Labor Dealt a Holiday Kick in the Teeth

These are tough times for labor, as indicated by the bailout deal being offered to US automakers by the government which requires major concessions from the unions including a reduction in their hourly pay so that their wages are the same as the wages for Nissan, Toyota and Honda. This post by Kevin Drum has a chart showing that the difference in wages is about $3 an hour — $29 for Ford, and $26 for the Japanese makers in the US. The bigger concessions will need to come from wage-related costs, benefits, and legacy costs.

My husband’s family is from Michigan — many of them worked for the GM plants. It’s hard not to feel afraid for the Michigan people and their economy when Chrysler announced that it will cease paying union workers for four weeks in January, leaving people to rely on unemployment payments and some supplementary payments from Chrysler. I don’t know about you, but January is when the big credit card bill comes due from the holidays, and even with belt-tightening, it would be hard to take a pay loss at that time. It means more debt for ordinary people.

On the brighter side, at least they are not announcing that they are closing down for good. It is disappointing, though, to hear that the new factory for building the Pontiac Volt is going to cease development — this was to be their entree into the electric car market.

The most shocking stat I’ve heard in a while: Chrysler sales dropped by 47% last month.

15 thoughts on “Labor Dealt a Holiday Kick in the Teeth

  1. There seems to be a logic and “dislogic” to views about the American auto industry current difficulties that is at once confusing and less than candid. In a complicated world, substance is the first victim of oversimplification. For example, one report inticates that virtually bankrupt GM in America stands in stark contrast to GM foreign operations, that are earning substantial profits in very competitive markets. The reasons also seem straight forward: GM overseas products are excellent, and produced at less cost, than American products. For example, one report indicates that the cost to GM in bloated benefits packages to employees is actually $79/hour, not $29-$32/hour of foreign manufacturers here in the U.S. and GM costs overseas. The additonal lack of sense is seen in the silly policy that does not allow GM to import its foreign models, largely as a sop to bloated organized labor interests.

    In an effort to trim costs, GM and others went to foreign providers of auto parts. American made now means 50% of a vewhicle can be made in Mexico or elsewhere. It was after all the Democrats (and incoming Secretary of Commerce, Bill Richardson), who brought NAFTA to the world, now recognized as one of the major links in disassembling American manufacturing. So while Detroit auto works were getting $79/hour in salary and fringes, and being paid not to work when there were plant closings, American machinists were fired and unemployed or forced to work at Walmart.

    In addition, the world has changed and buyers have more choices of vehicles. The three auto giants are now 6, 7 or 8 with Toyota, Nissan, Kia, Honda, and others in the mix. Added to these, BMW, Audi, Mercedes, are all very competitive in terms of price. American autos are as good in quality as almost any, and overall, as fuel efficient, despite the vapid comments of members in Congress. When looked at in terms of size, weight, engine displacement, large Toyota or Honda V-8 trucks, get the same mileage as Chevy or Ford or Chrysler models, and small V-6 powered cars or trucks are about the same as well. In actuality, American products have closed or bettered the “quality” gap, are as good in technology and usually better in crash worthiness than foreign brands with the exception of Mercedes or BMW.

    With these factors in mind, it is certain that a major part of the difficulty of GM, Chrysler and Ford is the legacy benefits anchors around their corporate necks, and the non-competitive contracts they are forced to have with the last breaths of organized labor. Given the incoming administration’s debt to that archaic labor bureaucracy, we will all be losers in the end. The domestic auto industry is not likely to survive,American taxpayers will again be forced to pay the bill, and foreign competitors will win the field. GM will survive, but in a foreign venue, and in the end once the inevitible end of GM and Chrysler occurs (Ford may weather the storm), GM and Chrysler auto workers (active and retired) will have nothing left. Will American taxpayers then be asked to pay that bill as well?

    The bailout of Chrysler is equally less than rational. The company is now owmed by an investment consortium that refuses to invest more capital in that broken company. One wonders why American taxpayers shoul bail Chrysler if its own owners, who have funds, refuse to invest in their own company. One can only be pleased that Ford seems to have discovered that it needs no bailout and prefers to go to the private funding market. It is likely that Ford is more interested in maintaining its independence rather than agreeing to sill government caveats that will accompany any federal largess of txpayer money.

    From this and other available perspectives, it would

  2. Donald,
    In your first paragraph you mention a report that states
    “… the cost to GM in bloated benefit packages to employees is actually $79/hour, not $29-32/hour of foreign manufacturers here in the US.” I find it hard to believe that Toyota and Honda workers in Ohio, Indiana and Kentucky are only making $29-32/hour when their benefit packages are included in the equation. If the figures Kiersten sites above are accurate and the hourly wage difference is $3/hour, then according to the report you site the rest of the foreign manufacturer’s benefit package checks in at a cost of $3-6/hour??? It’s apples and oranges…no fair comparison can be made between these two groups by including the cost per hour of one’s benefit package and not the others. GM plants here in the states have a 1 to 12 ratio of supervisors to workers, while at GM plants in Japan the ratio is 1 to 200. Perhaps GM should consider “importing” and incorporating that ratio into their domestic SOP.

  3. If you look at Kevin Drum’s chart, it shows the total costs including fringe benefits and longevity at $49 an hour for nonunion Japanese carmakers with factories here in the US, as compared with Ford’s $71 an hour. Just to clarify what is being compared — the plants are not in Japan — they are in the US.

  4. Kiersten,
    After I posted I re-read the Drum chart… While the $22
    per/hour difference is quite large, it is still much smaller than the $50 difference referenced by Donald.
    To clear up any misunderstandings, the figures I closed with WERE based on plants in Japan. They were taken from an APWU/NALC (2 largest postal unions) pamphlet…
    this arguement may be slanted, but then again, what arguements aren’t?

  5. It’s interesting that any discussion of reforming the auto industry focuses on the overbearing labor unions while extolling the heroic efforts of auto company management. For example, the primary burden of the “loan� to GM and Chrysler is placed on the unions, requiring that they grant “concessions� to make labor costs roughly equivalent to workers at foreign owned domestic car companies. Meanwhile, the agreement calls for executives to resist giving large bonuses, taking golden parachutes and the like. However, this same agreement permits the top 25 highest paid executives to receive extra compensation if the President’s designee (i.e. the Car Czar) allows it. Seemingly, under the agreement, the Car Czar has no such discretion relative to workers and their benefits.

    What seems to be mandatory is that one-half of the company contributions made to employee pension funds be made via equity payments. You just knew the White House gang would “privatize� some retirement/pension plan before they headed out of Dodge (sorry – just trying to keep in the auto industry spirit). Of course, the worker who is going to try to plan his or her future retirement plan on that payment scheme is kind of up against it, but what the heck. Why let rational thought interfere with a blind ideological adherence to “free market� principles. Principles that don’t work the way they’re presently constituted.

    Also, does this Agreement open the door to another version of AIG? TARP forbids executive bonuses. So what did the creative folk at AIG do? They gave out retention payments to all who promised (did they cross their hearts and hope to spit?) to stay at AIG during the upcoming year. Would a bonus by any other name not smell as sweet? Will the Car Czar permit similar retention payments?

    Here’s a thought – maybe the executives at these “sick� companies should spend the same amount of creative energy operating their companies efficiently rather than gaming the system. Especially when we’re picking up the cost of their game.

    Also, let’s beat up the democrats. Yup, let’s throw NAFTA into the mix. Whether NAFTA is the “giant sucking sound� envisioned by Ross Perot or the “Highway To Hell� celebrated by AC/DC, the fact is that NAFTA wasn’t around in the 1980s when GM was closing down plants in Michigan and opening factories in Mexico. NAFTA wasn’t enacted and executed until 1993. I hate it when factual timelines get in the way of a good narrative.

    Nobody disputes the statement that labor costs contribute only 10% to the cost of a GM/Chrysler/Ford automobile. And nobody has come forward to dispute that if the concessions run as expected/demanded, only $ 800.00 would be sheared off the cost of a car/truck. Gee, is that going to make a difference in the ability to sell cars? I doubt it.

    I don’t expect this loan to make a great deal of difference to the operation of the auto industry. For one thing, it requires that the companies come up with a solid reform plan by the end of March, 2009. From the same guys who ran their companies into the ground, particularly Rick Wagoner. Although he’s only been Chairman and CEO since 2003, he joined GM in 1977. Thus, he came of (corporate) age in the dysfunctional corporate culture that spawned this current mess. Does anyone expect that Wagoner’s inner innovator (which no doubt hangs out with his inner child) will come to the fore and make the necessary changes in a mere three month? If you think that’s possible, I’d suggest asking one question – if he and his management team didn’t make these changes over the past five years, what make anyone think they will do so over the next three months?

    Let’s call this what it is – President Bush’s attempt to not seem like the second coming of Herbert Hoover at Christmas. And it’s a beautiful attempt – hose the workers, privatize retirement plans, set impossible deadlines for reform, make “mean faces� at corporate executives while winking at them to let them know he wasn’t serious, hang on for the next thirty days doing some scaled down version of a farewell tour, and hand the whole thing off to Obama.

    Merry Christmas, President Bush. You’re doing a heck of a job, Georgie.

  6. Numbers matter. We forget that a billion dollars is 1000 million dollars, or that a trillion dollors is 1000 billion dollars. We will have expended something like 2 trillion dollars by next year bailing out or “stimulating” and that will be two thousand billion dollars or something like $180,000 for every American family. Now I may not be too bright, but it seems to me that we might have just printed enough money to GIVE every American family $180,000 and that would have really been a stimulus, and we could have all purchase new cars or trucks.

    Unfortunately, there is illusion and there is delusion. The illusion of “inferior” American products and “superior” foreign products is an illusion. American cars, light and heavy trucks are as good or better than comparable foreign marks, and quality is largely price dependent. A Porshe SUV at $100,000 or $75,000 Range Rover is no better than $48,000 Suburban. A half ton Chevy or Ford pickup is no less fuel efficient that a Toyota Tundra, and the best “hot” bargins are the big engined Corvette or Dodge Viper, as good or better than almost anything else in the world at twice or three times the price (except of course for the $1.3 million Bugatti). The shortcomings of Detroit (and “Detroit” is not appropriate since all auto manufacturing is internationalized and 50% American parts makes a U.S. car or truck American and not Mexican, possibly because of the carry-over of the term “Detroit” and not NAFTA. NAFTA and the manufacturing plants and low paid workers are real–of course the factories began before formal invocation of NAFTA, but more than multiplies 100 times after NAFTA–the idea happened before the invocation on paper, and like most ideas originated in the free market place. Yes, it was Mr. Clinton, and the lees than astite Mr. Richardson then in Congress, who urges the disaster that became NAFTA. The loss of an American manufacturing, and the evolution of this nation as an economy more and more comprised of “insurance agents sell insurance to each other,” or the absurd dream in hedge fund indexes that have no correspondence in real things except the million dollar bonuses to empty headed executives is the real travesity. Yes, the incrmental increase of benefits via incomprehensible labor contracts is just a symptom of the current difficulty, not the cause. The base cause is loss of productivity and the competitive edge. Mexican, Indian and Chinese workers are talented, intelligent and hunger for prosperity and material wealth. That wealth will arise from an economic base of heavy and light industry and competitive pricing, all attributes America brought to the market place at our peak of energy. If we are to reclaim properity, we must be able to challenge and can only do that with efficiencies and economy. A $60/$70$/$80/hour nut for the auto industr cannot compete with a $30/$40/$50 nut seen in non-union factories. Of course if GM and Chrysler fail in the U.S., a good part of the loss will be absorbed by Honda, Toyota, BMW or any of the other foreign companies operating in the U.S. When their payrolls get too bloated, they may fail, and some other company will replace them. An international GM will continue and will earn profits elsewhere in the world.

    One cannot see any logical advantage to a bailout of any auto company, or for any other company for that matter. In the end, the market place would have sorted the mess out. If cars and trucks are in demand, they will be manufactured and purchased.

  7. Well, we both agree that the movement of jobs out of country began at least a decade prior to the ratification of NAFTA. Indeed, the loss of manufacturing began in the late 1960s, decades before NAFTA was ratified. At worst, NAFTA greased the skids that were already in place.

    The fact is that our economy has moved from a manufacturing economy to a service economy. The wealth of a society is determined by that society making something that someone else is willing to pay for. We don’t do much of that any more. We’ve watched while foreign competition eviscerated our manufacturing base, such as the steel industry, only to see it replaced by a service economy. There’s nothing wrong with service industries, but it can’t carry the burden of wealth creation for long. Thus, while the American worker had, by most measures, the highest per capita productivity in the world there were fewer opportunities over the decades to produce items that others would pay for.

    Also, workers were producing more while receiving wages that, for the most part did not keep up with the real costs of living (and not the CPI guff that’s published each year – it was outdated three decades ago). Increased productivity with stagnant wages resulted in increased profits for management and investors. Rather than reinvesting in their domestic businesses, management sought to increase the bottom line by further reducing wages (relative to real cost of living) while increasing individual productivity. When that ran its course, it became more desirable to move businesses overseas, where impoverished countries would jump through hoops to get them and people would work on the cheap. Profits soared, investors doubled down on their investments, the market rose, and more and more manufacturing jobs were lost.

    And this isn’t a NAFTA problem, although it’s an obvious and visible symbol of the overall problem. NAFTA has nothing to do with off-shoring to China, India, Ireland, Singapore. This is the result of decisions made in corporate boardrooms by people who worried about investors and their own bonuses. They allowed their businesses to deteriorate and were surprised when, due to neglect, they fell apart.

    In a normal economy, it would be easy to watch these companies go down. And not just GM and Chrysler, but also the banks and investment firms that squandered depositors’ and investors’ money on risky debt instruments while taking their piece. But this isn’t a normal economy. Saying that, for instance, GM and Chrysler should be allowed to go to bankruptcy and disappear flies in the face of the economic disaster that would result.

    The problem isn’t the “bailout� but how the bailout is being handled, or mishandled. By placing the burden on those with fewer resources and living precariously in uncertain times is not only unfair, but also stupid. These working people are more likely to spend their money on necessities, which in itself is an economic stimulus of sorts. Their wealthier counterparts in management are more likely to invest in ventures having nothing to do with their businesses. Thus, those at the top will save a disproportionate share of income, which is neither job creating nor economically stimulating in the short term.

    Reliance on an unfettered free market to solve all economic problems is misplaced. We’ve seen throughout history how, when unrestrained by even minimal regulations, the free market becomes predatory and Darwinian. Even Adam Smith realized the dangers of an unregulated free market and urged a place for government to maintain or restore equilibrium in the economy. If we needed evidence that Smith was right, we need only look to the results of Milton Friedman’s brand of unrestrained capitalism (the so-called “Chicago school� approach) and free market ideology and its impact on Britain and Chile, among other places. So, I’m not optimistic that, if left to its own devices, that the market place would sort this mess out on its own.

  8. There is a mythology and less than precision to terms such as “normal economy” or capitalism red in tooth and claw to borrow a Darwinian notion. Both are misplaced. There is really no such reality of a normal economy and capitalism has never been unchecked. “Normal” is relative to what else is happening in the world. Our reliance on a cartel producing oil is “normal” for our time, even in the spite of the logic that says drill more and produce more and break the back of the cartel, mak cheap energy and revitalize the economic life of the world. Our normal is not to make much of anything at home any more. From shoes to televisions to computers to cars to oil, we are slaves to foreign interests.

    Our “normal” is a $1.3 trillion GDP (that’s $1300 billion) with a very strange economic downturn where 93% of the working age population is employed, everyone has cell phones and cars and cable television and a 3000-4000-plus daily calorie diet, and pays $150 for tickets to events of one kind or another or $200 for shoes. This is our “normal” and hardly the “normal” for the world or other economic downturns in out own history. It is also interesting that we seem to have accepted the analysis of very few financial bureaucrats led by Mr. Paulson and Bernacke, that the world would end if we did not intercede in the banking and market place. Little or no data has been forthcoming that such would occur. There is a miserable data set of mishandling and interference by government in the business and life of this nation. It is also remarkable that virtually unchallenged, in this supposed time of economic duress, Congress just voted itself a $4000 pay raise.

    Returning to the paradigm of bad behavior of the auto industry, one musk ask why a GM or Ford can earn profits in foreign markets and not in the domestic market. I recal a trip to China where I was amazed at the number of Chrysler Jeep Cherokee SUVs roaming the streets, manufactued in Chrysler plants in China. Of course the answer lies in lower labor costs, lower costs for parts, etc. The newer and more efficient business paradigm does work, whether domestically as in companies now here such as Toyota, Honda or BMW or abroad, where American companies earn profits. Is there not a lesson to be learned here.

    I suspect that the less than adequate retort that America is a service dominated nation, rather than a modern industrial nation, has a soothing effect on many. But is a false palliative with no historic context. A nation that does not mine its own resources, develope its own energy needs, or manufacture its own goods, is less than a viable entity. There is no historic model for a successful nation that relies on others for its needs. Not everyone can sell insurance or earn significant salaries waiting on tables. If we end up making nothing, we will be beholding to those who do, and much like Western Europe, for example,captive to the Russians for oil and gas, we have drifted dangerously close to captive nationhood. The irony of the situation may well be that a structured bankruptcy of the auto industry components that cannot survive as they are, may well let them survive in the long run.

  9. Mostly, this is directed to Mr Wolberg, since he has come across as the champion of mgmt against labor. I respectfully suggest you may want to reconsider your position. The evidence is overwhelmingly against you. Since I believe you are a scientist, it is beholden on you to realize this and re-think, rather than repeat supply-side cant and propaganda.

    First, the majority of the difference in cost between Ford and Toyota comes from the fact that Ford has been making cars in the USA for 90 years, while Toyota has been around for about a generation. WHAT THIS MEANS: that Ford has many, many, many more “legacy costs” than Toyota.

    And let’s be clear: “legacy costs” = retired PEOPLE. That is, old folks who put in their time and now are looking for what was promised them. Mr Wolberg, are you going to be the one who tells these folks that they have to do without their pensions? Or, how much of a tax increase are you willing to endure to foot the bill when GM/Ford dump their “legacy costs” on the Pension Benefit Guarantee Board-which is subsidized by the US gov’t?

    Second, who signed these contracts? The UAW? Sure, but a contract requires two parties. Who agreed to give out these benefits? Not labor. Mgmt in the US has virtually no incentive to take a view longer than, say, 3-5 years. Basically, a lot of mgmt decisions are based on the IBG principle. IBG = “I’ll be gone” when the bill comes due. During many of the negotiations of the past generation, UAW has taken smaller wage increases in exchange for higher retirement benefits. And guess what? The guys who agreed to this are–SURPRISE–gone.

    IOW, mgmnt dug this hole and then just dropped the mess onto the laps of their successors. Like GWB is doing.

    Third, you make an excellent point about overseas profitability. Ever hear of Delphi? It’s a major GM parts supplier that GM spun off back in the mid-90s. It’s very profitable overseas, but it went bankrupt here in the US in order to dump their “legacy costs” onto the US taxpayers. Why? Made great business sense. How? Because corp-friendly bankruptcy laws make this kind of manoeuvering possible.

    Fourth, since mgmt is truly the guilty party here, why are they being asked to give back anything? Because they have bought and paid for gov’t on both sides of the aisle.

    Look, in all the talk about income inequality, one thing very often gets overlooked. If money were just money, inequality might not matter so much. But money is a surrogate for, or creator of POWER. With so much money going to corp profits–a huge share of it going untaxed–and none going to labor, guess who’s got the most power in our corrupt democracy? Hint: it ain’t labor.

    Fifth, and worst: who voted against the bailout? Southern senators. Specifically, those with BMW, VW, Toyota, Honda etc plants in their home states.

    IOW, they are deliberately taking a shot at a competitor in order to benefit the companies in their home state. Companies that have their headquarters in other countries.

    And this is the worst part because, in large part, the economies of these states are subsidized by the very fed taxes that they claim to despise. Go to the Tax Foundation website, and you will find a chart of how much individual states receive in tax dollars per dollar paid. MS, AL, TN, KY, GA, SC…states whose senators opposed the bailout all RECEIVE MORE IN FED TAXES THAN THEY PAY IN.

    Got that? My tax dollars are supporting these folks, and they are turning around and using my money to subsidize foreign competitors. Why? Because they don’t like unions.

    Look, the wage differential is $3. But bet your bottom dollar that, if GM/Ford collapse, that wage is going to stagnate and then fall. A Honda worker in KY gets paid as much as they do because they have to be in the same ballpark as the UAW. W/o the UAW, Honda can–and will– pay less than they do now.

    IOW, the real issue here is the ‘race to the bottom.’ The senators who opposed the bailout are proponents of driving wages as low as possible, in order to drive up corp profits.

    Here’s another thing: GM is profitable overseas, but mgmnt in other countries makes barely a fraction of what mgmt does here. Is that a coincidence? A correlation? Or is there a causal element. You imply that the cost of labor has a causal relation, how about the cost of mgmt?

    Look, I’m not even close to being done here; a generation of Repub economics has consciously and deliberately screwed the middle class in a vicious round of class warfare. They will continue to do so unless and until deliberate and conscious steps are taken to repeal and counteract these policies.

  10. Just a couple of quick points before I have to go to holiday parties and start chanting and giving offerings to the snow Gods to get them to stop.

    First, it’s easy to look at the China model and boot-strap that into an economic model of efficiency – whether in the automobile or other manufacturing concerns. Labor is cheap in China, for the most part. Some of it is prison labor, a lot of it is unskilled. So over we go, our captains of industry, to a society that make Dicken’s London look like Elysium in comparison, and exploit that market. To boot, the do it subsidized by American taxpayers and at the expense of American jobs. If that’s the free market, give me a mixed economy with a real industrial policy any day.

    To the issue of lower wage costs off-shore, let’s look at India. Many of the financial services concerns exported skill jobs (e.g. IT) to India to be performed by Indians. So far, so good – at least for the companies. Why did they go to India? Because it had a relatively broad base of educated workers who worked for low wages. So, over the past decade what’s happened? Wages have increased an average of 12% per year, cutting into the anticipated profits and skewing the economic models of these companies. An ancillary affect has been the inability to retain long-term employees, thus driving up salaries to attract replacements and training costs to train these replacements. Within a fairly short time, this looks less and less like a good idea. Then what’s next? The African continent? Southeast Asia?

    There are some areas on which we do agree. As to the “retort� of America as a service economy, it wasn’t a “retort� adequate, soothing or otherwise. In fact, we shouldn’t be soothed by this. To the contrary, my point was that without an economy that actually makes things of value that others are willing to pay for, we’re doomed as a world class economy. There are a lot of writers/analysts who have been making this point for decades. I agree with them. Apparently, so do you.

    By normal economy, I merely meant “normal� times w/o the expanding implosion that took place since mid-September. To permit one to three million jobs to go under due to the collapse of the automobile industry would merely through gasoline on the existing conflagration. However, I think we both agree that the new “normal� is abnormal – an economy in transition.

    Finally, I couldn’t let pass the comment about the 93% of working-aged population working during the downturn. This is one of my favorite canards. First, this just isn’t true. It’s 93% of those counted who are working. So, people who work part-time or are otherwise underemployed are not counted in the labor force for purposes of the unemployment rate. People who drop out of the job hunt, for whatever reason, without procuring employment are not counted. People whose unemployment benefits have expired are not counted. So this “rate� that is trumpeted each month has all the reliability of your average shell game. It’s based on faulty assumptions, which leads to “fuzzy� math. For example, in Rhode Island, the unemployment rate was 5.2%. Not bad. But if you add the so-called underemployed (you know, guys who used to have full time jobs making decent money and now working for Mickie D’s for just above minimum wage) that rate exploded to 8.9%. And that didn’t count those who, for whatever reason, weren’t meeting the criteria to be counted within the statistic. So, which is the more accurate measure of the economy? The count that excludes or the one that includes?

    Let’s face it – economically, we’re entering an unexplored frontier. All the stakeholders, both domestic and foreign, have to re-think how “business� is done. The old slogans and bromides won’t do anymore and are now more problematic than a solution or explanation. The first step is to determine that a problem in fact exists. We agree that it does. The second step is to define the problem and as the Bard once wrote, “ah, there’s the rub.�

  11. It is a time to be merry, not silly. The Chinese are hardly a mdel for efficiency, except when it comes to ignoring human right and dealing with foolish managers. They have no need nor understanding of any sense of human rights and in a nation of 1.5 billion, that’s 1soo million, democracy and rights lose all meaning–the rights of one person in 1500 million people mean little. By the way there are 480 million Chinese of draft age! Secondly, misguided “executives” in China are shot as was the case with the pet food poison manager. The Chinese ad Russians/Soviets figured ot that a 50 cent bullet after the prefunctory admission of guilt was cheaper and more efficacious thn a long trial.

    As for normal economies in the U.S., the 20 year average for unemployment numbers is about 6.8% as I recall, and the last 8 years has been unuusally low before the current “normal” downturn. The current “normal” however is filled with stupid social policy makeovers, that allowed the 3% of foreclosures (97% of all mortagages are still being paid) to happen because people not qualified got the loans anyway, and the upward speculation on housing crashed as it should, much like the internet bulle of Mr. Clinton cost tens of billions and a major unemployment surge.

    The thought that a European style economy will work is just silly; France and Germany for exaple are reaping the whirlwind of dumb social programs and declining populations an in-surge of cheap foreign labor. Europe stagnated and continues to stagnate in a 30-year tilt towards government mandates and low productivity. Britain and Ireland under a more free market outlook thrived and saw amazing progress.

    Government does little or nothing better than the private sector except seeing to the common defense, collecting import duties and building a safety net of social welfare programs. The New Deal efforts of FDR, well intentioned, cratered rapidly and as a new published economic studied has shown, actually extended the length of the depression, and required the freeing of a capitalist industrial base needed for WW II to usher in prosperity. Why anyone would place trust in the less than shining intellects of Congress to initiate policies comprise of words they cannot spell, or concepts they could not understand in college, remains a mystery to me.

    The American economy thrives ion “capitalism as “unfettered” as possible and an expanding industrial base. When the steel for our tanks and office buildings cannot be made here, or 50% of each car or truck is imported from a Mexican NAFTA factory, and the fuel to run those vehicles are purchased from members of a foreign cartel, an economic recovery is not likely. There is no new territory to explore. It All that is brought forward is the same old failed economics of a intellectually simplistiic left. Marx was devoid of historic reality, both his “evolved” offspring cling to that silliness.

  12. Well, Donald, I’ve been called a lot of things but never silly. But the fact is I am so enjoying this discussion. What is evident is that we have a different set of values and world views. That’s not bad, just different. And while I think your supply-side, free market argument is wrongheaded, I’d never call it silly. Wrong, outdated, dangerous to those in the underclass, yes. Silly, never.

    So, let’s walk through your responses one-by-one. I never said China was a “model of efficiency�. To the contrary, I think my comments about China indicated quite the opposite. Thus the Dickensian reference to London in the 1800s. Indeed, it was you who raised China in the discussion. Pollution, low-wages, prison labor, political oppression, corruption that would make a Rhode Island politician blush – personally, I think I’ll take a pass no matter how many American cars are on their highways.

    But the issue of whether to offshore jobs to China has little to do with Chinese “efficiencies.� Rather, it has everything to do with corporate bottom lines. Abetted by “consultants� like McKinsey and Stratom, Inc., companies from Starbucks to IBM hire these consultants to plow the road to Beijing. In fact, there’s quite the competition between India and China for the offshoring dollar and jobs. The winners are the corporations taking advantage of low-wage workers, the consultants who get a taste from the actual offshoring, and the corporations who reduce the overall bottom line. We all know who the losers in this game are. With respect, references to 50 cent bullets is a little dated.

    On to housing. I’m not certain where the 97% of all mortgages being paid comes from. I’m not questioning the veracity, just wondering about the source. However, one thing we know is that 20% of mortgages issued over the last few years were so-called “ninja� loans (no money, no job, no credit) and another 20% were so-called “Alt-A� loans (no money, no credit). Now, if my math skills don’t fail me, that indicates that more than three percent of the mortgages issued were “risky�. Many of those failed, which is why there was a ripple throughout the investment community. It was anticipated that a fixed number would fail and that failure was factored into the CDOs and other investment vehicles.

    Granted, many people who obtained mortgages shouldn’t have. However, where there’s so much unregulated practice that results in big cash payoffs, what’s a little thing like standards? Besides, in a Ponzi scheme, which is what this was, the idea is to grow the base. In this case, banks and other lenders had to loan more money to infuse bucks into this system. As long as the default rate was predictable, the overall value of the collateral and loans were controllable. But, as we know, that didn’t happen. So, not only did the foreclosure rate spike out of control (and continues to do so), the value of collateral securing “good� mortgages decreased, in some cases “under water.� Therefore, this unregulated scrum that passed for financing home mortgages, which resulted in an expanding foreclosure rate has drawn many of us into its vortex. And please don’t blame the CDA for this – the CDA, along with Fannie and Freddie while reaching out to expand homeownership to as many people as possible didn’t result in this disaster that we’ve experienced over the past few months.

    I’m not going to dwell on the “dumb social programs� in France and Germany. That’s opinion. My opinion is that universal health insurance, low/no cost university educations, protected family leave/maternity leaves, and the like don’t seem dumb to me. But that’s me. Britain, after Thatcher, ripped the social net away from many middle-class workers – for example, privatizing a number of publicly owned concerns, lowering wages, reducing benefits and impacting the quality of life for many. The issue became a contest between the bottom line and social programs. As Lester Thurow would argue that’s a false choice – it needn’t be a Zero Sum Game.

    Which is the challenge going forward. From what I get of your position, capitalism is an ultimate good, except when it’s not. Failure is a necessary part of the system even if it impacts innocent folks who become cannon fodder. You decry a “mixed economy� out of hand, but I would point out that we’ve always had a mixed economy of sorts. Lincoln nationalizes the currency system and the banking system. Theodore Roosevelt busts Trusts – not all, just the “bad� ones. And so on. Government has always had a seat at the economic table. I’m not sure what capitalism “as ‘unfettered’ as possible� is.

    And, lest we forget, these recent pillars of the auto industry who promoted free markets/trade with no government interference (e.g. Lee Iacocca), wanted the government to set import restrictions on foreign (i.e. Japanese) imports. Thus it seems that while the singers change over time, the song remains the same. Their favorite tune is “Show Me The Money But Stay Out Of My Business.� Sure to be Number One with a bullet on the charts.

    To some extent, the fact is that we’ve always had something of a mixed economy. The challenge is how to do it well for the benefit of both employer and employee. As for the new economic study regarding FDR’s New Deal extending the length of the depression, I’d really like the reference to that study. I would caution that occasionally “studies� are published by the likes of the Cato Institute that claim to refute the efficacy of the New Deal. As Krugman, you know Nobel Prize Laureate Paul Krugman, pointed out last month, (which is not new as most economic historians have argued this for years) the New Deal didn’t end the depression – World War II did. However, I think it’s a fair question to ask what kind of position the American economy would have been in to be able to produce the necessary war materials had the New Deal not been implemented. Equally as important is the safety net the New Deal gave to workers (e.g. collective bargaining) and elderly (e.g. Social Security) that endures to this day. The New Deal, derided by free market conservatives, such as you, was more than “well intentioned� – it actually went a long way to save democracy in America in the 1930s. That’s a conclusion supported by most historians – not just the lefties like Zinn and Marcuse.

  13. Sorry…I have been engrossed in a flurry of family trekks and holiday shopping–everywhere the lots are full of cars and the lines long with spending and buying. And, last I looked, that less than impressive Oscar De la Hoya-Manny Pacqiao fight netted more than 1 million pay per views at $55, and a new AAA baseball stadium is being built in Las Vegas–so I guess one’s economy is where wone lives and what one does. I would submit that one’s notion of a “mixed” economy is a political persptive–a little or a lot of socialism in any suit is still a little or a lot of socialism, and the economics of the left are as bad as Mr. Friedman explained. Mr. Marx attempted to dedicate “Das Kapital” to Mr. Darwin, whom he greatly admired. Mr. Darwin was astute enough thank Mr. Marx and decline the offer.

    The tax cuts of JFK inspired by the urgings of his chief economic advisor, Walter Heller, a sturdy Midwestern economist who survived the New Deal, had a profoundly positive impact, far more substantive than the failed (and unconstitutional) meanderings of a well intentioned FDR. That is public record. The CCC programs were wonderful efforts in ideology; social security as a safety net is far different than the mess it is today, robbed forever by politicians, and the WPA cultural efforts yielded a treasure of creativity. Unfortunately the New Deal economics did collapse with a might economic downturn. The heady spending of World War II was the cause for economic recovery and permeated the entire fabric of American economic life and caused an explosion of industrial production, mining, research, medical progress, education, etc., needed to challenge front the real worldwide “axis of evil.” The Cold War that followed mediated the economic slump that tainted Mr. Truman’s fine record. As an aside, Mr. Zinn is hardly a historian of record, very different from the better writing Shelby Foote of a different time who was also as much “art” as history but just better at it and less the dogmatist; his very left take on documents and analysis does not pass muster. Mr. Marcuse and his turgid prose is barely read these days, if he ever was anything but the darling of the leftist elite. As for my own history, my grandparents campaigned for FDR and Mr. Truman; my parents for Adali and JFK and as a graduate student I got to meet Mr. Heller, Mr. Galbreath and Mr. Humphrey. I do think Mr. Humphrey would have been a great President. As a matter of fact I have been a member of three unions and in Chicago even had friends who were Wobblies, of all things. But as r. Darrow once observed, “History does repeat itself. That’s the damn problem with history,” and silly views of that history do nothing to avoid the same errors.

    But in any event, the best of holidays–and perhaps we can meet again on the new chalkboard of discussion.

  14. Donald, I completely understand the holiday rush as I am trying to tread water myself. About the “fight� on pay TV, I’m no fight fan but even if I were, I’d never pay $ 55 for that fight. As they say, “A fool and his money are soon parted.� Of course, Will Rogers amended that a bit and coined “A fool and his money are soon elected.� I don’t know if he ever came to Rhode Island.

    Clearly there are sections of the country that are better off than others, just as there are companies that are better off than others. To that point, previously we were discussing the relative merits between the Detroit Three and the foreign car makers, the latter being an example of comparative management excellence and the former exhibit A for profligacy. Now it seems that Toyota – part of that excellence thingy – is going to post its first annual loss ever. It looks like nobody is immune in this economy.

    As for Marx, I think historically and economically, his greatest error was underestimating essential human nature to compete and acquire. Oops. Pretty big oversight there, Karl. However, many economists, not just the left-wingers, appreciated his work on the labor theory of value. After that little contribution, the rest of his argument was virtual rubbish. But that’s my opinion. But segueing into the “mixed economy� issue, I would asset that it’s not just a political perspective but also an economic perspective. Whether we like it or not, government always has a seat at the free market economic table. It’s there because it prints money, is a large – if not the largest – consumer of goods and services, is a debtor, tax collector, etc. The issue of non-government participation in the economy has long been decided. The real issue is what role the government plays in the economy.

    I appreciated your reference to Walter Heller. Yes, he advocated tax cuts in the early ‘60s to avoid/lessen a small downturn. But, as we note it was not across the board as the cuts for the last eight years have been, it was more targeted toward the middle class (at least they benefited more under those cuts than those enacted and proposed) than those of this administration, and they didn’t come near expanding the deficit as those cuts over the last eight years have. What’s interesting is that the same Walter Heller advocated tax increases to LBJ to pay for his “police action� in Vietnam and the War on Poverty at home. LBJ, for political reasons, ignored Heller’s call for a 5% surtax. Heller was more concerned about balance in the economy than throwing things out of whack.

    As for your New Deal points, this is a subject about which we need more time and space. For the meantime, let me make the following points – first, whether one agrees or disagrees with him, I don’t think it’s accurate to say he’s not a historian “of record.� He is controversial, but respected. Shelby Foote was an author, not a historian but still a good writer and an expert in his field. Doesn’t make on better than the other – just different. Frankly, I’d rather read Allan Nevins or James McPherson than Foote, but that’s my bias. If you’ve never read the 8 volume Ordeal of the Union you’re missing a real treat. By the way – something we do agree on, I have little use for Marcuse either.

    As for the constitutionality of the New Deal, we’ll have to agree to disagree. There’s just not enough room for that discussion. But, as a practical matter, FDR was no liberal. By nature a conservative, he was really utilitarian in that he was interested in what worked (e.g. putting folks back to work, establishing/opening safe banks, reforming the economy to accommodate large and small businesses), not what conformed to a pre-set ideology which might have been inapplicable. Pragmatism, not ideology is what we need today.

    With that, I hope you and yours have a great holiday season and we can “get after it� in the New Year.

  15. Some excellent points made: Dr. Heller really needs a good biography done–my late wife, who had the good fortune to serve as his executive assitant for several of his university years, considered it as a project. I recall Walter remonstrated how crossways he got with LBJ after urging a way to pay for a war on top of all his other “projects of interest.” Walter once admitted that he once received a call, early in a soon to be Presidential campaign, from someone whose name he did not immediately recognize,”Jimmy who?”

    I find Mr. Foote with a Faulkneresque grace and his history as almost novel amazingly interesting. But, I would urge finding, as I recently did, an 1894 set of Mr. Lincoln’s own words in 12 volumes edited by John Nicolay and John Hay. There are very few Presidents such as Mr. Lincoln, about whom it can be said that they themselves wrote every word found on paper or speeches.

    Best wishes again for the holidays and New Year from New Mexico.

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