Bruce Bartlett Is Blogging at the Arena

I think that his ought to be an important public voice on economic policy over the next four years--diversified intellectual portfolio, you know:

The Arena: Palin: Before the Palin thing is completely forgotten, I just want to throw in my two cents. I think she was a disaster for McCain because she destroyed the logic of his candidacy. His best argument was that we live in perilous times and can’t afford to have a president with no experience in foreign policy and national security. But McCain destroyed this argument by appointing as his vice president someone with even less experience than Obama. In a stroke, McCain took off the table not only his best argument for being president but really his only argument. He should have picked Lieberman and run on a campaign of bipartisan national unity. It might not have worked, but at least McCain would have lost with some dignity.

Autos: I think it would be a terrible mistake to simply write a check to the auto industry without demanding major, major restructuring of its labor contracts. Without that the money will simply go down a rat hole and the automakers will just be back again in a year or two asking for more money. Obama has a strong hand to play here and I hope he uses his leverage. With bankruptcy as the only alternative to federal aid, he can drive a very hard bargain with the auto workers. If he caves and just writes a blank check, everyone will know he can be rolled and he will pay a heavy political price for it. If Obama shows toughness on this issue, I think it will pay enormous dividends for him down the road.

Comments

[RW]

Bartlett appears to retain some sense of proportion or even irony regarding McCain's misguided pick of Palin but unfortunately seems to lose that sense when asserting the central restructuring issue of the automakers is the unions. Sorry, that reads like nothing more than a boring continuation of right-wing mythology and hostility towards workers who have succeeded in gaining some leverage with their employers.

Renegotiated union contracts will probably be required but this would be pointless in the face of GM's utterly dysfunctional management system and governance structure; the only solution is forced receivership for GM, removal of the board and replacement of top management, accompanied by complete reorganization including sale or liquidation of units, renegotiated contracts and the rest of the whole nine yards.

The past four decades GM has become a festering boil on the country's arse and it's time to lance.

[Robinia]

Re: "It is still not too late to impeach him and his administration. In fact, it would be a very good idea".

The best argument I heard for this tack at this late date was the following (which, I have not verified, but the person who told me is quite trustworthy): If the POTUS is facing impeachment proceedings, even if those proceedings have not progressed far as of yet, he is prohibited from issuing presidential pardons.

Insoar as Bush's cronies have been aprehended and successfully imprisoned, it would be a real shame to see him set them all free to prey upon us yet again as he walked out the Whitehouse door.

[marc sobel]

The UAW already gave substantial concessions which Automakers' Management have squandered with their mismanagement http://tinyurl.com/6rggbv How about a deal on CAFE, and going back to the fuel efficient deal that Clinton had worked out that Cheney threw out for Hydrogen in the Sky.

[Ken Houghton]

"Shorter" Bruce Bartlett: "We made promises in lieu of payments to our workers for several decades. Instead of saving that money, or investing it properly, we paid our executives high amounts of money for developing and engaging in a business process where we lost money on 4/5 of our fleet, profiting only on 'cars' whose sales depend on externality-impaired oil and gasoline prices, which were mainly financed by us with no thought or expectation of default risk or declining values causing people to walk away from their leases and purchases.

"So the clear solution to the problem is to f*ck the people who had no role in making those decisions, because that's what being a centrist is all about."

I might have missed a few details--spinning off parts companies (e.g., the non-very-bankrupt Visteon) on the pretense of "creating value" is conspicuously omitted, for instance, as is the matter that GM's perpetually underfunded pension liabilities are the stuff of legend and lawmaking from the early 1990s--but I think the translation is reasonably fair.

Bartlett may be correct that there needs to be a "major, major restructuring of labor contracts"--he's just targetting the wrong "labor," unless he =intends= to reward the people who steal short and make promises long.

[Ken Houghton]

Sorry: that was supposed to be "=now=-very-bankrupt Visteon," though I suppose Delphi is a much better example.

[Nathan Myers]

Is it true that a president under impeachment proceedings cannot issue pardons? It certainly seems reasonable (the founders would have been grossly negligent not to have specified it), and would be an excellent reason to proceed if it is true, regardless of the prospects for success.

[Bill Lumbergh]

I think Ken hits it straight on the head.
Despite all the nonsense about GM not being able to produce quality vehicles (they build the best SUVs and trucks, and sell millions of small cars in Europe, so clearly they can compete with product), GM is in a position to recover along with the economy, or even before it, if their short-sighted and greedy management team is thrown out and replaced with those who will show some concern for the long-term health of the company, instead of the short term health of their own wallets.

[tjallen]

Don't you get the feeling the Pension Benefit Guaranty Corp is going to have a big role cleaning up this mess?

[low-tech cyclist]

I still say the most sensible route is for the U.S. government to use its eminent domain powers to BUY the Big Three. Then it isn't necessary to drive a hard bargain; in fact, it's not necessary to drive any bargain at all. From a position of ownership, we can simply dictate the changes that the automakers must pursue.

It also would dispense with the automakers and their lobbyists as a political force, which would be advantageous with respect to a wide swath of legislation, from CAFE standards to climate change.

And it would be cheap, too: current combined market cap of GM and Ford is just over $6 billion, and privately-owned Chrysler is generally valued at zero or just above.

[jamzo]

i am happy to see bruce point to the labor contracts

IMO the auto industry and the UAW have been major opponents of universal health care

now that they want to help from US, it is the time to enlist their support in moving to a more sensible, more efficient, more effective and more equitable health care system

i think the auto industry needs to sign up on environmental issues as well but few tie their (and UAW) historical and current positions on universal health care to any financial aid

[Blissex]

Let's change a few words and see how it reads: «I think it would be a terrible mistake to simply write a check to the financial industry without demanding major, major restructuring of its executive compensation contracts. Without that the money will simply go down a rat hole and the financial industry will just be back again in a year or two asking for more money. Bush has a strong hand to play here and I hope he uses his leverage. With bankruptcy as the only alternative to federal aid, he can drive a very hard bargain with the investment bankers. If he caves and just writes a blank check, everyone will know he can be rolled and he will pay a heavy political price for it.» I reckon that the UAW and the financial industry have both been profiteers and corporatist-fascists, but hey, on a very different scale: $57,000/y for UAW members may be way above current global market pay rates, is nowhere like the scale of looting and fraud in the financial industry. Compared to chinese or indian workers, UAW members are overpaid, but they actually work for a living building things of value, not ponzi schemes and scams.

[Blissex]

Reposting to make it clearer what I changed in the quote: «I think it would be a terrible mistake to simply write a check to the [financial industry] without demanding major, major restructuring of its [executive compensation] contracts. Without that the money will simply go down a rat hole and the [financial industry] will just be back again in a year or two asking for more money. [Bush] has a strong hand to play here and I hope he uses his leverage. With bankruptcy as the only alternative to federal aid, he can drive a very hard bargain with the [investment bankers]. If he caves and just writes a blank check, everyone will know he can be rolled and he will pay a heavy political price for it.»

[Blissex]

Actually I should have made another change: «Without that the money will simply go down a rat hole and the [financial industry] will just be back again in a [month] or two asking for more money.»

[Thomas]

One big difference between financial firms and the lagacy US automakers is that the rest of the economy does need a financial system and we do not need these three auto firms. Several investment bands were allowed to fail; I guess several auto firms could be too. How many more financial firms would have had to be allowed to fail before the automakers knew better than to ask?

Nice try but bailout case not proven.

[Slocum]

Blame management stupidity all you like, but going forward, Detroit is going to need not just labor that's as low in cost and as flexible as Toyota, Honda, et al have in the south, Detroit is going to need labor that is lower cost and more flexible. That's because Detroit is going to have to develop the quality products that the transplants already have in place AND -- this is critical -- offer more bang for the buck over many years to gradually kill the reputational disadvantages Detroit has. Believe that UAW are blameless victims of cruel fate if you like, but the bottom line is that they're going to have to work for less if they ultimately want to work at all.

And for those here who are enthusiastic about the government taking control of the Detroit automakers and dictating changes in product lines and business strategy -- ask yourself this, "Do I really think that auto companies working under control of the government are likely to be able to out-compete Toyota and Honda?"

[Bruce Bartlett]

I didn't mean to imply that labor contracts are the only thing that needs restructuring. But I was trying to make a more political point that I think it is a good idea for new presidents to stand up to their own side just to show who is boss.

George W. Bush's failure to veto anything in his first term is a good example of what I am referring to. By failing to stand up to the congressional appropriators he allowed pork barrel spending to get out of control, led to much corruption, and made it harder to stand up to a broad array of special interests in many other policy areas such as tax and trade. I think if Bush had vetoed something--anything--early in his presidency his hand would have been strengthened and maybe--just maybe--some of his administration's mistakes would have been averted.

I don't pretend that a few vetoes would have made Bush a good president. I'm just saying that Obama can learn from Bush's mistakes and caving into the UAW would be a big one in my opinion. There are plenty of other industries out there in only a little less bad shape than autos. If Obama opens the Treasury's check book for autos how can he say no to the next industry? At some point he will have to say no and wherever he draws the line will necessarily be unfair and cost him more politically than drawing the line here and now with the auto industry.

[Matthew G. Saroff]

Bartlett is dead wrong on auto union.

Most of the labor cost difference between the big 3 and the transplants is the age of the workforce and the number of retirees.

Same when you look at legacy airlines.

The overwhelming amount of the labor cost problems are because these concerns have been around for a while, and their workforce is older, which makes insurance more expensive, and they support more employees on the pension system.

Of course this won't prevent the very serious people in economics from screwing the union workers and breaking contracts.

[Chris]

Why didn't the Big 3 create an investment fund to pay for pension and health insurance costs in the future, since they knew they would be obligated to pay those costs in the future? If the answer to that one is too obvious, why weren't they required (either by law or by union contract) to create such a fund? (If they did create such a fund but didn't adequately fund it at the time, the same questions apply to the undercapitalization of the fund.)

It's not like these obligations are some kind of surprise. They could have been predicted literally decades in advance.

[Blissex]

«There are plenty of other industries out there in only a little less bad shape than autos. If Obama opens the Treasury's check book for autos how can he say no to the next industry? At some point he will have to say no and wherever he draws the line will necessarily be unfair and cost him more politically than drawing the line here and now with the auto industry.»

While I understand that Bruce Bartlett is not a fan of President Bush, the dfficulty with not bailing out the automakers is precisely the argument used above: because the banks have already been bailed out very, very expensively. Once that has been done, just about everybody else has to be bailed out, automakers and those in "only a little less bad shape than autos".

Both because of politics and because of fairness and because of economics.

As to the latter the argument is that the financial industry bailout has created a grave distortion in the pricing of capital, and since that cannot be taken back, one has to consider whether a limited distortion is worse or better than a whole-economy distortion. What's the lesser evil? Well, it could well be bailing out everybody. If only finance is given free capital, in effect policy is to move even more resources to the financial sector, which has already become bloated.

My overall contention was that it would have been better to let businesses fail in a market driven way, and bail out the affected individuals instead (there are very important differences and advantages to bailing out individuals, one of them being that it is much cheaper) with generous personal welfare and health care allowances...

[Blissex]

«The overwhelming amount of the labor cost problems are because these concerns have been around for a while, and their workforce is older, which makes insurance more expensive, and they support more employees on the pension system.»

But you should not say that! Because then it is pretty obvious that there are three simple solutions:

* Decide that employing older workers is an externality and charge *some* of their extra costs to the public budgets (the parasitic-exploitative way).

* Decide that employing older workers is fine only if older workers get a much lower wage than younger workers, ignoring seniority systems of pay, and let them eat catfood (the Wal*Mart variant).

* Decide that older workers are suckers, pump up the value of their assets with a bubble to make them feel richer, collect their anti-labor votes while they feel "F*ck you, I'm fully vested" rentiers (without being fully vested...), and then dump their assets and themselves in the gutter when the bubble explodes, and then cut everybody's salaries and benefits (the Grover Norquist edition).

Guess what the USA chose? :-)

[Blissex]

«Bartlett is dead wrong on auto union. Most of the labor cost difference between the big 3 and the transplants is the age of the workforce and the number of retirees.»

But the two are related: the big3 are only employing older workers because of the unions, otherwise they would have sacked them all of them long ago and replaced them with cheaper younger people (some in the USA south, most offshore) long ago. Indeed because of the unions they are paying (very) different salaries for the same job to older and younger workers.

And the issue is ultimately not even older workers protecting themselves with unions; that just skews the distribution of value added between labor and profits (and in effect the big3 belong to their pension funds anyhow).

It is that value added is not that awesome at the big3, because of poor management mostly. But then it is not that bad either, because the main "advantage" of new car factories/companies (in the south or abroad) is not greater value added, but a workforce with a much weaker bargaining power.