The Bailout: A Crossroads

Does anyone else find it as strange as I do that, of all the harmonic convergences that could have happened right now, the two industries most directly in need of our bailout money happen to be the auto industry and the financial industry?

Think about it: history tells us that whenever a society chooses to leave the relatively slow process of wealth building through industry behind, it moves towards the financialization of it’s economy. That means making money through financial transactions like loans, mortgages and other debt, which is exactly what our banks have been doing for lo this past twelve to fifteen years or so. History also tells us that the inevitable result of financialization is a colossal crash of a type we may yet experience.

At this moment, we are confronted by two massive problems, both deeply embedded in our current economic situation, both with huge consequences for failure. We cannot choose to do nothing about either crisis, this much is clear. But equally clear – in this one moment, though it may well disappear a week from now – is the crossroads our nation is at. Do we choose to choose the hard work of building our nation’s wealth through a collective commitment to revitalizing the industries that make physical goods, or do we continue on with the relatively easy but frighteningly risky world of unthinkably high finance?

Not simply world history, but our own personal histories can attest to the fact that when high risk, high yield and low effort converge, the result is never very good for very long. I think that we know what the right answer is.

But if the two industries appear as a dichotomy of high-yield, low-effort versus low-yield, high-effort paths to wealth, it should surprise no one that the answer to both questions is exactly that same dichotomy. The financial industry takes, moves, swaps, makes and otherwise manipulates money and when that industry is in trouble, the only thing required to fix it is. . . more money. Give them money to balance their books, throw a few new (or newly restored) regulations at the problem and you’re halfway home.

The auto industry makes machines, a task which requires first engineering, then retooling entire factories, then training workers on new equipment and then finally production. And even this understates the challenge. I have not, for example, factored in the warranty repair shops and dealerships which also need to go through radical restructuring if they’re to deal with new cars and new technology.

Tone-deaf PR problems like private jets and “hybrid” SUVs aside, one big reason to doubt the efficacy of Detroit’s plans is the simple fact that there’s no good reason to think that a $15bn bridge loan, a $25bn bailout or a $34bn Christmas present will actually solve the problem. In fact, you could drop the entire $700bn loan the financial industry got on Detroit and still not see one iota of change in the next three years. Remember: hard work and low yield.

Nothing less than a radical restructuring at the top of Detroit’s power houses will make any difference to our ailing economy. And even that will only do just so much good. As our nation prepares to have its first “Car Czar,” I think it’s clear that many in Washington have already decided that such a move is necessary in any event. We’ll soon be nationalizing the auto industry of this country, which I don’t particularly support but can’t see any good way around, at least in the near term.

I’ve argued in the past that one possible solution to the problem of innovation, at least, would be to allow smaller companies who are already engineering fuel efficient automobiles to share the industrial resources of the Big Three in exchange for sharing the profits as well. But again, innovation is only one small part of the puzzle and there are many more pieces to put in place before our automobile industry is a functioning industry again.


. . . But Don’t You Dare Call it a Bail Out!

The auto industry is seeking $50bn in additional low-cost loans – beyond what was already approved by Congress last year – to help them out of the mess they’ve made, selling SUVs after peak oil and 911.  Did they really think this wasn’t going to come to an end, soon?  But here they come again, to suck on the teet:

Auto industry officials have argued that the loan program would not represent a bailout, but would be similar to aid lawmakers have given to Wall Street investment banks and struggling mortgage firms. They also note that auto companies face tens of billions of dollars in costs from new fuel economy regulations.

I see.  So, since we’ve bailed out the financial markets without calling it a bail out, we should just go right ahead and bail out the auto industry and not call it a bail out.  Because, you know, it’s really not a bail out.  Let’s not forget that the government issues loans in the form of bonds, and that’s a large part of how our currency remains viable.  Giving out low-interest loans means accepting less of a return on those bonds, which isn’t doing our larger society any good.

In other countries, like Japan, there’s no question that the government helps out industry.  It’s how they operate, with industry and government working hand in hand to make their economy strong.  Of course, there are a number of obligations industry must observe in exchange for consistent help in hard economic times.  In this country, we do the same thing, except that we have false ideological bullshit swirling around in Conservative circles that allows industry leaders to demand tax cuts along with their low-interest loans.

We’d be doing our country a world of good if we dropped the pretense.