Is a Bailout of the Auto Companies Federalist in Nature?

The following thread is from a conversation conducted via email:

–Hobbes21

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Hey, Whole,

I’m wondering what y’all think about the proposed automobile manufacturers’ bailout.  Is it federalism at work, or diet socialism?  Are the Big Three the last, best vestiges of a strong middle class, or simply lumbering dinosaurs?  What is the price to our people if the companies fail..?  Ultimately, are we talking red box stuff?

A few weeks ago, I wrote an optimistic piece on Detroit at www.politicolor.com.  Should we be left alone to struggle and (hopefully) prevail?  What’s the difference here between Detroit and post-Katrina New Orleans?

Made in Detroit,

Keithimus

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I have nothing intelligent to add, except that I love to read everyone’s thoughtful insights. … you are all true scholars… … here’s my opinion, CEO’s flying to beg Congress for money on corporate jets is ridiculous. They deserve to go bankrupt just because of their own stupidity!!! Unfortunately that means that the average American just suffers. Peace, Natalie

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That is really interesting comparing Detroit and Katrina effected New Orleans… Both have shades of man-made problems, specifically the levees in New Orleans and the government regulation in the credit crunch (or lack of). As much as the economy is a part of the health of the country… is it the sole responsibility of our government to fix it? Should the aim of our government be to provide the environment for the economy to flourish or become the driving force behind it (as it did to lift our country out of the Great Depression)? Do economic disasters require as much government aid as natural disasters or wars? Some say that when the government monkeys around with the economy it does more harm than help. People still argue it was not governmental programs that fixed the Great Depression as much as it was market reaction to WWII. BONUS Question: Obama hates Daylight Saving Time (as do I), and is reportedly thinking about scrapping it (JOY!!!), what is your opinion?

(William)

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I will just admit that this is way too far above my pay grade to figure out.  On the one hand I can understand the impulse to let Michigan fail and then try to rebuild.  Yet the possible devastation of that scenario is truly horrific.  Then this morning we wake up and find the government just found another 30 billion to bail out Citi-group.  I understand they are too big to let collapse but aren’t we running the same type of game that we have been running with nuclear weapons.  Which is basically once you have them we let you keep them because trying to get them away from you would be too catastrophic.  If you are too big and stupid we will help if you are almost too big and stupid we might help, but if you are a little big and stupid too bad(Lehman Brothers).

I would like to see  something like the big CEO types have to work community service for a couple of years and have their salaries cut to a teacher’s salary.  Have them work in soup kitchens and daycare for underpriviledged kids in return for the government bailing them out.  Sort of like the Peace Corp for corporate suits here in America.

k

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I recall Will saying something like, We are heading toward a consumership of government services, away from Aristotle. Is a bail-out the ultimate consumership..? Is letting these companies fail the right thing to do? Or, instead, is it the people’s energy best used to save these companies because with their millions of employees–they’ve become part of our whole? Are they part of the body? I think what’s got Americans mad is that none of us want the corporations to be part of the body. We’re not cyborgs; we’re organic. But the people who work for the corporations–that’s where we’re all concerned. They are part of the body. Keith

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I think the other thing that pisses us off is the fact that the idiots that were steering the ship into the iceberg will get to go lick their wounds at resorts, while the little guy and gal doing the right thing will get screwed.  The hubris of the CEO’s to believe that sending copr. suits to lavish hotels for seminars after getting a bailout is okay and business as usual.  The idea that the big 3 could think no one would notice or care that they took 3 separate jets to DC to ask for money illustrates the big problem.  It is not really real for any of these guys.  If they lose their job, oh well I will still get $10 million for my effort.  I too would look at layoffs and being out of work with a very different view if I knew I would have a few million in my bank account.  They have paid no price and will pay no price for getting us into this mess.

It is the same with the Bush administration.  No one wants to go after them for possibly breaking the law because that would be looking backwards instead of forward and there is so much to fix looking forward.  However, if no one has to pay a price for breaking the law or breaking the country then what will stop someone from doing it again in the future?  There are no consequences for those that break the rules only a high price to pay for those of us that do play by the rules and believe in fair shares.

That is what has me and a lot of other folks pissed.  It is kind of like the big shots are like Typhoid Mary spreading disease and doom whereever they go, but they themselves are immune from contracting the disease.

k

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The Typhoid Mary analogy is awesome! I agree about the Bush administration. But I think prosecution can be forward-looking if we’re trying to reestablish the Constitution and re-order our order. I’d love to see whomever is guilty go down in order to bring back rule of law. How can we make Americans see that? Does it take the media to get the ball rolling or what? What’s going on with that Cheney indictment in Texas–does it have any teeth..? The thing about the Auto Co.’s is that they are promising to pay back the gov’t and at least have a track record (Chrysler) to back up that claim. However, they’re going to have to renumber their priorities because the casual way they’re presenting this (clumsy, even) is pissing people off. You’re not alone! I live in Detroit and am connected to this industry personally, professionally, and culturally; and even we’re pissed. For years, I have been asking questions of my students’ parents such as: So, Ford claims they’re the environmental automaker, when does that actually begin? And, why isn’t Chrylser re-making itself as a TRANSPORTATION company, rather than an auto company? Or, why does GM make so many redundant models? And so forth. It ruffles some feathers–always risky when these people pay to have their kids go here–but I only do so once I have a terrific relationship with them. Not once was a parent able to honestly answer those questions–demonstrative of the chasm between hype and action. I think Americans worry about the handout because there’s no proof that they won’t go back to business as usual. What if the Big 3 agree to re-tool..? Would Americans agree if they could promise 30mpg? Keith

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Keith, I believe you’ve hit the nail on the head!

Laura

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This is an intriguing discussion. Your original piece, Kieth, on Detroit is beautifully written!

Here’s what comes to my mind at this particular point: Will often points out that Aristotle and Madison both recognized that a written constitution has frequently meant, throughout history, that a people had come to a point to recognize that an organic bond had already been created among a people and that the bonded people, before the point of writing down their constitution, shared cultural practices (i.e. had certain economic practices; governed in a certain way; shared a history or culture; etc.).

The recent bailout plan for financial institutions and the current discussion about the appropriateness of a bailout plan for the Detroit carmakers are incarnations (in the written and spoken form) of America’s current constitutional state. And, to my Anti-Federalist thinking, the shared cultural practices that are being spoken about are violations of natural law (the green box). We have tried to create an economic system that is larger than ourselves, larger than our humanity. The marketplace should be a place where creativity flourishes; a place where producer and consumer look into one another’s eyes and shake hands as payment and good are exchanged; it should be a place that is small enough to be controlled. This is not the marketplace that we have. Surely, Americans, Federalist and Anti-Federalist, can agree that we need a more humane economy. The current bailout plans, as I see them, will merely perpetuate the system that we currently have. While I support aid to the workers (though even here, my Anti-Federalist bent makes we want to scream: “aid from families, aid from neighbors, aid from churches and civic organizations and not aid from the far-off bureaucratic, distanced unfeeling ‘government’”), I am opposed to aid to these companies.

Respectfully,

Michael

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We all know this, but a little history refresher keeps me sharp (a tough task this time of year!).  The American auto industry in the 1920s did more than build the city of Detroit to its current status; it spun off a host of more-or-less related industries.  Parts, tires, electronics, are obvious.  Road & factory construction & maintenance, motels (as in “motor hotels”), restaurants more affordable than Delmonico’s, family vacations for the economically average, even dating and wearing deodorant sprang into America’s collective conscious, to the car boom fueled by the Model T.  Just think, if it weren’t for Henry Ford making close contact affordable and fashionable, we might all still be isolated and stinky!

Of course, part of what made it affordable was consumer credit, which took off in the same time frame–made those 20s roar.  A slowdown in durable goods demand (one can only drive so many cars at once) triggered unemployment in manufacturing, disabling people’s credit payoff plans, forcing margin calls on Wall Street as the banks struggled….And in 1929 the bottom dropped out.

Hoover was an economic lame duck from the outset.  It was his firm belief that the American people would not accept government “charity.”  Hoover had been Secretary of Commerce under Coolidge, and oversaw relief efforts (such as they were) in the 1927 Mississippi River flood as well as rebuilding assistance in post-war Europe, but there was no American precedent for massive government assistance in the domestic marketplace.  His policies didn’t get us into trouble (he was elected in 1928, and the production wheels were already slowing), but they surely couldn’t get us out of it.  Senate dominance was the name of the game at the time, not executive energy.

From my perspective, the credit market and auto industry meltdown are again part and parcel of the same problem.   FDR’s “try everything, keep what works” strategy helped us through the Great Depression, until the manufacturing industry began to supply Europe’s war needs in the mid 30s.

Sound familiar yet?

War manufacturing hasn’t helped the Bush economic situation, however.  That being the case, Obama faces a new set of problems, limitations, and opportunities.  If he’s as smart as he seems to be, he’ll surround himself with people smarter than he in their fields of expertise (as both FDR and Bush did), and actually use their expertise to the country’s benefit (as FDR generally did, but I can’t say as much for Bush!).

Michael is right: the people affected are definitely part of the Whole, whether or not the corporations are.  If we learn from history, and apply the fixes to people (or People) over and above corporations, we’re on the right track, although we’ve certainly seen plenty of abuse of those fixes in the past.  Yet business and industry are part of how people define and build their lives and earn their livelihoods–we can’t neglect them altogether.

On the other hand, declaring bankruptcy is not the same as going out of business altogether–it’s a demand for restructure.  The Big 3 need it just as much as the big banks do.

(Laura)

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I agree that a lot of the fear about a bailout for the Big 3 is related to the idea that the status quo will continue.  It would certainly be hard on us as a country if one of these companies were to completely disappear, however that would not happen if GM for instance had to declare bankruptcy and go into protection.  The other part that angers me is that throughout the 1990′s and up until now Ford, GM, and Chrysler were putting all their eggs in one basket (SUVs), while Toyota, Honda, etc. developed smaller more economical cars.  It did not at the time and still does not seem hard to figure out that the gas guzzling SUV had a limited life span.  So in my opinion the Big 3 have a seriously flawed business plan and have shown no real plan for how the future would be any different.  You can go back even further and look at promised retirement benefits (especially retiree health insurance) and see that these companies have continually shown an inability to plan for the future.  Why should we as tax payers bail out companies that have continually failed to adjust to changing circumstances.
In addition, the region (central WI) where I live is a paper producing area.  Wisconsin has had 3 paper mills close down in the last 6 months (2 of them owned by a subsidiary of Cerberus which is the majority owner of Chrysler) if we begin bailing out one industry, how do we decide which ones receive taxpayer money and which ones don’t.  Certainly many of my students have been impacted more by the paper industry than the auto industry.  I think it is a very slippery, perilous path we are on as a nation.  We are becoming more and more a consumer government, rather than asking what we can do for our country, we seem to ask what can I get from my government.

Keith 2

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Please welcome K2 to the conversation. A future National Academy candidate if I’ve ever met one. He, too, is from this summer at Montpelier, and, like Mike, brilliant! Kv1.0 (older, more outdated–soon to go the way of the American auto industry?)

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Interesting discussion going on! Thanks. As a young man I had the opportunity to work for two summers as a messenger on the executive floor of the General Motors building in Manhattan. I would deliver mail to all the top-dogs at GM each day and substitute for the receptionist at the magnificent marble desk outfitted with imported mahogany and surrounded by a plush sitting room with an unbelievable view of Central Park and upper Manhattan. I was impressed. Every so often a group of about seven or eight Japanese auto execs and their interpreter would come to meet with the Chairman, Vice-Chairman, or some other top-level administrator. I vividly recall them getting off the elevator and approaching me, bowing to me, and me bowing back, and they bowed again, and so did I. (I still smile when I think of all the bows and me being only the substitute receptionist!!!) At that point in time, GM represented the best of American industry and, by extension, an icon of American power and influence in the world. I would love to have been privy to the conversations all these automakers had. Today, the Japanese seem to have improved on whatever they learned and GM seems to have refused to learn anything about change. I have driven a Toyota since 1973, shortly after my stint at GM. It seems to me that Japanese engineers start with the premise that humans are doing the driving and so design should flow from consumer needs to final product. GM engineers seem to impose a design and have the consumer adapt. (I did read some of the mail that was left laying around, such as the horror stories about the Corvair and the guys who invented a carburetor that got 5o miles/gallon!….you bet these never saw the light of day.) The American paradigm was top-down and income flowed from bottom up. We are sadly still stuck in this flawed model of corporate success and we citizen/consumers have, just as sadly, enabled this sickness to continue. We have played our roles well. Maybe it is time to play the fundamental role we are supposed to play in the sacred marketplace and stop buying what we don’t need. Each month, when I was at GM, the Board of Directors would come to New York for their meeting and I looked forward to seeing some fairly famous people and observing how the permanent staff fawned over them. My work was temporary and I could do my job while at the same time keeping a psychological distance. Needless to say, the Directors liked the fawning and hubbub they caused for those few days each month. I enjoyed the overtime and the occasional treat from Jean, the French chef, who kept the haute cuisine flowing. (I especially liked the individual blueberry pies he made and gave the extras to us!) I found it very interesting that the wining and dining was happening parallel to deliberations that resulted in plant closures and reallocation of funds which immediately changed the lives of thousands. I was struck that the Directors made decisions based on data and not on the needs of real people. I was struck with how the Directors could lay off 20,000 people, wipe pie off their faces with the fancy napkins, and then go out for a night on the town. (I also think about how many of these folks had serious dandruff!!! ……Yet they were people, not villains. They were stuck in a system that places more value on business than those who made the business viable.) I am rambling and I apologize. However, I am a Mets fan, and I always think we can do better and I remain hopeful that we will. Maybe we should be sending teams of Americans to other nations and politely seek ways to create a more humane corporate culture. Jerry

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So, Jerry, in the end, should we just “let it be”? Is this what America needs to move on to a new phase in business, or is this a call more serious government regulation..? Is it their just desserts to die off (pie pun fully intended!)? K1/ Maximus

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Take away the napkin AND the French chef! Someone should have pie on the face. I like the concept of help with contingencies such as re-tooling to green technology, limiting top-dog remuneration, incentivizing worker input in turning things around and/or making plants more efficient. Business as usual has to stop and business as we need it to be for all our sakes needs to find a voice. I remember teasing my students in the 1980′s about the fool-hardiness of “Trickle-down Economics”. Ronald Reagan told us that our patriotic duty was to spend and corporations were to supply. We bought into it and the house of cards is collapsing now. For over 30 years we have been giving more to those who need it least and taking from those who need it most. Remember that the Founders saw a broad middle class as vital to the success of our polity. We have been systematically increasing the under class and rewarding the wealthy while shrinking the middle, or, perhaps keeping the middle unaware of the trends through silly forms of entertainment and lately, through, the propagation of fear from terrorists and rogue states. Change will not be easy but substantive, not accidental, change is what we need. As a side bar, this calls up the need for formative education that seeks to create THINKERS. We need many more people who grasp the issues and the vital roles all of us play. We are good at training workers but everyone needs more exposure to ideas and to the “experimental nature” of our political/economic system. I’m going home! Love you all, Jerry

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Ladies and Gentlemen, Elvis has left the building! Well said, Jerry..!

(Keith v1.0)

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What a great story!  Thanks Jerry.  It was a great peek behind the curtain.  I bet the pies were great.

k

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Reading all of this about the automakers reminds me of the old economic lament:  where have all the buggy-whip makers gone?  There comes a point when economies change, the driving force of our economy was not the automakers for the first four decades of the twentieth century, they will not be the driving force in our economy forever.

One thing about our “capitalistic” society is that we adapt or die.  Yes Chrysler got a bailout before and paid it back but shouldn’t that mean they learn from mistakes and become a better company that doesn’t need to bailed out every 20 years?  I heard one economic advisor on NPR talk about bankruptcy and that could actually help GM and other car manufacturers become more competitive.  Bankruptcy would allow the renegotiation of contracts with dealers and labor groups resulting in healthier business deals for the automakers, maybe a more honest way of fixing that industry.

The example that the financial industries and the auto-makers seem to be setting is that the government is like the stable parents that are there to bail errant children out of any trouble they might get into.  Go ahead and risk big because you can always move in with mom and dad and they will take care of you until you get back on your feet.  Why did we as a country allow mega-corporations to become so mammoth that if they fail our country will topple as well.  What foundation are we built on now?  Do corporations that have made more money then entire the entire GDP of many nations in the world deserve more help than people who have to bite and scratch and eek out a living for their families and themselves?

I’m really getting the feeling that my son and his kids (if he has any) will be saddled with a huge debt from all of these bailouts.  At least he has never felt like he will have social security to help him out in his old-age.

(William)

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I hadn’t yet heard the lament regarding buggy-whips! That’s perfect. “I know that economies change, but just not my economy, okay?” That’s the cry from Michigan’s peninsulas these days. And the same could be said for any of the states and/or folks complaining about NAFTA or jobs going overseas. However, are we necessarily satisfied with the service we get? I had a pain of a time the other day with my non-native English speaker over my Sprint bill. I had what I thought was an easy question, yet spent close to a half an hour to–ultimately–get no answer. Was this lost in translation? I’m not so sure; I’ve dealt with native English speakers who couldn’t problem solve either. Which leads me to believe that thar’s gold in them thar hills for a company that can provide problem-solvers, if a company dares to enlist them. But would they..? I’ve found that corporations ceiling the access of their employees so that one can only get so far. (It took me a month and a half to get a new appliance when my lemon dryer cracked its drum. Try that with six kids..!) For years, my business friends have told me that America is moving to a service economy. Well, what does that look like? In a digital world, a lot of the service I actually need has shipped overseas. Whereas, my domestic service usually provides maintenance for what I already have: car repair, and so forth. So, who are we serving? It seems that we are reaping what sown. As a nation of consumers, bent upon the self-gratification and entertainment of which Jerry spoke, we’re pretty damn good at both consuming and entertaining. Okay, well then, now what? Hollywood’s doing great, and so is the video game industry. People from around the world watch our sports. But is our ultimate destiny as a world player that of the cool, class clown who shoots the game-winning basket? Or will we leave a lasting legacy? What ever happened to the enlightened tradition–an America filled with scientists..? I think that this is what antifederalists call an impending crash and what federalists view as a crossroads. Each is the same intersection, yet viewpoints differ. Running a school in Detroit, feeling the weight of lost tuition and sensing change, I just need to keep my eye on the road and my hand at the wheel. AND keep teaching my butt off to help create a generation of thinkers who’ll pave the road in front of me. …Hold the potholes!

(Keith)

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I was thinking about this too (and also with respect to the Citibank/Citigroup bailout).  Where do we draw the line between federalism and socialism?  In what ways are these two concepts similar/different?

On the subject of bailouts in general, I’m in NY visiting my folks right now, and there was a news story on people who worked for Lehman-Brothers and basically lost everything (their jobs, 401Ks, etc).  Should we be bailing these people out instead of corportations or in addition to corporations?

(Rachel)

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Let’s all stay dedicated to helping produce thinkers. However, don’t stop there because ideas (and words) can create worlds but there must be an active phase to bring what we create to life. A true thinker understands the necessity of doing and, I would add, fully grasps the impact and power of the pronoun “we” as compared to “I”. There is hope! Jerry

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Reading Rachel’s comments, I was struck by memories of the millions in donations

Obviously, we can’t build levees or save GM.  So that’s where government comes
in, right?  What sort of legislation will prevent this from happening again..?
We can’t make laws to make companies smart, can we?  Additionally, I’m not sure
it’s just the fuel economy issue that’s dragging down the auto companies.  The
Big 3 are also Big Lenders with GMAC and Ford Credit.

So, if most of this stems from banking, do we need to un-do the deregulation
that has happened there?

I’m wandering a bit, but I guess my main point/concern is that money has
replaced civic action/concern.  Which brings me back to Will’s comment about a
“consumer government”.

Keithimus

P.S. In piecing this together for politicolor.com, I’ve noticed that our
conversation has tied together Michigan, Texas, Rhode Island, North Carolina,
Alabama, Oregon, Illinois, and Wisconsin.  You gotta love the federalism of the
web!

P.P.S. Don’t forget William’s bonus question about Daylight Savings Time!

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RE daylight savings time:

The worst part of the year for me starts when we “fall back.”  That sudden, drastic change to dark before 5:00 pm throws me into the deep, dark blues for a week or two until I adjust.  I miss the long afternoon daylight of DST though–I could easily hibernate between Halloween and Easter, and would be downright suicidal if I lived up north in the winter–I admire you, Max!

DST is a federalist act: improving upon nature (or at least on Greenwich Mean Time).

Both issues: federalism gone awry?

(Laura)

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I wonder if a truly federalist position wouldn’t be concentrating on spending federal money on infrastructure improvements.  This would be investing our tax dollars on future needs and be forward looking in nature.  I think it could also be beneficial to individuals (jobs), corporations (federal and state loans/grants), and finally secure our free market/entreprenurial system.  If the federal government created a program for financing transportation projects (Note:transportation not necessarily road projects), renewable fuels, etc. this would provide stimulus in the future of a much more lasting kind than sending us a rebate check. 
Is a Detroit bailout then antifederalist, is it a fear of walking away from what we have known and embracing the unknown future economy?  I like Keith’s idea of a Detroit project.  This would be a very forward looking project and a chance to shape the future, as opposed to letting the future shape us. 
We seem to be at a crossroads as a country, a truly exciting moment in our history.  We have an opportunity to correct some of our excesses of the past 20-50 years and reawaken our civic ideals and work towards a better future economically and politically.  Are we going to build this better tomorrow or are we going to cling to our past?  I suppose you could look at basically as are we going to ratify this new constitution or stick with the flawed but known Articles?

K2

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Yes, K2, infrastructure would be a much better use of the money! Efficiency is oh-so-federalist. My weekend read is a book called RADICAL EVOLUTION: The Promise and Peril of Enhancing Our Minds, Our Bodies — and What It Means to Be Human. I’m only about 70 pgs in, yet I’m groovin on its fed/antifed vibe. The author, Joel Garreau, posits that there are three possibilities to our mental/ cultural revolution: the heaven, hell, and prevail. The first two pathways are self-explanatory; yet it seems that the last one (the course we’ve been on so far) is what feds n antifeds argue over. Are we moving toward greatness or averting disaster? I’ll probably post a review once I’ve finished. Well, I’m going to turn off the computer and go love my kids now, and grocery shop and then cook. A little mulled wine is in order, too. Again, I’m going to throw this thread up over at politicolor.com, using just FIRST NAMES or INITIALS IF THAT’S HOW YA SIGNED. If there are any objections to your words being there, please let me know. Feel free to hop on over to the website to re-read the entire conversation. The site had 559 views last month–second most since Will mentioned it at Montpelier and the Nat’cademy in July! Happy Thanksgiving! I am thankful for y’all..! Keith