DISQUS

Jeffrey · 1 year ago

Will, regardless of whether her argument ultimately holds, Hilzoy's post struck me as perfectly lucid. Calling it "muddled" takes some cajones, particularly after all that faux-poetic business about the sparrows. Also, it seemed to me one of her central points was that the particularities in favor of this specific bailout HAVE been offered, primarily by Cohn's peice. As this is exactly what you called for as a response to the general free market principles which weigh against the bailout, don't you think Hilzoy and your other interlocutors are at least entitled to a response to those particulars? Certainly something a bit more substantive than a one-sentence cheap shot suggesting Cohn should stick to his field of expertise. And you wonder how they got the idea that you're blithely dogmatic... Perhaps you should have just linked to this Jim Manzi post and called it a day.

http://theamericanscene.com/2008/11/17/detroit-...

pedro · 1 year ago

Jeffrey, it's "cojones," not "cajones." (Pet peeve.)

Will- I think publius' post at Obsidian Wings was an abject personal attack on you, and it was a bit disappointing to see Hilzoy (someone whom I admire and respect) not disassociate herself from the charges of callousness more forcefully in her own post. However, I agree with Jeffrey that your response is a bit dismissive and, to my mind, not very thoughtful. I don't blame you: after being called callous, it is only human to react the way you have. Wish that the internets were a bit less disagreeable!

ish · 1 year ago

Its quite overemphasized I think how poorly run the Detroit automakers are. There are several culprits for their problems.

The UAW has been intractable and has seemed to not care overmuch if the concessions it demanded drove the automakers into bankruptcy. From a personal, historical, and emotional standpoint, it isn't hard to understand why the UAW would have felt they were in a highly adversarial position (what with the Battle of the Overpass and such), but by now they certainly should realize they are in danger of killing the goose that lays the golden eggs.

The second obvious difficulty comes from the fact that all foreign competitors have nationally subsidized health care systems. Of course this isn't free money, but it certainly gives them an advantage when competing with a company that must provide health care for its workers and retirees. I'm not offering any solutions for the US here, merely saying that it is an important factor.

Next of course is management. And I'd agree that most of the Big 3 have been highly reactive rather than proactive. But its important to note that a lot of the criticism I've seen is highly dependent on hindsight. Many of the critics act as though it was obvious in 2004 that companies should only make fuel-efficient cars. But if one actually goes back to that time, you will find Toyota and Nissan introducing full-size trucks and SUVs. In many ways, the Big 3 got into this mess by responding to the market, which demanded these large gas hogs until fuel prices caused these markets to tank. And this falling tide has lowered all ships: Take a look at Toyota which just today may have its credit rating lowered.

Certainly the Big 3 aren't "well-managed". But I suspect their misfortunes have as much to do with a global financial panic and American regulatory structure as they do with management. There are lots of companies that are not managed very well, which are nonetheless not about to go bankrupt.

All that said, I'm not entirely convinced a bailout is necessary. I think there are still enough good vehicles and engineering know-how in these companies that a private solution may yet emerge. I just think those who claim this is entirely the result of terrible management haven't really paid any attention to the actual market.

ish · 1 year ago

Addendum:
http://www.bloomberg.com/apps/news?pid=20601087...

Not a specific criticism of you, Will. But I've seen this all over the various blogs and discussions about how wonderfully run Toyota is and the problem being that GM isn't more like them. Meanwhile, Toyota is losing money, mainly due to selling too many "large" vehicles in the US.

Tim Lee · 1 year ago

Jeffrey and Pedro, I agree that Will could stand to be a little bit less glib, but I'm hard pressed to find any specifics in Cohn's piece worth responding to. His argument appears to be (1) the collapse of the Big Three would create hardships for those firms' employees, shareholders, and suppliers and (2) these firms may have been dysfunctional in the past, but they're in the process of turning things around.

Point (1) is undoubtedly true, but if we intervened in every bankruptcy that created a hardship for someone, no firm would ever go out of business and we'd wind up in a state of crony capitalist stagnation. Yes, a Detroit collapse would create hardship for more people than the average bankruptcy, but bailing them out will cost significantly more as well.

I'm not an expert on the auto industry, but point (2) strikes me as almost certainly nonsense. Every management team facing bankruptcy has a nice story about how if they can just raise more capital they'll be able to turn things around. Once in a while that's true, but usually it's not. Again, there's no reason to think that the Big Three's turnaround story is any more believable than those of dozens of smaller firms that will go bankrupt in the coming months without any prospect of a government bailout.

So which of Cohn's arguments, specifically, does Will need to respond to, and what would constitute a satisfactory response? Obviously, a Big Three collapse would be a bad thing. Squandering $25 billion would also be a bad thing. I don't see anything in Cohn's piece that helps us understand which of these things would be worse, which makes it a pretty underwhelming argument.

Penry · 1 year ago

ish:

"The UAW has been intractable and has seemed to not care overmuch if the concessions it demanded drove the automakers into bankruptcy. From a personal, historical, and emotional standpoint, it isn't hard to understand why the UAW would have felt they were in a highly adversarial position (what with the Battle of the Overpass and such), but by now they certainly should realize they are in danger of killing the goose that lays the golden eggs."

I suspect the UAW's bargaining stance is driven by the assumption that Washington will always bail out the goose. Do not expect the unions to care about the profitability of their members' employers until one of the geese actually dies.

dWj · 1 year ago

Toyota pays for Japanese workers' heathcare through taxes, directly on itself and indirectly on employees, etc.

The market failure I see in the financial markets right now is a coordination problem: a lot of investors might well believe that they could earn a sufficiently safe return on investment on a sustainable basis lending money to more borrowers provided everyone else was doing the same thing, but there's a generalized fear of being the last one out if everyone else quits lending. This sort of coordination problem can be solved by government, with the attendant difficulties that you then have government attempting to discern who is long-term solvent and who isn't. (Treasury, at least publicly, seems to agree; they're reserving money for solvent banks, not ones they deem weak.)

How does this affect the automakers' destruction of capital? Marginally. They may find it even harder to line up funding than they deserve to. Almost all of their problem, though, is more internal. This does, though, suggest a role for the government in providing DIP lending. I hope we get it; I think the politically likely alternatives are far worse.

Jeffrey · 1 year ago

Tim, My guess is that ultimately determining which would be worse, the bailout or the bankruptcy, is impossible in any meaningful sense. There are simply two many variables and second order effects to pin down. As that's a wash, I think it's fair to say free market principles thus argue for bankruptcy. But I also thought Cohn's was a good faith effort to explain why those principles don't apply in this case. (And to my mind Manzi did an impressive job of dispensing with Cohn's arguments.) So it's worth noting that even you're arguing Will didn't need to respond to Cohn's piece by... responding to Cohn's piece.

Pedro, I stand corrected on "cojones." Beg your pardon. What I get for trying to be too clever myself.

fourby4 · 9 months ago

I don't agree that US can stop making cars. They should stop making bad decision that what I think. If they plan to make cars for export. The economic may go back to normal.