Regional failure and the common good

The only counterargument one could make is that it is in the national interest not to allow vital industrial know-how and skill sets to vanish from this continent.

And if we don't want to subsidize American industry, then why do we turn the other way when Japan and China engage in mercantilistic policies? Why do we allow the Japanese and Chinese to engage in competitive currency devaluations? Of course, these policies have and will hurt them in the long run. But, in the meantime, do we allow whole industries to vanish here in the United States?

This has been a bugaboo of mine for decades. How anybody could believe that we have been pursuing "free market" policies over the past couple of decades is beyond me.

Libertarians are about as conservative as Marxists, and just as crazy and destructive. Happily, they'll soon be joining them on the ash heap of history.

I agree with you that government propping up of old industries isn't useful or good, but I am still concerned about the economic viability of these regions. We've become too centralizes, companies have gotten too big and too tangled up. If the corner grocer fails, it is he and his family that need support from the local community. If ANG fails, then it takes the economy down with it!

I'm very interested in the development of rural communities, but don't know how to even begin thinking about it except in a way that Wendell Berry might. I'm not sure how that translates into policy.

I might add that while I don't live there anymore, I am from Michigan. Michigan has the worst economy in the US. The auto industry got too big. It is a shame because Michigan has a lot of natural and human resources. Do we just let Michigan empty itself and become a national wilderness and ghost town area?

True, but Wendell Berry would never support monoculture and the *type* of agriculture that is happening in the corn belt. I would support policy that favors the small, sustainable family farm. Perhaps this is our hope for places like Michigan, Upstate New York and Western Pennsylvania. Maybe we can work to begin feeding ourselves.

I lived right between Akron, Ohio and Youngstown, Ohio my entire life before moving to Chicago a few years ago. Those places are flat on their economic backs, and while a happy accident may bring them back, they are dead and have been for 30 years. If it weren't for the University of Akron buying up half of that downtown, it would be a ghost town. Those places didn't become what they were at one time for any other reason than that they were booming with jobs. They were populated with people from other dead places who moved there (my family came from Alabama, in part). People have to go where the jobs are.

Note: I am not the "Eric W" who posted at 10:34 a.m. I sign on as "EricW" (no spaces)

I guess I'll have to change my posting name if it results in confusion.

We owe the corn belt nothing but a chance to be made more useful, like being turned into shopping centers.

A difficult question, on the one hand subsidizing auto manufacturers, who have been out sourcing jobs for years is going to be, and should be, very difficult. Why should the ex-autoworker who's job got outsourced years ago pay to bail out his incompetent bosses? On the other hand there are still a fair number of people employed in the auto industry and we don't want to raise the principle of economic efficiency to the point of idolization. Efficiency is important, no doubt, but there are other things that are more important; particularly when the gains in efficiency are often illusory.

I do think that the people who "managed" these industries into the ground need to be spanked good and hard. American business managers are, in general, overpaid idiots whose incompetency is only overshadowed by their greed. Even after the events of the last few months many investment banks are _still_ planning on paying out huge bonuses to their executives. American managers need to get over the idea that they are the best in the world, a notion they acquired in the years following WWII, but there's a difference between being good and not having any competition. Right now American executives and managers don't stack up very well against their Asian and European counterparts, and the sooner we, and they, realize that, the sooner we can begin fixing the problem. Face it, the problems facing companies like GM have been evident for years to just about anybody who even glanced in the general direction of GM, GM executives should have been working to fix these problems decades ago, if they had then maybe their bloated salaries could be justified.

Eric W: Non sequitur.

And Marxism was never really tried and found wanting. And Christianity was never really tried and found wanting.

My point is that libertarianism is a form of utopianism and will never be "really tried and found wanting" by the true believers. Rent-seeking is a fact of life. Politics is a fact of life.

I wish you folks knew enough about economics to understand how far "classical economics" and its libertarian bastard child deviates from actual facts about human nature. Start by learning something about behavioral economics.

Look, nearly all economists a market-oriented. That goes without saying. But few of us are uncritical of simplistic ideologies.

Western New York sounds a lot like northern England and southern Scotland. 25 years ago, everyone said it was a dying region, but for the past 10 years it's been booming. If I lived there, I wouldn't necessarily bet on western New York dying.

I don't think libertarianism can or should work at all levels of societal organization. I'd describe myself as a subsidiarian. Matters should be handled at the lowest competent level, with a bias toward individual freedoms and group freedoms born of free association. I agree that universal libertarianism is a utopian pipe dream. However, I agree with the basic notion that to take my property and give it to someone else is theft. These bailouts are theft, pure and simple. They are also infringements on liberty because citizens are not free to allocate their financial resources as they see fit. Lastly, one needn't be a rose-glasses-wearing libertarian idealist to see that the Austrian economists predicted this mess a long time ago and the interventionist economics with political sway are all wet.

Pyrrho, I was wondering what your view of the auto industry might be in light of the business sucesses of the Near Asian automakers (mostly Toyota and Honda, but also Nissan and Kia). Stipulating that those companies may have advantages vs. American companies, they also create quality products that routinely out-perform American autos in every category. They established assembly plants in the US and employ thousands of US citizens.

The auto industry would not die. Just American companies that have been stuck in a self-destructive mindset for decades. It would not be an industry bailout, but a rescue of botched planning and execution.

Well it seems Megan has finally taken a dose of 'Austrian' medicine, coming to recognise the reality of time preferences in economic activity.

Malinvestments (aka "holes" see comments under "How economically screwed are we?") occur when the fiscal signals for capital allocations (time value of money) are skewed away from those set by free economic actors (interest rates rewarding the risk of investment) to those set by government policy (whatever the purchasing power the central bank deems we minions may be permitted to exert with the dollars they print - the fabled "pop" of the Fed's liquidity pistol).

"Easy money" robs us of the necessary information we need to be free to act in our own economic interests: we surrender our liberty to a mercantilist tyranny -- the very reason the "continentals" rebelled against their imperious "betters" centuries ago.

Nead a reminder? Read Ron Paul's The Revolution.

Want some historical pointers on how the sages of the 20th Century rebuilt the ruins of Teutonic overreach before we doomed to repeat it? Google [ Mount Pelerin Society ] and read volume 4 of The Collected Works of FA Hayek,"The Fortunes of Liberalism, Essays on Austrian Economics and the Ideal of Freedom"

Thanks for your comment Pyrrho.

Does anyone actually know how much military equipment is actually made by GM/Ford at this point?

I think General Dynamics already owns the former military design divisions of Chrysler and GM, so it's not like a bankruptcy would suddenly mean no more M1 Abrams tanks.

Sure GM and such were ordered to produce military equipment in WW2, but is there any realistic scenario that we would need that kind of production again? I would imagine any modern war to that level would go nuclear long before we needed a comparable number of tanks etc...

And finally, if we are now bailing out NYC, the Rust Belts, the Corn Belt, the Gulf Coast, all while the West coast struggles under collapsing state governments and housing prices, what region is actually left to live in, and pay for all of this? Are we all going to cram into Dallas and Atlanta?

And no, I don't really like the idea of bailouts.

Frankin,

That's a serious question. My complaint is not that superior products drive inferior products from the market. It's that the Japanese automakers have benefitted enormously from a protected domestic market, extraordinarily favorable financing arrangements, a highly advantageous fixed currency rate vis-a-vis the dollar for decades, and rigid domestic labor markets among other things. I'm not so sure the Japanese automakers would have had the time and stability to develop their plans and make the inroads they have in the US market without these protections.

Needless to say, I'm not anti-Japanese and their policies are ultimately self-defeating in so many ways.

My basic thesis is that the political elites in this country sacrificed the well-being of the working class to hold together the Cold War alliance and the economic elites did the same to profit enormously from outsourcing. (In other words, they would rather be billionaires in a land of poor people than millionaires in a land of middle-class people.) These were cold-hearted realist decisions sugar-coated with faux free market ideology.

These elites acted as if "globalization" were a force of nature. Who exactly was in such a rush to outsource? The Europeans? No. The Japanese? No. It was the American political and economic elites.

I'm all in favor of mutually beneficial economic liberalization through tough market-opening negotiations, just not unilateral capitulation "justified" with bulls!t ideology and a massive credit spree to mask the real economic costs of this surrender.

You could throw unfettered immigration into this mix, too. And I am fully aware of other factors putting downward pressure on wages such as automation, etc. And I'm not saying that a more mercantilistic US would not have had its problems or that the world would not have been a less stable place. But at least others would have paid the economic cost for that instability. Life is about tradeoffs.

Thanks, Pyrrho. I depend on cognoscenti like you for reality checks. I don't mind saying I'm pleased that my (so far not expressed here) view is at least realistic by your standards.

I'm going to save your turn of phrase. It's a bull's-eye wrapped in eloquence.

[T]hey would rather be billionaires in a land of poor people than millionaires in a land of middle-class people.

I'd be in favor of paired firings, the COs of the companies and the union leaders. Both sides own this mess.

Pyrrho, I feel like I'm learning something every time you post here. :)

I've often suspected that "free market" rhetoric overlooked the fact that we were forcing our workers and industries to compete in markets where the industry wasn't operating on the same platform, but on platforms of built-in subsidization and protection. But if these policies (subsidization and protection) are also bad (but perhaps take longer to unravel) what should a so-called "free trade" country do to minimize the harm of doing business with these nations?

Ah shucks, folks. Thanks for the compliments. It's nice to feel at home among Rod's collection of weirdoes and misfits -- as one of them myself.

I would really like people who see themselves as both conservatives and libertarians to read Michael Oakeshott.

When I was a confused 'social scientist', Oakeshott set me straight on the difference between theoretical and practical 'worlds of experience' especially in Rationalism in Politics and Other Essays which, as many of you know, is a foundational text of 20th century conservative thought. (Its core insights come from Aristotle but are greatly expanded.)

I believe politics is a muddle-through. Maybe that's too English and not American enough for many of you, but heaven is not to be found in this world (of experience).

Now I really, really need to get some work done ...

P wrote "Oh please. Megan McCardle is in New York, a city that just had 700 billion dollars thrown to its banks. Those NYC folks can spare me the old free market religion..."

This is the lazy way of not addressing McCardle's point. Basically, because she used to live in a city that is home to some businesses that received a government bailout we can just brush off or ignore the point she makes. As I said, lazy.

Pyrrho: A couple of years(!) after the introduction of guns in the 16th century, the Japanese were making the best guns in the world (thanks to their advancements in metallurgy).

Agree in general re: Japanese craftsmanship, although I recall reading that when Commodore Perry & Marines came to Japan, the Japanese were still making basically the same type of firearm for the past 200-some years. Their technology was exquisite - but obsolete. Fortunately they haven't made that mistake again.

Funny, though, they manage to produce all this innovation with national health care and deep gov't involvement in industry.

Americans are so indifferent to quality, yet the Japanese build it in even where no one will notice!

It's American managers that are indifferent to quality. Cars made by Japanese or German companies in the US are just as good as the ones made in their "home" countries. There are simply too many bean-counters in American companies that know the cost of everything and the value of nothing. In their short sighted view quality costs money since it means parts that are rejected and assembly lines that are idled until quality problems are fixed. Its not an American vs. Japanese thing, as I noted above the Japanese learned their quality control methods from Americans, it all the morons with MBA's that think they can understand the business they are running from looking at balance sheets without ever going out on to the factory floor where their $500 Italian shoes might get scuffed.

Erin contrary to Pyrrho and fellow Hamiltonian-mercantilists with a central bank fetish, we are not as free as we once were, and there is nothing we can do to "minimize" the harm, other than admit that some folks are going to lose a lot of the "value" they thought they had in their "net worth." The sooner our municipal authorities embrace sound money, the sooner folks will be able to resume economic activity based on time preferences, but so long as the reward for time-deferred preferences (investing in future gains) is negligible compared to present cash positions, why would anyone look to "economize" (ie divert scarce resources toward establishing a more productive way to sustain their existing standard of living or even God forbid (sarcasm-warning) increase it?)

The economy is not a statist perpetuum mobile that can be set in motion by Keynsian demand "stimulus"...

Austrian remedies may seem dated to some having been first circulated in fin-de-siecle pre-WWI academic circles that predate Jeckyll Island and the creation of the Fed, yet Eugen Ritter von Boehm Bawerk's understanding that capitalism is managed by a "Structure of Production"
http://www.econlib.org/library/BohmBawerk/bbPTC3.html#Book%20I,Ch.III
where those who discipline themselves to defer present appetites in order to apply the accumulated resources to a productive preference in the future is actually far more ancient -- Joseph's dream of seven years of plenty, anyone?

The Austrian school has no econometric methods - big deal - that doesn't disqualify it anymore than those schools of econometrics (Keysians et al) whose "models" failed to predict the mess we're in ...

(Capital allocation classes as illustrated circa 1900 here:
http://socserv.mcmaster.ca/econ/ugcm/3ll3/fetter/capital.htm )

Consider the uneducated peasants of India with their own automobile-industry debacle: they defended their ancient traditional marginal utility capital allocations (use land as productive private pastures) against IMF-sponsored "development" via labor-theory of value (uncertain wages from the Tata factory built on their eminent-domain-seized property)

"Give me liberty or death" pleaded Patrick Henry...
... so the culture of death wins the day ...?

"P
November 13, 2008 10:13 AM
Oh please. Megan McCardle is in New York, a city that just had 700 billion dollars thrown to its banks. Those NYC folks can spare me the old free market religion..."

While it's not close to time for anyone to hold potluck suppers for ex-Wall Streeters, this market downturn is remkaing the financial services industry in ways that aren't yet clear, but aren't good. Once an industry gets nationalized(thanks Secretary Paulson!), there's less of a need for markets, less so to ahve humans do the work, and even less reason to have those humans physically located in pricey Manhattan.

My wife's mother's family is from upstate New York, Rochester, in fact, once one of the more affluent cities in the nation. This is a region that broke trail not only in film and in photographic technologies, but in glassware and ceramics, along with machine tools and heavy industry. Decades of federal largesse led, cajoled or drove industries to the Sun Belt -- it wasn't solely a case of big, bad unions and clueless management.____I like to think that the midwest and places like upstate New York will get their revenge when the crowds now pouring into many parts of the Sun Belt, and into places like the Denver Front Range discover something: there is not enough water for them all. When the cost of water delivery and water treatment, along with the cost of worsening air quality and inadequate transportation infrastructure brought about by the Sun Belt's enslavement to the automobile get factored in, the Sun Belt may cease to be the promised land for everyone now moving there. John Judis' "ideopolis" theory observes how certain areas of the country experience economic and later cultural growth because of their amenities -- not just amenities to be sure, but a mix of amenities and affordability. ____So, why not Rochester? Affordable housing. Plentiful water. Two fine universities, plus proximity to several more. One of the finest schools of music cranking out culture. Access to lovely countryside, and to neighboring Canada's most dynamic city. Location on a major transportation route. The sort of country where if one chose, one could thrive on locally-grown, artisanal produce. Abbotts' Frozen Custard. I have to believe that at some point, the intrinsic value of places like Rochester will draw some entrepreneurs back -- even if there is a bit of winter thrown into the bargain.____Oh, I forgot. New York's tax and regulatory climate. Oh well, it was a nice idea while it lasted.____Richard

Thoughts:

1. I agree that it's in our national interest to retain an industrial & manufacturing base of non-trivial size. Color me old-fashioned or overly-pessimistic - and therefore incapable of believing that mass wars of attrition are at thing of the past - but an inability to manufacture armaments strikes me as detrimental to national security. Note that foreign-owned-but-domestically-located manufacturing operations aren't necessarily incompatible with this goal since, in time of war, they could always be seized & reconverted.

2. Regarding the Big Three in particular...the choice is not necessarily between bailout-subsidized-status quo & liquidation. As a recent article (*) noted:

America has two auto industries. The one represented by GM, Ford and Chrysler is Midwestern, unionized, burdened with massive obligations to retirees, and shackled to marketing and product strategies that have roots reaching back to the early 1900s.

The other American auto industry is largely Southern and non-union, owes relatively little to the few retirees it has, and enjoys a variety of advantages because its Japanese, European and Korean owners launched operations in this country relatively recently. Their factories are newer, their brand images and marketing strategies are more coherent -- Toyota uses three brands in the U.S. to GM's eight -- and they have cars designed for the competitive global market that exists today.

If we decide to help the Big Three survive, the price should be reforms & restructuring that put them in the aforementioned "other American auto industry". Note that bankruptcy doesn't necessarily equal liquidation (chap. 7); it can also equal restructuring (chap. 11).

(*) online.wsj.com/article/SB122608860916209213.html

"The other American auto industry is largely Southern and non-union, owes relatively little to the few retirees it has, and enjoys a variety of advantages because its Japanese, European and Korean owners launched operations in this country relatively recently"

So as long as an industry, and its workers, are young and don't get wild ideas about demanding decent pay and working conditions, the region where it operates will be just fine, right? Note that the Korean and European operations back home are heavily unionized. WE HAVE BECOME THEIR SOURCE OF CHEAP LABOR. WE ARE KOREA'S BANGLA DESH. Is that the kind of future you see for American industry?

What is strange in all of this is that when I hear folks saying that we have to let some ships sink in order to save the fleet, it is never THEIR ship that they volunteer to let sink. It is always someone else's.

Consider that so many of those who complain about farm subsidies work in fields that are also subsidized or protected in some other way by the government. Many areas of manufacturing are protected by tariff or trade restrictions. The finance and banking industries are protected and supported by the Fed (and of late by $700 billion of taxpayers money). Thousands upon thousands of small business operators receive subsidized loans from the Small Business Administration.

Forgive me, but I'll start listening to this "let the boat sink" argument when someone offers up their own boat as the one that should sink. Until then, sorry...not playing the game.

It's not much of a stretch to think that at some point, whoever's left in those regions are going to ask, "what do we owe America?" if they continue to wither while Washington looks on.

Yeah, that's kind of what happened to Western Europe as the Roman Empire collapsed. People realized that they couldn't count on the central government for protection any more, and then realized that, consequently, they didn't feel any particular sense of loyalty to it any more, either.

MWorrell -- I'm from Akron originally, and I can remember when Goodyear was the largest employer in town. Now it's the University of Akron. You're right, without the University, Akron would be in deep trouble. Still, Akron seems to have fared better, proportionally, than Cleveland or Youngstown.

I read somewhere that at the time of the Reformation in England Henry and his ministers decided that the old Catholic tradition of eating fish on fridays should be continued. The reason wasn't theological but practical. Friday fish meant many fishermen, which meant many seamen, which meant ample manpower for the navy. Wise and prudent nations don't let the foundations of their power and safety go to hell. Business people generally do, at least ours do.