Ronald Reagan famously said, "Don't just do something! Stand there!"
I feel that way about the current talk to bail out U.S. auto makers. Now, I am no expert on the economy. But then, who is? If there were experts, we would not be in this fix. And a fix, we are most assuredly in.
This recession came home to Madison very forcefully with the announcement of a $5 billion "revenue shortfall" for the upcoming state government biennium. Madison immune from recession? Methinks not.
So, I've got more questions than answers, today.
Did it strike you in a two-by-four upside the head kind of way when Treasury Secretary Paulson said that the $700 Billion Troubled Asset Relief Program would not buy up troubled bank assets after all?
Have you noticed that every time the government announces an economic recovery plan the stock market takes a big noisy dump?
Have you noticed that Wall Street is not dazzled by Barack "The One" Obama? Even with Thursday's 552-point climb, the market has still lost over 800 points since the election?
Does it seem to you that the more the government does to bail the economy out of the mess it is in, the worse the economy gets? Take that $700 billion dollar federal TARP bailout. As Henny Youngman would say, Please. Because every economic malefactor is after it, including the auto makers. Now, I have made a solemn pledge that my next set of wheels will be made in the U.S. But that could be a Honda, Toyota, Nissan, or BMW.
Put Steve Jobs behind the wheel
The coffee klatch talk is that Detroit was stupid for building all those SUVs. No, not stupid, prudent. The fact is that the Detroit Three are burdened with terribly expensive union labor contracts, especially medical costs. Like the Madison Teachers Inc. union, no competition was built into the contracts, assuring that costs would not be controlled.
I am as terrified as anyone of the domino effect on industry and workers if G.M. were to collapse. But if we are going to use taxpayer money to rescue Detroit, then it should be done along the lines proposed in The Wall Street Journal on Monday by Paul Ingrassia, a former Detroit bureau chief for that paper.
"In return for any direct government aid … a government-appointed receiver - someone hard-nosed and nonpolitical - should have broad power to revamp G.M. with a viable business plan and return it to a private operation as soon as possible. That will mean tearing up existing contracts with unions, dealers and suppliers, closing some operations and selling others and downsizing the company ... Giving G.M. a blank check - which the company and the United Auto Workers union badly want … would be an enormous mistake."
John Nichols, while expressing horror that Rahm Emanuel is Obama's chief of staff, sings hosannas that the O-man surrounded himself in Chicago with a crowd that included Michigan Gov. Jennifer Granholm and former U.S. Rep. David Bonior, D-Big Auto.
These are the very people we should fear. Friedman continues:
The blame for this travesty not only belongs to the auto executives, but must be shared equally with the entire Michigan delegation in the House and Senate, virtually all of whom, year after year, voted however the Detroit automakers and unions instructed them to vote. That shielded General Motors, Ford and Chrysler from environmental concerns, mileage concerns and the full impact of global competition that could have forced Detroit to adapt long ago. [Friedman suggests turning GM over to Apple's Steve Jobs.]
The Cato Institute argues that bailing out Detroit is a tax transfer from the poor to the rich. It advocates a Chapter 11 bankruptcy.
But that protects the company while it can reorganize. Other pundits have said the company is too big and too troubled to attract capital in these distressed times. A Chapter 7 liquidation will sell the company in whatever pieces buyers prefer for them to reassemble as needed. That is precisely what the doctor ordered.
Build something completely new. Throw out the union, sweep out the executive suites, kill off whole product lines. (Do you realize that Kia sells more cars in North America than Pontiac?) Reassemble the parts in a completely new way.
Even The Capital Times, socialist drumbeater that it is, down-sized, laid some people off.
The other shoe just dropped
The Current Occupant of the governor's mansion announced a $5 billion hole in the next fiscal biennium - and $500 million for the 8 months preceding the start of that biennium.
I pretend to have no inside information and I speak for no officeholder or agency. But I got to think:
- WEAC's wet dream of abolishing the Qualified Economic Offer that holds teacher compensation to 3.8% without having to go to arbitration remains a fantasy. Will an all-Democrat(ic) state government blow the hinges off that kind of expenditure restraint?
- If they do, how do they keep faith with the two-thirds state funding commitment? At north of $11 billion per biennium, it is the single largest budget outlay the state makes.
- Will the all-Dem legislature propose another Healthy Wisconsin, price tag: $15 billion?
- Light rail, anyone?
- Non-economic interlude: I have a big crush on State Rep. Terese Berceau but as a Republican, thank you for introducing a bill to abolish the state's ban on abortions (held in abeyance by Roe v. Wade). Do you really want to re-energize the conservative values base?
I know enough economics to know that capitalism has been called a system of creative destruction. What does not work crashes and burns to make way for the new. And that Gresham's Law dictates that throwing bad money after good makes all money bad.
They call him Havana Paul
Paul Soglin also opposes the auto company bailouts ... but on purely partisan grounds.
Without proper restraints, the automakers will continue with membership in organizations like the United States Chamber of Commerce, the Institute for Tort Reform, and even Wisconsin Manufacturers and Commerce (WMC).
In other words, Havana Paul, like his totalitarian heroes in Havana, would use strict party line tests to determine winners and losers. You oppose the regime, you lose. Can a religious test, another assault on the First Amendment, be far behind?
Include me out
We think we can trick the markets. That's what produced the recession - heating up the housing market by encouraging too many people to buy too much house with money they did not have and, on the other end of the spectrum, playing games with derivatives, etc.
Playing games with the market defines the life and death of "inclusionary zoning" in Madison.
I am not going to crow over the demise of inclusionary zoning. Suffice it to say in the late spring/early summer of 2003 I went on up against Lee Rayburn on WTDY radio (he's now on the Mic) to warn about Inclusionary Zoning (IZ) in Madison. I took the trouble to read the ordinance. It struck me immediately that the supposed beneficiaries of IZ would, upon selling their subsidized housing, have to return most of the equity to the city. That is not ownership, it is expensive renting.
Brenda Konkel has a fairly dispassionate accounting of what went wrong with the City of Madison's affordable housing gambit. After five years of effort, I feel for her loss but she joins legions of other socialists reaping the fruits of futility. Brenda has done a good job of discerning the facts but she still has not grasped the lessons. She should pay more attention to her topic headings.
Developers/Realtors didn't want to do it - In the Progressive Dane canon, developers = Keith Olbermann's "worst people in the world." These are the Simon Legrees who take a pristine field of chemical-drenched cornfields and turn them into housing for no apparent reason. Lesson: If the target demographic or affected industry does not want it, good luck in making it happen. Freewill will out, somehow, some way.
Staff didn't want to do it. - Doesn't that tell you something? Anything? These folks are civil servants, not terribly ideological. Certainly not the hated "developer." They're only the ones who got to administer the program and they're trying to tell you the program is a clusterfuck. Shouldn't someone listen?/p>
Complexity - My initial reading of the thing five years ago told me it was a re-do of Hillary Clinton's initial Health Care Plan. A Rube Goldberg device so cumbersome that it got in its own way. Good programs are transparent programs. See "Staff didn't want to do it."
But the thing Brenda still doesn't get is that you cannot fool the market for long. New construction is a poor candidate for "affordability." Downtown condos on the lake, pure madness. That is Basic Law of Economics, Point the First.
Basic Law of Economics, Point the Second: Ownership builds equity. Returning said equity to the government is not ownership but expensive rentership.
Basic Law of Economics, Point the Third: When you make developers subsidize some housing to make it more "affordable" that necessarily makes the remainder of the housing "less affordable" for those who might just have been able to squeeze over the threshold.
Basic Law of Economics, Point the Fourth: Renting often makes perfectly good economic sense, as many "upside down" home "owners" who today owe more than their home is worth might attest.
Today's history lesson
There is a fair body of research that for all of FDR's alphabet soup government intervention, the Great Man succeeded only in prolonging the Great Depression.
Two UCLA economists wrote: "As we've seen in the past several years, salaries and prices fall when unemployment is high. By artificially inflating both, the New Deal policies short-circuited the market's self-correcting forces." - FDR's policies prolonged Depression by 7 years.
- Why is there always a nice cushy job for defeated liberals at the University of Wisconsin but none for conservatives? Latest case in point: Defeated State Supreme Court Justice Louis Butler gets a job in the Law School created specially for him.
- Why is there no outrage over the $2.1 million WEAC spent on television ads in five Assembly Districts?
- Where are the First Amendment purists over Jackson County circuit judge Tom Lister's prior restraint of free speech in blocking a political ad - a ruling promptly overturned by the appeals court? Nichols? Lueders?