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[ntap]

China has too much at stake to not keep backing US currency: If they stop, the market for their goods dry up.

America's consumers are the backbone of the Chinese economy, and China is the backbone of our currency. Widespread financial ruin here = widespread financial ruin there.  Basically, we buy all the stuff that the Chinese make.  If we stop buying it, they stop making it and they're screwed.

You scratch mine, I'll scratch yours.

All this free market ideology is quite frightening and it seems to be pretty widespread: There are people who would rather see the majority of the social order fail instead of straying from free market principles.

Read: The auto industry in America is the largest consumer of steel, glass, rubber, and employs around 2.3 million people.  All of those innocents would be dragged along in the economic mess, this would create a huge mess.  Slidemansailor, talk about hurting the little guy - a collapse of the auto industry would totally bankrupt small towns dependent on factories. 

This isn't the time to let ideological views about how the world should be blind what the world really is.

[Andrew Meronek]

China has too much at stake to not keep backing US currency: If they stop, the market for their goods dry up.

America's consumers are the backbone of the Chinese economy, and China is the backbone of our currency. Widespread financial ruin here = widespread financial ruin there.  Basically, we buy all the stuff that the Chinese make.  If we stop buying it, they stop making it and they're screwed.

That's not really my point. What happens when China literally can't do it any more?

You scratch mine, I'll scratch yours.

All this free market ideology is quite frightening and it seems to be pretty widespread: There are people who would rather see the majority of the social order fail instead of straying from free market principles.

Read: The auto industry in America is the largest consumer of steel, glass, rubber, and employs around 2.3 million people.  All of those innocents would be dragged along in the economic mess, this would create a huge mess.  Slidemansailor, talk about hurting the little guy - a collapse of the auto industry would totally bankrupt small towns dependent on factories. 

This isn't the time to let ideological views about how the world should be blind what the world really is.

IMHO, if a big company like GM were to fail, they should fail by gradually downsizing over a long period of time. Not in one big crash. The reason why they're in danger of doing so now is because of all the rules in place set by unions and political expediency, preventing them from being able to cut their losses without threatening bankruptcy.

The U.S. automotive industry hasn't grown in many decades. My reasoning for not being overly enthused about government protection of the automotive companes is long term: we need some new, innovative automotive companies to revitalize the industry. How can that happen if the Big 3 are "too big to fail?" I agree that it's in peoples' best interests right now to hold off a total collapse of GM, but I worry that this reinforces a long-term set of political behaviors which are not helpful.

[djdekok]

China has too much at stake to not keep backing US currency: If they stop, the market for their goods dry up.

America's consumers are the backbone of the Chinese economy, and China is the backbone of our currency. Widespread financial ruin here = widespread financial ruin there.  Basically, we buy all the stuff that the Chinese make.  If we stop buying it, they stop making it and they're screwed.

You scratch mine, I'll scratch yours.

All this free market ideology is quite frightening and it seems to be pretty widespread: There are people who would rather see the majority of the social order fail instead of straying from free market principles.

Read: The auto industry in America is the largest consumer of steel, glass, rubber, and employs around 2.3 million people.  All of those innocents would be dragged along in the economic mess, this would create a huge mess.  Slidemansailor, talk about hurting the little guy - a collapse of the auto industry would totally bankrupt small towns dependent on factories. 

This isn't the time to let ideological views about how the world should be blind what the world really is.

I love that last line of yours--very wise of you.  I was having a discussion with a fellow Catholic parishioner about the changes in our parish since the new priest arrived.  Our city has been undergoing a (for lack of a better term) "diversity transformation"--that is, an influx of African American and Latin-American residents from not only Philadelphia but from Central and South America, and a shrinkage of the Italian and Irish that used to dominate here.  The neighborhood has changed and the last few priests did little to deal with it in spite of the fact that the school was losing enrollment and contributions were down.  This priest had the wherewithal to do something about it and is getting excoriated in the local paper, on line, and (sometimes) in person.  He and I don't always agree on things, but this time he's 100% right. He sees how it is, and is dealing with the reality rather than the expectation.

[Russ White]

I for one, am getting really tired of hearing "Legacy costs" or "union rules" blamed for the problems of the US auto industry. Those costs are contractual obligations that the automakers entered into freely in good faith negotiations. If they then did not figure these costs into their long term planning and future negotiations, then shame on them. I would like to see the annual cost of "legacy" items put up next to the compensation packages of the top 100 managers at GM. How far down the food chain would you have to get before those numbers equaled out? It's not the workers fault.

[BGuttman]

I think one of the major problems in the Auto industry is that they have a product introduction cycle that cannot be put in "sync" with the buying desires of the American public.

The typical tooling cycle for an American car is on the order of 5 years.  That means if they made a decision to introduce a new car size tomorrow, it won't show up until the 2015 model year!

Gas prices here went from $2.00 a gallon to $4.00 a gallon over the course of 6 months.  The American car companies couldn't bring enough smaller cars to market quickly enough.  Then just as suddenly the gas prices went back to $2.00 a gallon and people are going back to the Land Yachts.  The American car company model cannot deal with this kind of change.

This happened once before.  In 1973 the Arabs decided to try withholding gas from the US and Europe.  You couldn't find gas; or if you could, you had to wait in line for 3 hours to get it.  There were some "odd little Foreign cars" from folks like Toyota, Datsun (now Nissan), and Volkswagen that got great gas mileage, so people would abandon the V-8 monsters in favor of these little guys.  Chrysler jumped on the bandwagon bringing in a Mitsubishi car (I owned one of these - the Colt) and a British car (the Cricket).  People laughed at me for my "toy car" but I got where I needed to go.  Then gas became readily available and everybody (except me, it seems) ran out to get some new V-8 power.

What we need to do is to get the American car companies to find a way to produce products that can quickly adjust to changing popular tastes.  That's what the "Bailout" money should be spent on.

[Andrew Meronek]

I for one, am getting really tired of hearing "Legacy costs" or "union rules" blamed for the problems of the US auto industry. Those costs are contractual obligations that the automakers entered into freely in good faith negotiations. If they then did not figure these costs into their long term planning and future negotiations, then shame on them. I would like to see the annual cost of "legacy" items put up next to the compensation packages of the top 100 managers at GM. How far down the food chain would you have to get before those numbers equaled out? It's not the workers fault.

True, it's definitely not the worker's fault. Don't confuse workers' efforts with union efforts, though. They are in sync most of the time, but not all.

http://www.businessweek.com/magazine/content/05_19/b3932001_mz001.htm

"The carmaker is saddled with a $1,600-per-vehicle handicap in so-called legacy costs, mostly retiree health and pension benefits."

"Normally a company in such straits contracts until it reaches equilibrium. But for GM, shrinkage is not much of an option. Because of its union agreements, the auto maker can't close plants or lay off workers without paying a stiff penalty, no matter how far its sales or profits fall. It must run plants at 80% capacity, minimum, whether they make money or not. Even if it halts its assembly lines, GM must pay laid-off workers and foot their extraordinarily generous health-care and pension costs. Unless GM scores major givebacks from the union, those costs are fixed, at least until the next round of contract talks in two years."

There's definitely plenty of blame to go directly to GM, too. But it's a mistake to not look at all sides of the problem.

[Exzaclee]

well, if GM can't make it's obligations to it's workers, it should have to pay a penalty.  pensions should be inviolable.  some guy forgoes a college degree for a career with GM and all the sudden he's 52 and looking down the barrel of a layoff?

As much blame as can be put at the feet of the unions, this kind of thing should not happen,  that's why the unions exist - to keep the american worker from getting screwed.

one of the many negatives of a "free market" system - it usually the worker that gets screwed.

you screw enough of them and you're setting the stage for some serious instability.

[evan51]

It seems to me that much of the discussion of the auto industry centers around how to maintain the rampant consumerism we've experienced since the Reagan days and long before that. Yes, millions of jobs and dollars are tied up in producing these units to propel individuals from place to place at an incredible financial and environmental cost. While we had started to examine the impact of these customs in the 60's and 70's, the 80's saw a return of unrestrained consumerism and a denial of the concerns of the environmentalists. There is no significant move to design better cities, more efficient and cost effective mass transit, and manage resources with "sustainability." I have the sense that the longer we pretend this is not important the more painful the inevitable is going to be.

[kbiggs]

Correct me if I'm wrong, but this only applies during inflation, yes? Thus, a government in debt has this specific incentive to keep inflation going?

Andrew, my bad.  I meant to say "real dollars," not "time value of money."  Sorry 'bout the confusion.  Still, "real dollars" implies constant, incremental inflation, but the theory is to keep it in check.  Obviously, there have been times where inflation has not been in check by adjusting monetary and fiscal policy.   

Also, I fail to see how the debt really promotes stability, given current events. It seems to me that it hasn't affected stability noticeably either positively or negatively. Except perhaps historically; I'll provide two extreme examples of negatively affected stability:

Augustus Caesar ran up huge debts during his ascension to being Emperor. He paid those debts by killing and seizing the property of political enemies and people he otherwise just didn't like. By modern standards, this would be the equivalent of the U.S. government seizing and liquidating a large number of companies and estates.

The Soviet Union famously ran up a huge debt before it collapsed.

Yes, those are two good historical examples of huge debts that  eventually led to tremendous social change and revolution.  However, I would argue that because those societies were not capitalistic, they don't really apply. 

[Russ White]

True, it's definitely not the worker's fault. Don't confuse workers' efforts with union efforts, though. They are in sync most of the time, but not all.

http://www.businessweek.com/magazine/content/05_19/b3932001_mz001.htm

"The carmaker is saddled with a $1,600-per-vehicle handicap in so-called legacy costs, mostly retiree health and pension benefits."

"Normally a company in such straits contracts until it reaches equilibrium. But for GM, shrinkage is not much of an option. Because of its union agreements, the auto maker can't close plants or lay off workers without paying a stiff penalty, no matter how far its sales or profits fall. It must run plants at 80% capacity, minimum, whether they make money or not. Even if it halts its assembly lines, GM must pay laid-off workers and foot their extraordinarily generous health-care and pension costs. Unless GM scores major givebacks from the union, those costs are fixed, at least until the next round of contract talks in two years."

There's definitely plenty of blame to go directly to GM, too. But it's a mistake to not look at all sides of the problem.

And the management folks that, during good faith negotiations, freely entered into the contracts mentioned above  are the ones that are now in DC with their hands out asking us to pay for them. I saw the City I worked for give our Firefighter's union some unbelieveable contracts that just didn't make sense when I was working. The City is paying for them big time now, and I would hope that future negotiations are more balanced. The reality is that negotiations are virtually always carried out as an adversarial exercise, when they really should be between equals trying to jointly provide the best service, product, etc. to the customer while as fairly as possible dividing up the resultant profits. Not going to happen in the me,me, me free market economy.

[kbiggs]

Labor unions historically had a vital role to play in the development of the modern workforce.  For one, they served primarily to protect workers when gov't rules and regulations weren't adequate to address criminal and rampant abuse of people.  They still have a vital role to play, I think, because the mind-set of most businesses hasn't changed much.  Just think of the many reports we've had of sweatshop conditions in Asian, South America and African countries (the "3rd world") where worker protection is hardly on the political agenda.   Left to their own devices, most businesses attempt to make as much money as they can regardless of the consequences or harm to individuals, the environment, or the economy.  Unions will almost certainly have to make significant concessions. 

The costs and consequences are made worse by "globalization," the notion that we are all much more connected than we used to think: e.g., many now think of the earth as a "closed system," and we are now aware that we have inter-related and inter-dependent economies and monetary policies.  Why else would bank failures in the US decimate the banking systems in Ireland and Iceland which, until 6 mos. ago, were 1st world countries labeled as "models" of efficiency and health?   So, perhaps unions can broaden their focus to incorporate some of the concerns we're only recently becoming aware of, like the environment and the economy. 

On other hand, businesses like auto mfgrs. need to learn a lot more about sustainability.  No doubt, some of their "models" of profitability and future predictions of costs and income must be re-worked.  Maybe that will lead them to make some domestic cars that are as attractive, fuel-efficient, and inexpensive as some of their Asian counter-parts. . . but that would really be a revolution, wouldn't it? 

[ntap]

That's not really my point. What happens when China literally can't do it any more?

The U.S. automotive industry hasn't grown in many decades. My reasoning for not being overly enthused about government protection of the automotive companes is long term: we need some new, innovative automotive companies to revitalize the industry. How can that happen if the Big 3 are "too big to fail?" I agree that it's in peoples' best interests right now to hold off a total collapse of GM, but I worry that this reinforces a long-term set of political behaviors which are not helpful.

It may, but what GM needs is for it's customers to have a healthy and reliable flow of credit; our economy depends on that.  I think product innovation would be important if we weren't in the kind of recession we are in - Don't get me wrong, GM didn't gauge the market very well by not making fuel efficient cars  - but I believe the real reason they aren't selling is because the banks aren't lending. 

So I say keep the big three going until banks start lending again, then the market will pressure them, most likely to build fuel efficient cars. 

While we had started to examine the impact of these customs in the 60's and 70's, the 80's saw a return of unrestrained consumerism and a denial of the concerns of the environmentalists. There is no significant move to design better cities, more efficient and cost effective mass transit, and manage resources with "sustainability." I have the sense that the longer we pretend this is not important the more painful the inevitable is going to be.

I read this magazine called Scientific American, and almost every month for the past year, they've had features on how to do exactly what you're talking about.  Green energy grids, massive solar panal installations in the desert, all the like.  http://www.sciam.com/earth-and-environment  Check it out here.
I think the only way we are going to achieve the environmental goals we have is to have government step it, which is exactly what money (hopefully) from the stimulus will go towards.

[Andrew Meronek]

well, if GM can't make it's obligations to it's workers, it should have to pay a penalty.  pensions should be inviolable.  some guy forgoes a college degree for a career with GM and all the sudden he's 52 and looking down the barrel of a layoff?

As much blame as can be put at the feet of the unions, this kind of thing should not happen,  that's why the unions exist - to keep the american worker from getting screwed.

one of the many negatives of a "free market" system - it usually the worker that gets screwed.

Tell me of a system that works better.

[Andrew Meronek]

And the management folks that, during good faith negotiations, freely entered into the contracts mentioned above  are the ones that are now in DC with their hands out asking us to pay for them. I saw the City I worked for give our Firefighter's union some unbelieveable contracts that just didn't make sense when I was working. The City is paying for them big time now, and I would hope that future negotiations are more balanced. The reality is that negotiations are virtually always carried out as an adversarial exercise, when they really should be between equals trying to jointly provide the best service, product, etc. to the customer while as fairly as possible dividing up the resultant profits. Not going to happen in the me,me, me free market economy.

You say "freely entered" then you say "adversarial exercise." I don't see how it's possible to reconcile these two views.

[BGuttman]

Remember that a lot of the deals that are currently dragging down the Big 3 Auto Makers were agreed to in a different time with different market conditions.

Non-Big 3 auto makers in this country have very different agreements.  They are not getting guaranteed medical coverage on retirement and are generally getting much lower pay scales for similar work.

It's time for the Unions and Big 3 makers to sit down in a cooperative manner.  The Unions have to realize that economic realities are very different today than they were 20 years ago.  The companies have to agree to share financial operating data with the Unions.  If they choose not to do this, they run the risk of being accused of having something to hide.  Also, Management has to agree that in the case of difficult times, EVERYBODY tightens the belt.  Workers get a pay cut, and Managers get a pay cut.  Same percentage.  Failure to do this will result in Bankruptcy and nobody gets anything.

[Exzaclee]

Tell me of a system that works better.

A free market system that takes the rights of the workers and consumers into account would be a better system.


During the Bush years we used to complain about how the greatest experiment in the history of man, that of democracy, had been subverted by the rich and powerful and the result had been the death of american political power abroad and the death of trust here at home.  

And some guy lacking the ability to argue his point would patriotically cry out: "Tell me of a system that works better."

This system should work better.  The question you should be asking "How can we make our system better?" - then we have a discussion.

Z

[Andrew Meronek]

This system should work better.  The question you should be asking "How can we make our system better?" - then we have a discussion.

I was under the impression that this was exactly what we were talking about.

You said:

one of the many negatives of a "free market" system - it usually the worker that gets screwed.

I was trying to ask if you knew of a non-free market system where workers didn't get laid off.

Anyway, I don't think that such a system exists that is still competitive on a world scale. Layoffs suck, but they're part of how a company responds to changing market conditions. When people speak of having a "social safety net," or what is one of the main aspects of socialism, I don't think they're necessarily talking about preventing people from getting laid off. I think that they're talking about making sure that people don't get thrown out on the street as a result of layoffs. Hence, unemployment benefits, social security, and the like.

Having unions negotiate great benefits and job protection within a company is great and all, but if as a result that company has that much more trouble responding to market conditions, then it's a bad deal. No workers are really helped if the company goes belly-up. Of course, as we are talking about this stuff, I'm sure that the UAW and GM are figuring out how to survive this crisis of theirs - it just makes it tough to have to wait this long, with the threat of bankruptcy and government intervention. The consequences are more severe now than if they had BOTH planned ahead better.

[Exzaclee]

Okay, here's a trend i'm noticing -

the suburb i'm living in has had 2 or 3 houses go vacant in the last week.  houses cost an average of $110-120 thousand.  Good neighborhood, good schools.  People leaving for cheaper environs - the latest a family of 4.

anyone else seeing this pattern in their neighborhoods?

Z

[RedHotMama]

Several of the flats in my block have recently been repossessed. Does this count?

[MoominDave]

Oh man, I wish houses cost that little where I live! A family of four in a $120,000 house... The two-bedroom terraced house I bought with my now ex in a rather downtrodden and far-flung corner of Oxford cost £185,000 - or about $350,000, by the exchange rate at the time we bought it.

This is a symptom of the same effect that should stop what Zac is noting happening in SE England - much greater population density; there's nowhere else to go!