Possessing only an average (college-level) understanding of macro-economics I am certainly not qualified to offer substantive advice on the on-going fiscal crises. Then again, it is often said that good ideas can come from anywhere, so I don’t want to deprive the world of potential genius. Thankfully I have this virtual space from which to share my unconventional common-sense approaches to fixing big problems in simple ways.
Let me start by saying that I am opposed to government bailouts on principle. Private corporations can’t extol the virtues of the free market when they’re raking in the profits and over-compensating their executives and then expect to have the taxpayers cover their losses. That’s hypocritical. I am, however, a supporter of having the government invest in corporations - using taxpayer dollars - in order to help those companies survive cyclical downturns and catastrophic events. In other words, I’ll gladly help out corporations by buying into them and gaining an appropriate level of control over those corporations in return.
Yes, it’s a form of socialism. I understand that. But just handing over taxpayer dollars to corporations and getting nothing in return is a form of fascism. Those labels are reductive and stupid anyway. America is neither a pure democracy (it’s a representative republic) nor a pure capitalist state. The goal shouldn’t be to prove that one ideology is superior to another. The goal should be to find the system that helps most people live healthy, happy and free.
Helping the automotive industry to survive is vitally important to the US (and global) economy. It employs so many people (consider the entire supply chain in your calculations) and it’s the heart of our still-needed manufacturing infrastructure. Sure, they’ve made their share of mistakes. But bear in mind that focusing on trucks and SUVs was in their best interest at the time. Over the last decade their greatest profit opportunity, for a variety of reasons, was in trucks. Wall Street demands short-term profits from public companies and does not reward long-term vision, so they largely did what they had to do.
So how do we fix this industry? Well, here are my suggestions:
1) A structured bankruptcy/restructuring, so that crippling labor and dealer contracts can be renegotiated equitably, with the government playing the role of arbitrator;
2) The creation of a government-backed program to insure all current and future warranties;
3) The creation of a national auto czar (reporting to the appropriate cabinet secretary) to oversee the government’s interest in the industry. I nominate old nemesis Mitt Romney for the post, by the way – he’d rock that job.
4) Government investment in the auto companies in exchange for equity, seats on the board, and power commensurate with the level of investment.
Now, here are my radical ideas for stimulating demand:
You know how Bush tried to buy people’s friendship by sending them cash rebate checks? Well, how about a new twist on that idea? Why don’t we send every adult in the US a coupon to buy a new (fixed-price) American car? How cool would that be? Imagine saving 20% on that new Cadillac CTS? I’d also create a government-backed loan program so that qualified buyers can get a car loan at an appropriate interest rate. And finally, I’d lay in a sliding scale of tax rebates that encourages people to buy cars with higher-fuel efficiency engines.
The beauty of my plan is that doesn’t just drop cash into failing companies. It stimulates demand which will lead to increased production and more employment. It uses the taxpayer dollars as an investment, which we can cash out of down the road. It still allows for competition, as people will choose to buy the best US cars. And it gives the government enough control to make sure that executives are paid fairly but not rewarded for failure.
I hope you’ll see the wisdom of my ideas and help me to spread the word. I’m currently calling it the “Help Cody Save 20% on a Caddy Auto Industry Bailout Plan” but I’m open to suggestions if you have a better name. Remember, I can’t do this alone.
“Rainbow’s Cadillac”/Bruce Hornsby/Harbor Lights
Saturday, December 13, 2008
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12 comments:
hi Cody
interesting. it's no surprise that in most towns in America the wealthiest people are the car dealers. i heard, was it on the bus, where lately i'm hearing a lot of interesting, of the moment ideas? - yes, that the trend will be to get rid of combustion engines and move to engines that use fuel sources other than gasoline. also, cars will move to using electricity for power. that will move the country's dependency away from oil which in turn might help the economy. maybe that is something the car czar or czarina could focus on.
cheers,
Arturo
Oh, I love Romney for the czar! Great idea.
I disagree with you on the need to bail out the auto industry. It's time for the executioner's axe for these oversized companies. The philosophy that continulally lesd us to problems like this one that we're currently facing is that the market must be continually stimulated such that it will consume ever more and allow expanding production to be sustained. The 'inflative' market concept absolutely requires that large companies must be able to do this or they will fail. Their expansion options include a) development of new markets, and b) absorption of competitors. When these two options are fully expended, such as they would seem to be, presently, they have to truly compete in a viable manner. Their current crisis proves that they are not viable without artificial inducements to the market. What we need is some genuine Theodore Roosevelt-style monopoly busting. It's time to downsize the giants because they are not as efficient in the free market economy as they wouldd have the public believe.
The big three have been steadfast in their strategies that are unfavorable to the public well-being. They've aggressively resisted regulation of fuel consumption and that would help mitigate world climate change. They've aggressively marketed dangerous, high-profit margin vehicles. The management of the big three have demonstrated consistent poor leadership and non-vision and it's time for us to be done with them.
Carl, while I agree with everything you said in concept, there are literally millions who would very likely lose their jobs if these three companies (debatable if number three, Ford, would go) went under. I think the 'bailout' needs to be much more aggressive in terms of what is required for these companies to get back on their feet. But yes, being a behemoth is no longer an option for any of them, I totally agree.
That's why I tried to differentiate between a "bailout" (giving money to failing companies for no apparent reason) and a "restructuring" (government managed bankruptcy).
I agree with Sonya - too many jobs will be lost at a point when the economy is already teetering on the edge.
Sonya, whose money would you give to those people? We all pay for these government economic stimuli. While it seems charitable to offer something to these people now, we're really only delaying the inevitable and putting them and ourselves further benind. The auto companies are not the proper vehicles to bail out the auto workers who'd be displaced when the end finally happens.
So, Carl, I take it that you like my 20% off coupon? That's an economic stimulus plan that the taxpayers have to pay out only when a car is actually bought!
Damn, blogger ate my comment.
For the record, I didn't say 'give'. I don't think the whole idea is to 'give', it's more of a loan/investment. The problem is, you're not just talking about the auto workers or who would be out of a job (and many of whom have a union to protect them). You're talking about the guy who makes the widgets to put in the car, the woman who sells the widgets, the guy who develops the (very specific) software to track those widgets, the woman who keeps the books at the car dealer (my mother, in fact), the guy who sells said software, etc etc etc. I wish it were as simple as you are making it but it simply isn't. The best we can hope for is an investment by the government (yes, that would be us) that has some teeth in terms of what we demand in return.
Yes, Cody, I'll stick my 20%-off coupon to my refrigerator door. All my magnets are presently in use so I'll have to pony up anywhere from $0.50 to $2 to buy a new one. Unless the local pizza and/or windshield repair businesses send me advert magnets in the mail.
No matter what, the American auto industry is a loser. They've had many crises through the past but they never really changed their practices. I didn't say it's a simple problem -- many people depend on the auto industry for their livelihood-- but government loans and guarantees are too simple a solution. And too small. The management of these companies have pitched the bailout proposal as a humanitarian issue but it was their own short-sightedness that got all these people to where they are now. The same greedy, foolish management will continue to run these companies after we've shoveled money at them. If the government bails out these companies then we implicitly support their poorly conceived business and marketing practices and we'll have to continue helping them through their crises in the future. As long as the auto industry exists as it does presently, people will remain dependent upon it. It's best to let it founder now and remake itself in a more viable form.
A good comparison would be the American commercial air travel industry. Big companies like these simply can't turn on a dime and respond to big changes in their markets. From time to time they go bankrupt and dissolve but we still have an American commercial air travel industry.
Perhaps your coupon concept could be put towards changing the direction of the current auto industry and improving alternative transportation and sustainable urban development resulting in getting people out of cars instead of into more of them. If we are really concerned about how to treat ourselves and how to treat others (Sutras anyone?), locking ourselves up in more little metal boxes and spreading our urban fabric out over an even larger footprint to allow for more and more isolated suburban boxes is going in the wrong direction if you ask me. But what do I know, I'm Canadian.
Anonymous Canadian,
Why so self-effacing? You Canadians are experts in so many things: maple syrup, hockey, lager beer, etc. Plus you get to be OUR best friend! You're like the Milhouse to our Bart!
But in all seriousness, there's no infrastructure in place for oil-free transportation, so in the short-term we need to make cars more efficient. We definitely need to invest heavily in alternative fuels for the future but we also need to preserve jobs in 2009. I'm all for public transportation and definitely support expanding amtrak and light rail. Plus, the peak oil theorists predict that cities will be deserted when we run out of juice!
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