Happy Birthday, Thought Oven!

One year ago today, I first fired up this oven. It was, as it is tonight, New Year’s Eve. Here’s what I had to say about that.

In a few minutes, I will fly off to the ancient, exotic land of my ancestors. So, you could say I’m traveling to the past this New Year’s Eve. On the other hand, since I’m flying east, technically I’m accelerating to the future!

Either way, I’ll get through the year.

It’s been a strange, painful, joyful, beautiful year. I’ve grown and decayed. I’ve acquired new memories. I’ve had my heart broken and my funny bone tickled. I have made new friends and rediscovered some old ones. I’ve lost some pieces of myself and found others I never knew I had. I’ve shed some cherished illusions and built some new dreams to chase.

I haven’t reached any new destinations in 2008, but I sure have found my way.

Thanks for reading and I hope you’ll keep coming back.

Happy New Year.

Misplaced Demands: The Bridge Loan and Wage Cuts

Yesterday, I posted an entry questioning whether a bridge loan/ rescue package from the federal taxpayers to the auto industry giants was warranted. Grace from Michigan commented that ordinary people in Michigan, who work for these companies and have essentially been struggling through a recession for several years, really could use a hand. Moreover, she pointed out, what they are asking for is a loan, not a handout. I promised to consider the “pro-loan” side of the issue today. It’s going to be a pretty sparse examination. Because honestly, the “need” appeal that Grace was making, is the ONLY point I can see that has any merit at all. It’s the crucial point, of course, and I wouldn’t be a liberal worthy of the label if I didn’t believe in citizens seeing each other through tough times. But my questions still stand as to whether this strategy will work. I just don’t see any evidence that it will. On the other hand, I do keep hearing that apparently we eventually made a “profit” on the 1979 Chrysler deal, so who knows?I turn now, to the real focus of this post: the “wage” issue. In the Senate bill, there was a tolerably fair provision limiting executive compensation, including a freeze on bonuses for those making over $250k and a moratorium on golden parachutes (although it did include an “incentive” exception that raised a bit of a red flag for me).

But the biggest controversy seems to be over the issue of workers earning union wages. That’s the problem? Really? Those guys making working class wages with their hands and sweat and didn’t mismanage their companies into a 5-year loss-cycle, THEY are the ones whose ass we’re going to get “tough” on? They are the ones who have to “give something” so that the guys who did run the companies into the ground can keep more of the $14 Billion that they get from taxes we all have to pay? Bob Corker of Tennessee has outdone himself in forthrightly “demanding” the auto exes trim the fat by slashing their workers’ wages and benefits. Yeah, that’s been their big indulgence, overpaying their factory workers! You GET ‘em Corker! You get ’em good!

Beyond lip service, there has been little in the way of substantive objection (addressing the kinds of questions I raised yesterday). All the sticky “free market” convictions seem to have been easily surmountable when it came to agreeing to give away taxpayer money to big corporations. “It’s not the time for ideology” as President Bush said a few months ago. [One wonders what use “ideology” is, if it must be abandoned to solve real-life problems, but that’s a different post]. However, when it comes to working stiffs, suddenly all the righteous wrath of fiscal responsibility is unleashed. The way Bob Corker is practically frothing at the mouth with indignation at the hourly wages negotiated by union laborers, it’s almost hard to believe that he’s not a cartoon or an archetype in a morality play. This is where I am simpatico with that “why didn’t you ask this of Wall Street” chorus that I criticized on the broader issues.

You know, I keep hoping that there really aren’t people like Corker, who fit those horrible caricatures of Republicans that are dreamed up by extreme partisan leftists. I keep thinking, it’s just not possible that there are people whose agenda really is just straightforward patronage for the wealthier classes at the expense of working people. It’s like they were looking for an excuse to pull off one more reverse-Robin Hood act and this was it.

I know I’m not really making a cool-headed argument at this point and that my rage is showing; but this is so ass-backwards it makes you almost apoplectic.

This whole strategy probably won’t do much good in the long run, but if we are going to do it, for whatever short-term benefit the powers that be are persuaded we will see, then requiring a gratuitous punishment clause against workers just adds insult to injury. I have no great love for socialists (because everything they fear from corporations, they end up letting governments do), but happening upon the World Socialist website, I saw an interesting comparison of the current bailout proposals to the Chrysler deal in 1979. A bit of unusual insight regarding the windfalls made by Chrysler and Lee Iacocca while workers were asked to “sacrifice.”


It doesn’t matter, ultimately, that the bridge loan failed in the Senate. Looks like the White House will come through for the car makers. But is it a good idea?

I know it’s hard to swallow that the finance industry, which caused the economy to crumble while paying its top execs handsomely in the process and creating nothing of value at all (more on that next week) gets a 700+ billion dollar bailout with hardly any strings attached, even as the auto industry, which actually makes a product and didn’t cause the economy to blow up) is denied a $14 billion loan. It offends an innate sense of fairness. Especially stinging was the government’s demand, ultimately leading to the plan’s failure, for compensation limits for autoworkers of the kind never required of the finance industry employees, whose incomes are incomparably higher and who, as it turns out, got bonuses from the bailout money. This is making some people fume with appropriate righteous rage. Although I have many questions and doubts about bailing out the auto industry, I share the sentiment regarding the double standard (captured most poignantly by Jon Stewart, as usual).

However, I think it’s important to parse this into (at least) three pieces and assess them separately.

First: the bailout itself should be evaluated independently of the compensation cap question.

Second: the compensation question should be considered, not in light of Detroit vs. Wall Street, but in terms of Executive vs. Regular Worker compensation.

Third, Detroit vs. Wall Street, a double standard, yes. But whether and to what extent that double standard is warranted, is extremely, extremely gray. There are arguments (for and against) bailing out each industry that simply don’t apply to the other. Let’s be honest, this is really not about “fairness.” We don’t “owe” it to the auto industry to help it survive, any more than we owed the finance industry. When did corporate welfare become a moral imperative? The finance industry bailout was, in its terms, simply obscene (more on that next week). But as your grandmother used to say, two wrongs don’t make a right. My point is not to excuse the Wall Street bailout or sweep it under the rug. On the contrary, I would’ve filibustered it if I were in the Senate; it was a travesty that we should be investigating, discrediting, and hopefully fixing, rather than relying on it as precedent for future measures.

Here are some doubts I have about the pro-bridge-loan arguments (framed in admittedly simple terms) considered without irrelevant references to the finance industry bailout (some references are, of course, relevant).

• Bankruptcy doesn’t necessarily drive a company out of business. If the car makers actually are turning the corner in terms of product improvements (as they are claiming in support of their creditworthiness), then shouldn’t they be able to survive a reorganization? Better yet, shouldn’t they be able to get a loan in the market (“relevant reference” alert: isn’t this why we gave money to the banks)?

• An “industry” doesn’t die just because some inefficient monoliths go down (if they do). Small, trim, innovative companies are much more likely to form, thrive, etc. in an environment where established companies don’t effectively become cartels by growing “too big to fail” – that’s a dangerous philosophy (as I’ve discussed here). Furthermore, precisely because a car is a real product with a real function and value, someone will move in to fill the void, if free to do so and if capital is available (again, what the hell happened to our $700 billion, I wonder). Truth is, the Big-3 are failing because they’ve been making cars that consumers don’t like. It’s been happening for a long time, well before the general economic downturn. Propping them up might just mask the problem and allow bad business models to fester instead of dying. That’s just not smart.

• Isn’t it a little inaccurate to equate the “industry” with the largest American companies? Profitable “foreign” companies operating in the US (employing and doing business with American assembly workers, mechanics, dealerships etc. as well as supplying American consumers with desirable products) are very much part of our domestic economy. They pay corporate taxes. They generate and support the same kind of satellite businesses that the Big-3 do (which they are pointing to as further evidence of the far-reaching consequences of letting them fail). These “foreign” companies may not be union shops, but they comply with our wage, hour, and benefits laws. I hear Toyota offers pretty good compensation (including profit sharing) to its workers. Does it really even make sense to talk about multinational corporations as if they were really tied to their countries of origin, when they (including the American ones) operate wherever the rules are favorable and are essentially free to go domicile-shopping? If Congress wants to address any inequities in that regard (and I’m not necessarily suggesting they should), then that’s a whole other legislative package that should not be confused with this bridge-loan deal.

• The idea that our economy would collapse if the Big-3 went into bankruptcy is highly questionable. Ron Gettelfinger of the UAW said that the “auto industry” (by which he means the Big-3), must not be allowed to fail because “it’s the backbone of our economy; we need this industry to survive.” By “we” he means the entire American economy. That’s just – and there’s no kind way to say this – drivel. It’s not 1950.

• Also true: domestic car production accounts for a small portion of the GDP (it’s been hovering around 4% for some time now, even the Chicken Littles – or is it Chickens Little? – generally agree with that figure). That might be bigger than many industries (not as big as others, e.g., the information technology industry) but in any event, not a large enough chunk of the economy to warrant some kind of mortal fear.

• As for satellite businesses that would also suffer along with the Big-3. I don’t really accept that as an argument for why we “can’t afford” their demise – at least not as being uniquely relevant to this industry. EVERY industry, indeed every thriving company, touches off some peripheral economic activities that “depend” on that industry or company. In this economy a multitude of companies are threatened with hard times or even failure, which will all have indirect impacts on other businesses (vendors and suppliers, communication service providers, transportation, utilities, service industries catering to an employed workforce). We can’t prop up all of them. We simply can’t. I’m not even going to argue that point. And if we prop up only the big guys, then what we do is subsidize those who are failing despite having had huge advantages. In other words, we shore up the worst elements in the economy and effectively preclude the rise of anything more vibrant or efficient. We let the “Too Big To Fail” become a parasitic, government supported aristocracy, living by the wealth generated through our work, and for what? For the opportunity to barely eke out an existence in “their” businesses? As I said yesterday, that’s feudalism.

Tomorrow, I’ll consider some pro-bridge-loan points but mainly discuss the autoworker compensation question.

Bailouts and Neo-Feudalism

I know that the failure of the auto-industry bailout will hurt a lot of people. More precisely, it will fail to mitigate (in the short term) the hurt a lot of people will experience as a result of other factors.

But can we really save ourselves by simply propping up every company or industry that’s doing poorly in this less than stellar market? Not to be too academic, but that would suck. Although I  am critical of the most purist forms of free-market dogma and I favor the idea of some public watch-dogging, I think we should review closely and critically any attempt by government to become too much more than a watch-dog for the people, when it comes to interference in the market. [Amity Shlaes’s The Forgotten Man: A New History of the Great Depression is pretty instructive on this point. While I don’t buy her entire argument, I think she raises important questions about the assumptions historians frequently make about the government’s role in economic recovery in the past.]

Ok, so what if we prop up only those that are “too big to fail”? See my comment above regarding government interference? Let me add: we should be especially horrified by government interference on behalf of tremendously wealthy and powerful segments of society attempting to maintain their positions. This is what the Bush Administration has been doing (despite shameless pretenses to “free-market” and “small government” ideologies). [Check out Naomi Klein’s The Shock Doctrine — I am not endorsing all aspects of Klein’s perspective either, but I think she does a great job of pointing out the fallacy of the big/small distinction (or, more to the point for me, the primacy of that distinction) and she asks the right question: on whose behalf and to what end should government act?]

Although over the last century, “small government” has become (I think cynically) the battle-cry of the privileged, historically, the call for limited government had grown as much out of opposition to the entrenchment of privilege. Read Thomas Paine’s The Rights of Man, if you don’t believe me. I realize that English constitutionalism (from which most modern “limited government” philosophies are at least partially derived) was a way to manage aristocratic property rights against a sovereign monarchy. But the success of the idea of limited government in democracy movements is based on the recognition that through most of history, intrusive government was almost universally a tool of aristocracy, the class whence “government” hailed. Government had been practically synonymous with aristocracy and its exercise of social control.

Any political order that requires us, the middle and working class tax payers, to toil to bail out the auto industry and the financial industry (who are today’s aristocracy) — and makes us accept punishing pay cuts, as the Republicans were demanding in the auto-industry case — all ostensibly in order to preserve the privilege of continuing to toil, is nothing short of a new feudalism.

Note that I’m not commenting specifically on the merits of the auto-industry loan package. More on that tomorrow. But before we get to evaluating any particular proposal, we have to disabuse ourselves of this “too big to fail” premise that is silently turning into conventional wisdom with little examination beyond essentially marginal arguments about what to demand in return for rescue packages. This is frighteningly reminiscent of the early Iraq war bandwagon.

My view on the “Too Big to Fail” doctrine can be summed up this way:
If something can get so big that it requires us to collectively absorb its losses (either by bailing it out, or by letting its demise infect the entire economy), then it should have been prevented from getting so big in the first place, or at the very least, it should have been prohibited from accruing to itself all the benefits of an endeavor for which it would ultimately not have to bear the costs. This is privatization of profit and socialization of loss. As we know from the history of the finance industry, repeatedly bailing out institutions in hard times, without requiring anything in return during flush times, is the surest way to guarantee it will happen again.
And again. And again.  

Lest I sound glib, let me clarify: just because I’m questioning the wisdom of corporate welfare packages that give lip service to working-class anxieties, it doesn’t mean I don’t understand or sympathize with those anxieties or that I wouldn’t support effective government intervention on behalf of working people.