By on November 6, 2009

Anzio.

Diners at the Motown bailout banquet are back at their tables, their plates groaning under the weight of federal “investment.” They’re just now beginning to tuck in, spending your hard-earned money on various plans to achieve what Oliver called “that full-up feeling.” The reluctant chefs (70 percent of American opposed GM and Chrysler’s second bailout) are showing signs of nausea. While the anti-GM/Chrysler bailout backlash has not been statistically analyzed (I wonder why), anecdotal evidence suggests that at least a small percentage of car buyers are shunning the welfare queens’ products as a protest against their government “affiliation.” Meanwhile, political analysts on both sides of the spectrum continue to debate the elections in Maryland and New Jersey, wondering if voters are rejecting the Obama administration’s heavy-handed economic intervention in the U.S. economy. Did I say “heavy-handed?” Plenty of pundits believe that not only did Uncle Sam have every right to nationalize GM and Chrysler, but they didn’t go far enough. What’s that all about?

There is a line of thought that says the twenty-five (now four) member Presidential Task Force on Automobiles should have laid waste to GM’s entire management structure—not just its failed CEO—and then rolled-up its sleeves and taken charge of GM. Process, products, marketing, everything. They consider the GM bailout, and the “assistance” provided broke-ass banks, timid half measures. Government Motors should BE government motors. For a while, anyway.

[Chrysler gets a pass on this hands-on meme, thanks to blind faith in its new Italian overlord, the charismatic Fiat boss Sergio Marchionne.]

Here’s what New York Times columnist Paul Krugman had to say on the meta-level:

The World War II battle of Anzio was a classic example of the perils of being too cautious. Allied forces landed far behind enemy lines, catching their opponents by surprise. Instead of following up on this advantage, however, the American commander hunkered down in his beachhead — and soon found himself penned in by German forces on the surrounding hills, suffering heavy casualties.

The parallel with current economic policy runs as follows: early this year, President Obama came into office with a strong mandate and proclaimed the need to take bold action on the economy. His actual actions, however, were cautious rather than bold. They were enough to pull the economy back from the brink, but not enough to bring unemployment down.

Thus the stimulus bill fell far short of what many economists — including some in the administration itself — considered appropriate. According to The New Yorker, Christina Romer, the chairwoman of the president’s Council of Economic Advisers, estimated that a package of more than $1.2 trillion was justified.

Meanwhile, the administration balked at proposals to put large amounts of additional capital into banks, which would probably have required temporary nationalization of the weakest institutions. Instead, it turned to a strategy of benign neglect — basically, hoping that the banks could earn their way back to financial health.

For me, this is some scary-ass shit. The glass isn’t half full; it isn’t even a quarter full. It’s virtually empty! And fill it we must! Failure isn’t a sign that we were misguided. It’s a sign that we were too timid! We must re-double our efforts and INCREASE federal intrusion.

Do you agree? Should the feds have taken full control of GM and Chrysler? If the automakers face cash starvation yet again, should we up our “investment”? And if not, at what point do you kick them out of the cafe?

As for the Battle of Anzio, commanders who fail to achieve an objective tend to blame limited resources rather than their own lack of skill and resolve. Winston Churchill (and military historian John Keegan) laid the blame for Anzio’s failure on the timidity of Major General John P. Lucas. The larger question remains: should the allies have attacked there in the first place?

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60 Comments on “Ask the Best and Brightest: Have the Feds Done Too Much or Too Little for Detroit?...”


  • avatar
    Guzzi

    Does Jeff have the day off?

    Oh, btw, I drive an S-class. I think that needs to be said.

  • avatar

    The Government has ABANDONED Detroit.

    The city is in a state of lawlessness because quite frankly, NO ONE CARES ABOUT A BUNCH OF POOR PEOPLE.

    Michael Moore shed light on the problem – “de industrialization”. There are no jobs there and from the last statistic I saw, Detroit has an unemployment rate as high as 1/4 with “underemployment” being even worse.

    As far as I’m concerned, if the Obama administration could come up with a way to FORCE factories to re industrialize Detroit, or create green jobs there…he’d EASILY win my vote again REGARDLESS the bullshit that Fox spews about “constitutional power limiting government – and government not being allowed to interfere in the “free market”.

    Frankly – I doubt our fathers of the constitution would like to see an entire state suffering while we are waging wars on foreign soil over ABSOLUTELY NOTHING BUT A GRAB FOR OIL. AND THAt’S EXACTLY WHAT IT IS.

    So again, lets give Detroit some of the TARP money to get people back to work there.

  • avatar

    Guzzi

    You got 4 Matic?

    How about multicontour seats and distronic plus?

  • avatar
    mtr2car1

    To me, the feds have found a way to be “a little pregnant” with GM at least.

    They own way more of the automaker than I own of my house yet are afraid to put a hole in the wall to hang any pictures – step up and do something or step out and give me (what’s left of) my money back.

  • avatar
    Pch101

    Cash without strings is never a good idea. No private sector investor would have committed that much money without strings; the government should be no different.

    The optimal solution would have been to find a new operator and to use government loan guaranties instead of direct government capital. But since neither of those things happened, the feds should use its power of controlling the board to kick some serious ass and do the utmost to increase the likelihood of recouping our money.

    I suspect that Rattner et. al. shopped GM around and had no takers, at which point they threw up their hands and gave up. That’s a shame. However, they have to deal with conservative critics, who seem to believe (for no particularly good reason) that money without strings is more in line with capitalism, even though it isn’t.

  • avatar
    greenb1ood

    While I don’t agree at all with the underlying principle of getting involved in the first place – GM SHOULD BE DEAD – I agree that half measures just increase the size of the money pit.

    If you’re going to go through all the trouble of ignoring bankruptcy laws, funneling billions of dollars into a private business, and overreaching the powers of government so great as to personally fire the CEO of a company…go all the way.

    Plow through the entire executive team, bring in a new group of outsiders into the executive ranks (see: Kids, Whiz) and pull this carcass together into something that might survive long enough to prop up a bad economic situation and pay back the money *invested*.

    Instead, the Obama Administration brings in an investment banker (major Dem contributor) to head the PTFOA, fires one guy, promotes a lifer, throws billions at it, and walks away.

    Personally, I would have brought in people like Lee Iaccoca, Roger Penske, and Warren Buffett to man the board of directors with a mandate to serve your country by advising on the best way to fix this mess immediately.

    The one thing I will say about the auto bailout. Dollar-for-dollar may save more jobs (at least over 5 years) than the stimulus money for new projects generates.

  • avatar
    Neb

    Well, Robert, you seem to be asking two different questions here (maybe this is just because you included Paul Krugman’s meta-analysis, but still…) 1) Is federal stimulus spending in general good? 2) Is the federal stimulus spending re the auto industry good?

    I never thought that the government should administer Chrysler and GM (in fact, I thought the fed was going to let Chrysler simply vanish) but I did think that once they were directly involved, they would do what actually is needed to be done to give the companies the best shot they had at becoming viable again. With GM, I assumed they would recognize the toxic, incompetent management culture as a major factor for this collapse, and purge the lot of them. I also figured that they would let the bankruptcy terminate all those unnessessary dealerships, and appoint new upper management to guide GM through the bankruptcy and back into solvency again. I figured that they would also insist on a Healthy percentage of manufacturing be done stateside, or at least in N. America. Of all these hopes, only one came true. Like the bank bailouts, the fed seemed to care more about a return to the (completely untenable) status quo rather then making the serious reforms that were needed in the long term.

    As the bailout as it stands, I can’t help but feel pessimistic. Like Geitner pointed out in his article, both Chrysler and GM being liquidated would be devastating to the economy, so in the interests of turning this recession around, the bailout makes sense. But at the same time, I agree with most of the TTAC’s trenchant criticisms about these bailouts. Really all they’ve done is moved the economic pain a little down the road, where hopefully the economy will be in better shape to handle it. You could argue that this is a good thing…but it seems to me this little good thing was achived at the cost of a slightly more difficult, but much greater thing.

    Also, question for you, Robert: do you believe stimulus spending in general is a good thing? (If this crosses TTAC’s political line, then nevermind.)

  • avatar
    bucksnort

    The basic problem with the automobile industry has not even been addressed, much less solved. It is a classic case of excess capacity. There are too many automobile plants, too many brands, and too employees chasing too little demand, but no country wants to see their brands fail and their factories close. Instead, goofy politicians pontificate on the need to save these brands, factories, and jobs along with the kick-backs into their election slush funds.

    The taxpayers’ cost to “save” these jobs is obscene. GM is probably still to large a company by half. Fiat/Chrysler is a bad Frankenstein joke.

    What we are seeing is politics, not economics. It will fail.

  • avatar
    KixStart

    Attack at Anzio? Sure. Yes, the followup to the success was poor but this indicates poor planning in advance, too. The critical zone is the beach… you must get off it, you can’t just lie there and wait for the enemy to reinforce what he has. Either the commander wasn’t the right type or the plan and support were poor.

    We didn’t make the same mistake in Normandy but then we didn’t have many choices, either.

    There are two considerations to economic stimulus:

    1. Stem job loss and manage (restore) consumer confidence. Helping one of the nation’s largest industries through a crisis is a reasonable tactical plan.

    2. Improve the fundamentals of the infrastructure and the economy to set the stage for sustained growth. In addition to the wages generated by this activity, we hope to improve the overall efficiency of the US in some useful way, so as to have an edge over other counties in the international marketplace. As far as I can tell, the stimulus plan is mostly a failure in this regard and Krugman’s earlier writings suggest he knows this pretty well and that this is the failing he’d like to address.

    Some years ago, Krugman wrote a pretty good piece on our foreign debt crisis. He observed that our economy seemed to be at least somewhat dependent on building each other bigger and bigger houses, using money supplied by the Chinese. That was unsustainable. He also mentioned an earlier episode in American history where foreign debts were run up but the end result was an economically more powerful America. We used foreign money to build the American railroads. That infrastructure development opened up the interior and allowed goods to more readily get to markets and really did a lot to increase prosperity.

    Just a few years ago, we saw a new boom, based entirely on a new infrastructure… the Internet. People tend to focus on the bust of a few years back but that was bubble-driven; there are still far mroe good, new jobs as a result of the development of the Internet than the bust cost and this site would’t exist without it.

    We need to find and fund 21st century infrastructure projects that would do the same thing. More economic stimulus that represents investment, rather than expense. I’d start with the electric grid. We could use a way to ship power from where it’s windy or sunny to wherever the electric demand may be… this will lead to good manufacturing jobs, too. I’d also favor projects that would reduce oil imports, bearing in mind that a major use of oil is still heating oil. Insulation, anyone?

    There’s also something to be said for projects that reduce natural gas use (more solar power). Reducing the monthly gas bill burden frees up consumer spending for other things (natural gas producers will suffer and gas exploration will be reduced… this is probably OK) and it will tend to keep gas prices low much farther into the future (which is good because natural gas plants will be helpful in providing peak power when the green sources are temporarily unavailable).

    Some kind of stimulus is going to be helpful in getting there. Tax credits may help but many people are short of cash and credit right now, so grants or other methods of direct spending probably make more sense.

    $1.2 trillion? Sure. Bring it on.

  • avatar
    2009Refugee

    Good ‘ol Krugman doubling down on the Keynes. Deluded old fool thinks this is about creating a viable company from the rubble.

    No strings attached? Are you serious? There are strings everywhere, and they all lead to the same place – keep the carcass viable long enough for the 20-year and up UAW to get across the finish line, keep their pensions and benefits whole, and then run. Their kids took the money and ran when the buyout money was flying, so who gives a ^&* about long-term viability?

    The rest is just details.

  • avatar
    grog

    Imagine that, RF disagreeing with Paul Krugman. I’m shocked, shocked I say!

    That one wins the week’s Claude Rains Memorial gambling awareness award.

    Getting back to the pertinent question: no, the Feds shouldn’t have taken direct control of the Big 1.8. Why? For starters, we don’t have an effective mechanism to do that ala how the FDIC takes control of failed banks (funny how nobody here raises the usual glibertarian shriek of horror when that happens). Thus, if full gubmint takeover occurred, it would have been done on a “makethisshitupaswegoalong” plan and *then* it would have lived up to every “the gubmint is always bad” mantra held by the TTAC echo chamber, and in this case, most likely with good reason.

    I tend to agree with greenb1ood in that the Administration should have brought in an outside board tasked with sweeping out the corporate inbreds and work on fixing many of the institutional issues long-term. Easier said than done but keeping mostly insiders nominally in charge doesn’t bode well for seeing any real change.

  • avatar
    Pch101

    There are strings everywhere, and they all lead to the same place – keep the carcass viable long enough for the 20-year and up UAW to get across the finish line, keep their pensions and benefits whole, and then run.

    This sounds like a terrific short story. And like short stories, it’s fiction.

    The VEBA got stock which is basically worthless unless there is an IPO to give it some market value. The alternative would have been for the feds to directly absorb the obligations as part of the Pension Benefit Guaranty Corporation, which would have made the taxpayer responsible for the whole thing. If you think that the latter option was going to be a bargain, think again.

  • avatar
    mwilbert

    You shouldn’t talk as if the bailout and the stimulus were the same thing. The bailout was sort of a component of the stimulus, although the money wasn’t technically stimulus (ARRA) money, but the stimulus was certainly not all (or even mostly) bailout.

    So I claim it is perfectly reasonable to say that the stimulus should have been much bigger (and it should have, IMHO) and not approve of every aspect of it. There are lots of pieces of the stimulus package that I don’t like, but it isn’t like you can get a logical piece of legislation through Congress.

  • avatar
    sean362880

    I don’t think that the editorial relates to the auto business particularly well. Nowhere does Krugman mention autos, GM, Chrysler, etc. That said I can see how RF, an automotive blogger, might interpret it that way.

    I more or less agree with Krugman on this, and the reason is that the economy is doing pretty much exactly what he said it would back when the stimulus was passes at the beginning of the year. To sum it up,

    “The good news from the new GDP report is that the fiscal stimulus seems to be working just about the way a sensible Keynesian approach says it should. The bad news from the new GDP report is that the fiscal stimulus seems to be working just about the way a sensible Keynesian approach says it should.”

    http://krugman.blogs.nytimes.com/2009/10/30/stimulating-thoughts-3rd-quarter-edition/

    Welcome to stagnant economic growth, everybody. It’ll stay awhile.

  • avatar
    tparkit

    The best, first step toward cleaning out the deadwood at GM would have been a true bankruptcy filing (not the sham proceedings which took place). Amount of government intervention required: zero.

    BTW, at Anzio, initial inaction by Gen. Lucas enjoyed the support of Mark Clark — he of Rapido River fame. Months later, Clark also dragged his feet on a second breakout from Anzio so that his forces could avoid the obligation to link up with the breakout. Clark’s goal was to divert this forces to capturing Rome (a lightly-defended, strategically unimportant goal) so that Clark could achieve a cheap but glitzy photo-op. This allowed German forces Clark might have trapped to escape.

    Here is what happened as US forces approached the city on June 4, 1944:

    Corps Commander General Keyes approached Gen. Frederick, after Frederick’s forces had been held up outside city limits by German resistance. Frederick was planning a maneuver to flank the German positions.

    Keyes: What’s holding you up here?

    Frederick: The Germans, Sir.

    K: How long will it take you to get across city limits?

    F: The rest of the day.

    K: That won’t do! General Clark has to be in the city by four o’clock.

    F: Why?

    K: Because he has to have his photograph taken… France is going to be invaded from England. We’ve got to get this (the capture of Rome) in the newspapers before then!

    But don’t blame Keyes for this; Clark’s commanders were disgusted by Clark’s actions.

  • avatar
    Engineer

    Frankly – I doubt our fathers of the constitution would like to see an entire state suffering…
    That entire state made a humongous bet on the auto industry. For a while the bet paid out in spectacular fashion. Instead of diversifying, the entire state doubled down on the bet.

    Now the risk of this strategy is coming into full view. It should have been obvious all along, but it seems that the dangers were being ignored at best.

    Why do you expect the rest of us to bail you out? Or was that Plan B all along?

  • avatar
    Geotpf

    I don’t think Krugman was talking at all about the auto bailouts.

    Personally, I think there wasn’t enough money in the stimulus for schools/roads/bridges/freeways/mass transit/universities/etc. I would like to see it increased. Doesn’t mean I think said additional money should go to GM (or, as Krugman seems to want, the banks).

  • avatar
    mtymsi

    Having lived in metro Detroit for 55 years I can tell you Detroit’s problems run far deeper than the domestic auto industry. The auto industry’s problems merely exacerbate Detroit’s problems. I have no clue when or even if Detroit will begin any meaningful recovery and don’t expect any forward progress in my lifetime. The city is all but completely trashed, over 10,000 vacant houses and more vacant land then many cities with larger populations have in total land. Deeply in debt, continually losing tax base, for the most part very unsafe with the exception of the core downtown and no way to stem any of it. Not even the money to demolish the vacant houses. Keep in mind all of this started during very good times for the domestic auto industry. IMO Detroit is totally hopeless.

  • avatar
    Arminius

    Perhaps Michigan should try lowering taxes and other barriers to business first before asking for handouts.

  • avatar
    2009Refugee

    At the point where C11 was declared, any collective bargaining history was also worthless, by historical precedent. Yet somehow it lives. With some concessions, granted, but the bargaining agent is still there, and actually has higher claim than historical precedent.

    I don’t disagree that the VEBA is worthless without an IPO – but the problem with this situation is that precedent/rule of law/whatever you want to call it keeps getting stood on its head. And the only common theme is that every action has a magical consequence – the UAW is spared any fallout.

    So yes, they VEBA is kaput without a successful IPO, but then again it was all kaput if GM went bankrupt. And here we are.

  • avatar
    Pch101

    So yes, they VEBA is kaput without a successful IPO, but then again it was all kaput if GM went bankrupt.

    The latter point is incorrect. The burden would have been transferred to the PBGC, which means the taxpayer.

    The pensions of bankrupt companies do not simply disappear, but go onto the federal balance sheet. The implications of that should make it clear why it was preferable to shift the burden back to the new company. The alternative was not for it to just vanish.

  • avatar
    eggsalad

    How come nobody cried when all television manufacturing went overseas?

    “Cars aren’t televisions!”, I hear you say?

    Why not? How many television manufacturing jobs left the US when nobody believed they could make a profit selling American-made TVs? Lots.

    Zenith, Magnavox, et al simply closed up shop and sent everyone home. Few people outside the industry wept.

    Despite the unavailability of an American-made TV, Americans still buy TVs. Companies doing importing and distribution still make money in the US.

    Just as with televisions (and so many other things), car companies in the US will eventually decide that American labor costs too much and move production elsewhere. Jobs are (again) lost.

    I’ll call it a descending spiral of doom.

  • avatar
    sutski

    @greenblood

    “Personally, I would have brought in people like Lee Iaccoca, Roger Penske, and Warren Buffett to man the board of directors with a mandate to serve your country by advising on the best way to fix this mess immediately.”

    I would say them above and then Tiger Woods playing a few holes with the Pres’ after arriving in the newly released GM electro-car!!

    @eggsalad

    ouch, inconvenient, but sadly true I fear.

  • avatar
    troonbop

    I find it fascinating this debate is always joined on the idea of whether or not it should be done, sometimes couched in moral terms (Iraq!) or economic terms. (And with occasionally inspirational exams like Anzio.) It’s irrelevant, although i suppose it makes for a more pleasant debate. This is being done with borrowed money and the wall is approaching quickly. Talk amongst yourself to pass the time.

  • avatar
    cardeveloper

    Have the Feds ever done anything well?

    Instead of bastardizing bankruptcy law, they should have let Chrysler go C7, and maybe, maybe GM would have accomplished C11, with some real change. Govt has no business, running a business. All they have accomplished is spending money supporting bad business practices.

  • avatar
    GS650G

    We get to vote on the bailout with our wallets. I know so many people who won’t buy from these two because of what happened. Even apolitical types see it as wrong.

    Good luck with the New Ram,FIATs, and everything else.

    The Volt is a joke that hasn’t been told yet.

  • avatar
    Hognose

    Re: “The Government has ABANDONED Detroit.”

    Nope. Everybody but the government has abandoned Detroit. The only industry, the only income, the only hope is welfare of one type or another. The people left there, not surprisingly, are the sort of leeches attracted to welfare, and their nihilistic spawn.

    “The city is in a state of lawlessness because quite frankly, NO ONE CARES ABOUT A BUNCH OF POOR PEOPLE.”

    No one cares about a bunch of whiny snivelers going, “Gimmme, gimmmee, gimmee.” Get a job. It may require you to move somewhere where there’s work. You probably won’t get Michigan’s $12 minimum wage or whatever it is, for unskilled labor. (That’s done wonders for job creation, as have punitive corporate taxes. Those Michigander policies have created tens of thousands of jobs — in other states).

  • avatar
    2009Refugee

    Kaput as in ‘ there goes the whole culture’. I understand the rest. Uncle Sam has very rarely gotten in the middle of the process. Companies go bankrupt and PBGC picks up what it can.

    What’s different here – and what makes the future hard to predict – is that Uncle stepped in and basically told one of the parties with skin in the game that they get to be first among equals, and the usual rules would not apply.

    The bailout could have happened and the VEBA could have been set up, with the collective bargaining agreement thrown out. Reset, try again. It didn’t happen that way.

  • avatar
    jonotron

    The plight of Detroit is of great interest to me. I live in Glasgow, Scotland which suffered a very similar decline. At one point a city of 1.2 million and a huge engineering and industrial powerhouse, Glasgow is now a city of 650,00 and only a handful of heavy engineering works (in the form of military shipbuilding) remain. Glasgow has successfully re-invented itself as a commercial and cultural centre. Although still a city with terrible problems (large areas of desolation and pockets of deprivation and crime), Detroit could learn a lot about re-invention from Glasgow

  • avatar
    AG

    Its like buying stock on margin. You put $2000 in and buy 10k at 5-1. You lose it all. You do it again. And again. And again. Until eventually you’ve lost 10 thousand dollars, enough to have been able to trade margin-free and not be at risk of a margin call.

    That’s why this whole Clintonian brand of corporate centrism is such a bad idea. Either nationalize them, or let the private sector eat the losses its responsible for. Instead we get a bunch of corporate crooks lecturing us about the virtues of private enterprise.

  • avatar
    skor

    I fired an M1919(like the one in the picture) a few years ago at one of our clubs semi-annual machine gun shoots. The one I fired was rechambered to fire 7.62X51 mm NATO from the original WWII 30-06 Springfield round. Nice gun. If the economy continues its downward spiral, a gun like that might come in handy.

  • avatar

    Hognose

    You can call these people welfare leeches but I guarantee if JOBS WERE ACTUALLY PUT THERE people would work them.

    Reagan really fucked this country up. Someone ought to pass a law against outsourcing. The only winners are the corporate elite.

  • avatar
    cdotson

    Meanwhile, political analysts on both sides of the spectrum continue to debate the elections in Maryland and New Jersey…

    Virginia and NJ held elections, not Maryland. Just sayin, as a current Virginia and former Maryland resident.

  • avatar
    guyincognito

    I think the Feds have done too much. I actually liked Paulson’s original idea to solve the credit crisis. He was going to buy the illiquid assets and then auction them, thus re-establishing a market value for those assets. We may have even made a profit. Of course, once congress got wind of the dollar amount being floated, it was all over.

    The wind down of GM and Chrysler could have worked the same way. During bankruptcy the government could have provided DIP financing to soften the blow and keep the factories and suppliers rolling while they split up and auctioned off the assets. Yes many plants would have had to close and I’m not saying it wouldn’t have been painful but it isn’t like no one would step up to ~%20 of the US market.

  • avatar
    jacksonbart

    The government has spent enough of our money before we have made it or they have taxed it. What do they think, I am gonna triple my salary or are they gonna quadruple my taxes?

  • avatar
    derm81

    What is the argument? Detroit (the American Auto Industry) hasn’t received enough bailout funds. OR, the CITY of Detroit hasn’t received enough funds? When you say “Detroit” do you mean the auto industry? OR do you mean the actual City of Detroit? Please be more specific.

    The City of Detroit is hopeless, at least for now, but SE Michigan as a whole has a chance to reform and focus on other strengths. Contrary to what posters who live in DC and Phoenix think, the CITY of Detroit doesn’t really have much going as far as the auto industry. Couple of assembly lines, GM HQ and some bullshit tool and die shops along Mound Road and that is the auto industry in the CITY of Detroit.

    As a matter of fact, I doubt the CITY itself has many residents who work directly in the auto industry anymore. There may be a lot of retirees but anyone with cash and a solid mind (black or white) is fleeing or has already fled the city. As a matter of fact, 40 years after white flight, Detroit is now witnessing black flight.

  • avatar
    Tommy Jefferson

    Welfare causes weakness and dependency.

    Surprise. Surprise. Surprise.

  • avatar
    greenb1ood

    @Flashpoint
    You really have no idea how global economics works, do you? Companies were always going to go where the cheapest labor was available. Ban outsourcing and the entire company will move. Ban foreign imported goods or levy heavy tariffs and over time the US becomes…Cuba.

    Why? The United States does not manufacture enough oil to sustain our population for even a month. We need foreign oil, if the price of every Made in China product suddenly rose by 85% because it had to be made in the USA at US labor wage rates, the economy would screech to a halt as inflation shoots to insane levels. Think $15 per gallon gasoline and $20 pairs of socks.

    What we missed in this great tragedy of global economic shift was the opportunity to make America the long-term education capital of the world.

    We were there in the 70’s and 80’s – we had the best Universities in the world, teaching some incredible stuff.

    Alas, the public school system became a bastion of bureaucratic mis-management and killed off innovative teaching principles along with the baby boom generation’s obsessive need to be their child’s bestest friend instead of their parent.

    Smart kids in school and educated individuals became the targets of ridicule and the level of education has continued it’s decline, bringing down the education level of incoming college freshmen to a point where Universities started lowering their expectations.

    Now many of the students who used to come from Asia and India for a world-class education are beginning to stay home, and the beacon of hope that was a knowledge-based economy has been replaced by government stimuli, corporate bailouts, religious anti-government zealots, and choose your version of reality cable news.

    Rome is burning and unless we get the country aligned to the principles of pushing education, innovation, and entrepreneurship as a cultural imperative, the US will look a lot like Post Cold War Russia in 20 years and our standard of living will have peaked as a nation around 2005.

    Maybe I’m using some exaggeration and hyperbole here to get my point across, but I’m so tired of the “Blame it on Reagan!”, “Blame it on Clinton!”, “Blame it on Bush”, “Blame it on Obama” political flame wars that I could puke.

    Blame it on a country that got it’s priorities screwed up after the 60’s. We landed on the moon before the personal computer, the internet, the cell phone, the GPS unit, and scads of other technologies were even contemplated, and our greatest scientific accomplishment since is…what…the internet and the Chevy Volt?

  • avatar
    asapuntz

    I think the gov’t went about the bailout the wrong way. The Big 3 were always complaining that the burden of UAW benefits was making the uncompetitive. Not sure I believe it, but the labor costs in transplants as well as foreign plants is probably lower, so …

    The gov’t should have offered to take over the employee health and pension benefits. In exchange for a payroll tax (from current employees) and whatever assets were backing the benefits. The benefits could have been scaled back to sufficient-but-not-lavish, and the gov’t would have had its health care pilot program.

    Automaker costs would be reduced, all those liabilities would come off their books, reducing the chance of bankruptcy. But if it did happen, there’d be much less motivation for taxpayer-funded heroics.

    $3 gas isn’t doing them any favors either, since the market is confused: consumers don’t know whether to go back to the SUVs they love, or downsize. Automakers don’t know whether to build SUVs or leverage their Euro designs which compete well in $5/gal markets.

  • avatar
    Dynamic88

    # jonotron :
    November 6th, 2009 at 6:35 pm

    The plight of Detroit is of great interest to me. I live in Glasgow, Scotland which suffered a very similar decline. At one point a city of 1.2 million and a huge engineering and industrial powerhouse, Glasgow is now a city of 650,00 and only a handful of heavy engineering works (in the form of military shipbuilding) remain. Glasgow has successfully re-invented itself as a commercial and cultural centre. Although still a city with terrible problems (large areas of desolation and pockets of deprivation and crime), Detroit could learn a lot about re-invention from Glasgow

    Interesting. Perhaps there are some useful lessons to learn from Glasgow’s experience.

    White flight to the suburbs was already underway by the time of the ’67 riots, but after the riots, Detroit became almost 100% black. It remains so today. White people are scared to cross 8 mile road, so this will make it dificult for Detroit to re-develop, at least if White people’s money is needed. But perhaps there is some way for the Black residents to use the lessons of Glasgow by and for themselves?

  • avatar
    Dynamic88

    Re: Auto industry.

    The problem continues to be the quality/reliability of the cars. Detroit hasn’t learned the lessons that Demming taught as well as the transplants learned them. The D3 all had Demming come teach them in the early ’80s, but the sense of urgency only lasted a couple years.

    It’s the cash on the hood that is destroying profits. If the Chryco/GM cars were as good as the transplants -verifiably through sources such as True Delta, or even just word of mouth – then the cash on the hood wouldn’t be necessary.

    It doesn’t really matter whether the companies are left in the hands of GM/Chrysler lifers, or control is taken by the govt. If the people in charge cannot identify the real problems, and do something constructive about them, then failure is the only option.

  • avatar
    derm81

    Interesting. Perhaps there are some useful lessons to learn from Glasgow’s experience.

    A lot of people have looked at Glasgow, Pittsburgh and other cities for answers. However, detroit is rteally in its own class and a lot of its problems are either unique or extreme. Take white flight for example….dozens of big cities experienced some white flight but none on the scale of that detroit witnessed.

  • avatar
    mtymsi

    In Detroit’s case it goes beyond white flight. Blacks that are economically able have fled Detroit as well. The only residents of Detroit are those that can’t afford to move elsewhere. Having been a life long resident of metro Detroit I will not for any reason go to Detroit, it is just too dangerous.

  • avatar
    George B

    # Pch101 :
    November 6th, 2009 at 3:35 pm

    …The alternative would have been for the feds to directly absorb the obligations as part of the Pension Benefit Guaranty Corporation, which would have made the taxpayer responsible for the whole thing. If you think that the latter option was going to be a bargain, think again.

    Actually I do think it would have been a bargain to separate retiree cost from other GM and Chrysler problems. Bypass both the corporations and the UAW and give the retirees some combination of federal employee benefits and cash buyout.

    Once retiree costs are lifted from GM and Chrysler, they would then need to go through an honest bankruptcy process with massive restructuring in an attempt to make a viable business. Since the financial system was a mess in the fall of 2008, I could see the federal government stepping in to guarantee loans. However, the end goal has to be an attempt to restructure into a viable business. We didn’t get an honest bankruptcy in 2009.

  • avatar
    Matt51

    1. Cover all Americans under Medicare – this removes the cost burden from business, and shifts it to the taxpayer. This allows American industry to compete more effectively. Include dental care, as a preventive measure to control long term health care costs.
    2. Replace six sigma in the office with Deming’s Principles.
    3. Make the government hold all pension funds, don’t let companies control the money. Have instant vesting.
    4. Provide tax incentives to reduce outsourcing.
    5. Have the government share the cost of continuing education for engineers and scientists, to make sure the US is technologically up to date.
    6. Let companies fail. It makes a good example.

  • avatar
    Pch101

    I do think it would have been a bargain to separate retiree cost from other GM and Chrysler problems.

    You’re missing the underlying financial problem — the PBGC does not have enough money to handle it. It is supposed to be self-supporting through premiums paid by the pensions, but in practice, it could probably not handle more hits such as adding GM and Chrysler to the roster, as the premiums paid to date haven’t been adequate. Like the FDIC, it is underfunded and the government has gone to great lengths to limiting its exposure, because it doesn’t have the money.

    We didn’t get an honest bankruptcy in 2009.

    The BKs did what they are designed to do — debt was discharged. There was nothing “dishonest” about that, and I do hope that this thread doesn’t degenerate into more misrepresentations of bankruptcy law or what happened in this instance.

    What happened in the case of GM is that the management changes were not deep enough to fix the cultural problem within. Since it is fairly clear from Rattner’s comments that the task force understood that there was a cultural problem, you have to wonder why they didn’t bother fixing it.

    I suspect that they were caught between a rock and a hard place. On one hand, slicing away with a bigger machete would have increased the likelihood of getting our money back. On the other, it would have increased the government’s involvement, which in turn would have burdened the administration with more of the fallout if it fails (and the whole thing could still fail.) On top of that, the right would scream about “socialism”, even though there is nothing particularly capitalistic about handing out money without strings.

    We’re getting the bailout we deserve. If the political situation in this country wasn’t so raucous and ridiculous, perhaps it could have been handled more intelligently with an eye for making the best business decisions instead of managing the politics.

  • avatar
    PeteMoran

    Nothing short of a complete structural re-invention is going to save the USofA, starting with lynchings for the Wall Street gamblers.

    Also, what Matt51 said.

  • avatar
    geeber

    Matt51: 1. Cover all Americans under Medicare – this removes the cost burden from business, and shifts it to the taxpayer. This allows American industry to compete more effectively. Include dental care, as a preventive measure to control long term health care costs.

    This would make no ultimate difference in costs; studies have shown that the taxes necessary to support a truly nationalized health care system would cost companies just as much as paying for the benefits themselves. The key difference being that companies would have LESS control over the taxes that they pay under a national plan than the current system.

    Also note that any national plan would provide fewer benefits than that currently enjoyed by UAW members (not to mention most public employee unions). These unions would still demand that the company (or municipal government) supplement their national plan with a company plan, thus ensuring that some cost disadvantage remains in place. The national plan could forbid the employer from providing any supplemental insurance; such a provision is unlikely to be adopted in this country.

    The Europeans and the Japanese have been moving plants and production to the U.S.; they don’t find it onerous to provide health care benefits to employees. The key is that they make sure that benefits for active employees are not too costly, and they simply allow employees to rely entirely on Medicare.

    Also note that the UAW hasn’t allowed its retired members to rely solely on Medicare; that should provide a hint as to how it views the benefits provided by Medicare.

    Matt51: 2. Replace six sigma in the office with Deming’s Principles.

    Would this really make any difference…? Ford seems to have done pretty well using Six Sigma.

    Note that in the early 1980s, Ford used the Deming Principles, and while this resulted in improved workmanship and better short-term reliability, it didn’t prevent the company from producing the crappy 3.8 V-6 with faulty head gaskets or front-wheel-drive automatic transmissions that grenaded at about 50,000 miles.

    The key is whether management buys into ANY quality improvement process as a way of life, as opposed to just using it as window-dressing or as a way to cut costs. Toyota has been willing to share its system with the domestics, but has noted that they keep viewing it as a way to cut short-term costs, not as a revolution in corporate culture that reaches from the factory floor to the executive suite.

    Matt51: 3. Make the government hold all pension funds, don’t let companies control the money. Have instant vesting.

    That may solve one problem – making sure that the the funds are there when the employee retires, although the federal government certainly hasn’t been able to keep its hands off of Social Security funds.

    But this won’t relieve companies of the cost, as they must still contribute to any government fund for each employee. Without those company contributions, such a system would either quickly run up enormous deficits, or provide very scant benefits.

    Matt51: 4. Provide tax incentives to reduce outsourcing.

    This is certainly worth exploring.

    Matt51: 5. Have the government share the cost of continuing education for engineers and scientists, to make sure the US is technologically up to date.

    Our engineers and technology are up-to-date; the problem is the way that those resources have been managed. U.S. engineering schools still rank among the best in the world.

    GM, for example, has engineers that are the equal of those in any other company, foreign or domestic. The problem has been the way those engineers are managed, and the priorities and resources that they are given by top mangement.

    Matt51: 6. Let companies fail. It makes a good example.

    The problem is that, increased government involvement in the economy – which you have advocated in the other steps – brings about a corresponding reluctance to allow companies to fail.

    Many European countries and Japan have already taken the steps that you have suggested; they don’t seem particularly eager to let their home-based companies fail.

  • avatar
    Dynamic88

    We’re getting the bailout we deserve. If the political situation in this country wasn’t so raucous and ridiculous, perhaps it could have been handled more intelligently with an eye for making the best business decisions instead of managing the politics.

    Sadly true.

  • avatar
    PeteMoran

    @ geeber

    This (Nationalised Health Care) would make no ultimate difference in costs; studies have shown that the taxes necessary to support a truly nationalized health care system would cost companies just as much as paying for the benefits themselves.

    Status Quo for you then?

    Where do you allow for the cost to the rest of the nation for those that do not have access to healthcare? The costs that are harder to work out; early death, dysfunctional generations, lowered productivity, poor workforce mobility etc.

    The “quality” of debate on healthcare in the USofA is a disgrace, driven mostly by an unbelievably narrow-headed conservative selfishness.

    “Die quickly” eh?

  • avatar

    greenblod

    Regardless what you believe, The Iraq/ Afghanistan war is America not only stealing oil, but creating strategic bases on that side of the world.

    Iran is literally SANDWICHED by our forces.

    As for making”america the education capital”..that will never happen because the Chinese are more disciplined and more “controlled” than Americans are and they have a slave labor reservoir that outnumbers us more than 6 to 1.

    I’ve lived there and studied there. They teach 3rd graders to solder electronics together. That’s incredible.

    Our kids can’t do SHIT with the exception of a remote few private school kids who learn enough about Science to want to do mischievous things like create potato guns or nuclear reactors in the backyard to add a few more pages to the anarchist cookbook.

    This entire country has an education system that has stressed SELF ESTEEM over “survival of the fittest” competition and now we have an education system graduating IDIOTS.

    55 is passing for God’s sakes. I’d have made it 70 or better (C-).

  • avatar
    rudiger

    Flashpoint: “55 is passing for God’s sakes. I’d have made it 70 or better (C-).”Meh, the military will still take ’em. There’s the one area where the USA still exceeds, i.e., making the best equipment the world knows for killing other human beings, and making it simple enough that someone with a 55 IQ can operate it. Which would seem to tie in nicely with the article photo.

    The Chinese teach their children how to solder electronics in the third grade. In the USA, I would imagine there are many third graders in some economically depressed urban areas who know, all too well, how to use a handgun. If they don’t, they get a minimum-wage McJob (or two or three if they have a family). Lots of those available. The remaining naturally bright ones that are left get work in the military industrial complex.

  • avatar

    rudiger

    Meh, the military will still take ‘em. There’s the one area where the USA still exceeds, i.e., making the best equipment the world knows for killing other human beings, and making it simple enough that someone with a 55 IQ can operate it.—–

    EXACTLY.

    Its not enough to spend $50 million on an F22 we don’t need…but now we made it easy enough to teach someone to fly using any number of flight sims.

    china’s schools are more depressed than you can imagine. I went to the Country’s #2 Ivy league school FU DAN University and they were so ridiculously poor i couldn’t believe it.

    Classrooms with no heat.
    Bathrooms so stank you can smell em 1000 feet away.
    For god’s sakes, one bathroom you simply walk in and piss on the wall and it falls into a drain – no bowl man, NO BOWL.

    YET… The Chinese are kicking AMerica’s ass and taking our jobs while they give us Dry Wall that breaks down and smells like rotten eggs – and lead toys.

    MEANWHILE Palin, Limbaugh and Fox News are arguing about school vouchers instead of irect government intervention.

    TELL YOU WHAT…take a look at china’s education system and how the government CONTROLS the media and therefore controls the minds of the children and tell me America’s system is working better.

    When you turn on a TV in China YOU SEE NOTHING BUT EDUCATIONAL SHOWS and HISTORY SHOWS. PERIOD.

    You can do it right now if you turn on any of the CCTV channels.

    And No I’m not arguing for socialism or government nanny states, I’m simply stating – THEY ARE KICKING OUR ASSES.

  • avatar
    Gary Numan

    There should have been zero tax dollars pumped into GM and Chrysler. Period. They were already long failed, long doomed companies due to their own making. The 47% of us US citizens who actually pay taxes are now on the hook for these two loser companies and none of this is funny.

    In the end, smarter more ambitious people and excellent products that meet consumers needs will win every time in an open marketplace. Detroit became lazy, arrogant, complacent, stupid, you name it. Nothing but corruption, destruction and lunacy in that area. Doesn’t a 25% high school graduation rate within the city itself say it all? Shall we say names like Kwame Kilpatrick to remind folks of the great intelligence by the voting public? This of course speaks to the core city of Detroit but the metro area of approx 4.5 mil people has many, many problems in the surrounding cities/suburbs.

    Final answer…….The feds have already done too much and wasted valuable tax payers dollars

  • avatar
    John Horner

    “Should the feds have taken full control of GM and Chrysler?’

    Krugman wasn’t talking about the GM and Chrysler deals at all, let alone arguing for 100% nationalization of them.

  • avatar
    John Horner

    “This would make no ultimate difference in costs; studies have shown that the taxes necessary to support a truly nationalized health care system would cost companies just as much as paying for the benefits themselves.”

    Then why do countries with nationalized health care spend much less per person than does the US whilst still enjoying longer life spans?

  • avatar
    geeber

    PeteMoran: Status Quo for you then?

    A more productive route would be to ask the UAW and municipal employee unions why, if nationalized health care is so great, they don’t allow their retired members to rely solely on Medicare? Why don’t they put their money where their mouths are?

    PeteMoran: Where do you allow for the cost to the rest of the nation for those that do not have access to healthcare? The costs that are harder to work out; early death, dysfunctional generations, lowered productivity, poor workforce mobility etc.

    You are confusing lack of health insurance with lack of access to health care. Those are not the same thing.

    You also need to distinguish between addressing the quality of U.S. care (which is among the best in the world, especially for more serious conditions), and its distribution among members of society.

    As to the latter, please note that, even in countries with nationalized health care, virtually everyone who can afford to supplement their government care with private health insurance policies does so. The idea that everyone in, say, France, enjoys the same level of care is ridiculous. The rich and famous enjoy better care than the average French worker. (And even then, the French national system runs a deficit that is at $13 billion, and still climbing.)

    Early death and dysfunctional generations are more common among the lower classes in the United States, who are eligible for Medicaid and various state-sponsored insurance programs (CHIP, for example, for low-income children).

    Availability of insurance can’t overcome the effect of poor health habits and destructive behaviors.

    An example – the county dentists in my boss’ district have banded together to provide FREE dental cleanings and restorative work to the children of low-income families. The biggest problem with the program? The families fail to keep appointments – even though their out-of-pocket cost is ZERO.

    The great bulk of the uninsured are 20- and 30-somethings who don’t see the need to purchase an insurance policy. They are relatively healthy, and thus don’t see the need to pay a hefty insurance premium. What they need are barebones plans that provide coverage for catastrophic conditions (to protect their assets in the event they are diagnosed with, say, cancer), but state mandates often prevent them from purchasing this type of plan.

    If your concern is making sure that everyone has access to affordable health insurance policies, you would tackle that problem instead of an expensive overhaul of the entire health care system. You’d save more money and get better results.

    PeteMoran: The “quality” of debate on healthcare in the USofA is a disgrace, driven mostly by an unbelievably narrow-headed conservative selfishness.

    There is just as much – if not more – narrow-mindedness on the part of “reform” advocates who refuse to acknowledge the strenghts of the U.S. system and want to use a sledgehammer approach (greatly expanded government programs) to solve problems that really need more focused solutions.

    There is a need to move beyond the “U.S. system is bad, nationalized systems are better” nonsense, which shows a lack of sophistication and understanding of how health care works and what it can actually do to help people.

    It’s not just conservatives who have taken an unfortunately simplistic approach to this subject.

    John Horner: Then why do countries with nationalized health care spend much less per person than does the US whilst still enjoying longer life spans?

    First, because their nationalized plans are less likely to spend lots of money on end-of-life care than the U.S. does. You need to take that up with the AARP, as any plan that will truly reduce costs must redistribute care from the elderly to the young. Good luck getting the AARP to sign off on that one. The simple fact is that we spend a ton of money on people during the last six months of their lives without really extending their life span.

    Second, we spend more for advanced procedures and drugs, which results in a better success rate in treating most kinds of cancers and more serious conditions than countries with nationalized plans.

    Third, the life span of a nation’s citizens is affected by things that are beyond the control of the health care system – auto accidents, other forms of accidental deaths and crimes. For example, you are more likely to have an automobile accident in a remote area far from immediate medical care in the U.S. than in, say, Germany or Japan.

    Fourth, life spans are driven as much by genetic factors as by health care systems. The longest life spans tend to be recorded in certain Asian nations. (Interestingly, some of the longest-lived people in the U.S. are poor Native Americans who don’t always have health insurance.)

    If you want to boost the collective life span for U.S. citizens, you would encourage lots of Asians to immigrate and bring their good health habits with them.

  • avatar
    PeteMoran

    @ geeber

    I spent sometime trying to understand all of your response but you lost me with this;

    Availability of insurance can’t overcome the effect of poor health habits and destructive behaviors. An example – the county dentists in my boss’ district have banded together to provide FREE dental cleanings and restorative work to the children of low-income families. The biggest problem with the program? The families fail to keep appointments – even though their out-of-pocket cost is ZERO.

    I respectfully suggest that exposes you as arguing from a prejudice; “It’s pointless, just let those people rot”.

  • avatar
    rpn453

    geeber : First, because their nationalized plans are less likely to spend lots of money on end-of-life care than the U.S. does. You need to take that up with the AARP, as any plan that will truly reduce costs must redistribute care from the elderly to the young. Good luck getting the AARP to sign off on that one. The simple fact is that we spend a ton of money on people during the last six months of their lives without really extending their life span.

    Interesting. Do you have any numbers on that? I ask because, here in Canada, pretty much every elderly person I’ve known who has passed away was kept alive longer than I believe they should have. Maybe we do it cheaper, but we’re still spending the money for medical treatment of people who will never recover.

  • avatar
    geeber

    PeteMoran: I respectfully suggest that exposes you as arguing from a prejudice; “It’s pointless, just let those people rot”.

    I respectfully suggest that you are dismissing my example because of your own prejudices – which, let’s face it, people on both sides of the ideological spectrum do.

    I bring up this example to show that problems go much deeper than the lack of availability of health care. Here, the health care (in the form of dental check-ups and needed work) was being provided for free. The families could not say that they skipped the appointments because they couldn’t afford to keep them. The problem here was families not placing a priority on getting the child to the dentist.

    Nationalizing health care isn’t going to change these attitudes. What’s needed is educational efforts that will change people’s attitudes towards their health. Step one is making them realize that it is THEIR RESPONSIBILITY to develop good health habits for both themselves and their children.

    While government can have a role in this effort, simply nationalizing health care and providing it at no cost to citizens won’t solve the problem. The care here was ALREADY provided for free.

    Providing care at no cost, or bashing insurance companies, or calling Rush Limbaugh a right-wing gasbag, isn’t going to solve this problem.

    If you want to say that certain segments of American society maintain bad health habits and then expect someone else to pick up the costs resulting from said habits (and these bad habits also make our health statistics look worse), you will get no argument from me.

    Resolving this, however, will require one to move beyond blaming this all on Rush Limbaugh, insurance carriers, the Republican party, George W. Bush, etc.

    rpn453: If I recall correctly, for large numbers of people in the U.S., around 80 percent of the total amount of health care expenses for their ENTIRE LIVES is spent during their last six weeks on earth. The care doesn’t result in an extended life span, but doctors are afraid to risk a malpractice suit, so they do everything possible to keep the patient alive.

    I also know that my 90-year-old German aunt was being charged a co-payment by the German national system for her care up until she died in 2004; meanwhile, my 96-year-old American grandmother is covered by private insurance, and the carrier was willing to pay for a knee replacement for her at virtually no cost to her! She decided that she didn’t want it.

    One way to scare the elderly, of course, is to start suggesting that we take a hard look at these costs (which gives the Sarah Palins of the world the opening to screech about “death panels”). Of course, the response from the other side is to say that nothing with change (as President Obama quickly did), so we get the worst of both worlds.

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