement, commonly based on salary and years on the job.

PBGC is not funded by general tax revenues. PBGC collects insurance premiums from employers that sponsor insured pension plans, earns money from investments and receives funds from pension plans it takes over.

PBGC pays monthly retirement benefits, up to a guaranteed maximum, to more than 640,000 retirees in 3,860 pension plans that ended. Including those who have not yet retired and participants in multiemployer plans receiving financial assistance, PBGC is responsible for the current and future pensions of about 1,305,000 people.

The maximum pension benefit guaranteed by PBGC is set by law and adjusted yearly. For plans ended in 2009, workers who retire at age 65 can receive up to $4,500 a month ($54,000 a year). The guarantee is lower for those who retire early or when there is a benefit for a survivor. The guarantee is increased for those who retire after age 65."

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