Yesterday I implored the country not to save Detroit. Today Daniel Gross argues that Detroit’s Big Three Are a National Disgrace: But we still need to save them. This is the only part which I think is on point:
But General Motors wouldn’t be a typical bankruptcy. GM’s management argues that the very act of filing for bankruptcy eliminates the possibility of recovery since people would be reluctant to purchase expensive, long-lived assets (cars and trucks) from a bankrupt entity. And because of GM’s size and the place it occupies in the supply chain, the company’s failure would likely trigger the bankruptcy of hundreds of suppliers and other companies that rely upon it.
Suppliers would eventually shift to other car companies if the demand is still there, but it might take a lot of “creative destruction” along the way. The rest of the stuff again seems totally irrelevant, people outside of the Industrial Midwest have to look to their own needs (Florida & California real estate collapse anyone?). And while I think there’s no shame in a nation not having a car company, in a world of multinationals those arguments are specious anyhow.
Related: An evil libertarian, Why are we bailing out Detroit? In the comments, PalMD of Denialism says:
No one knows what to do with Detroit. Even some of my most conservative friends around here support an auto bailout. For folks who don’t live around here, it’s hard to imagine just how much every person in SE Mich relies on the auto industry. 30,000 lost auto jobs, which is likely to happen in the next few months, will ripple violently through michigan’s economy. Associated industries, corner stores, hospitals, you name it, everyone is affected.
It is entirely rational that people in Michigan, no matter their “principle,” should support a bail out. It is their only hope, even if it isn’t a good hope. Michigan will take a hit in terms of taxation, but, the risk of the loan will be distribution across all 50 states. That’s a big “win” for Michigan. But what’s in it for those of us outside of Michigan? Auto industry think tanks put the number of rippling job losses on the order of millions. But there are already millions of unemployed and underemployed people throughout this country. Think about the construction industry in California, Nevada and Florida which is in meltdown. People working in construction make good money as blue-collar work requiring minimal skills goes, but they don’t make auto-worker money. Nor do they have benefits usually. Who is helping them now that they’re out on their ass? Truthfully, they lost a lot less than auto-workers would, but is that a rationale for why we should be giving money to corporations which employ auto-workers?
I don’t begrudge Michiganders for making the case for the bail out. You do what you have to do to have a hope of keeping your house, sending your kids to a good college, maximizing the amount of healthcare that you have access to. Rather, the focus here should be on those outside of the industrial Midwest. Wouldn’t $50-200 billion extra dollars go a long way across many states in terms of building up infrastructure? Pennies add up to dollars, and dollars add up to tens of dollars, which add up to thousands of dollars. If you are a social democrat the auto industry bail out will continue to prop up the mini-corporatist social democracies of GM, Chrysler and Ford. But what about the hundreds of millions of other Americans who don’t have the privilege of being a member of the UWA? For redistribution of wealth to be a sellable proposition it has to be grounded in some sort of conception of fairness and just desserts. If them, why not everyone? If Michigan, why not Iowa, why not Florida, why not Mississippi? Because the family farm or condo construction business isn’t culturally iconic?
More: Leverage:
3 — A lot of this talk has an air of socialistic hubris about it. If this line of thinking were correct and the primary impediment to the production of technological miracles was a lack of government leverage, then state-owned enterprises would have been a smashing success. In reality, outside of a relatively narrow range of utility-type activities, they’ve been flops. If the negative externalities associated with carbon emissions were correctly priced, I’m quite sure that would lead people in various places to develop lower emissions cars. But is just sort of pointing at GM’s engineers and telling them “make low-emissions cars!” really going to lead to the intended result?
Yes. Magical thinking is back! What’s a few hundred billions to assuage our bleeding hearts? I understand why Michiganders are going magical; magic is their hope. But other people don’t need to put their faith in magic, it never did anything for us for thousands of years, why now?
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