The Best Detroit Can Muster (apologies to Johnny Cash)

“‘If it makes sense to give one bank $25 billion, then we can certainly invest the same amount to save the entire domestic auto industry,’ said Sen. Sherrod Brown, D-Ohio.”

I have two comments;

1) The problem with the argument is that NONE of it should be bailed out. The Fed’s easy credit policies under Greenspan spurred huge malinvestments, or “clusters of errors” as Murray Rothbard would say. It channeled investment into existing bad companies and bad investments, and NEW bad companies and bad investments. This malinvestment mainly went into the building, upgrading, and financing of homes and other buildings, for many reasons, pumping up prices even more than Fed inflation has normally done since 1913. This malinvestment gained momentum because as people saw home prices going up, they naturally thought they had better buy while they still could (I got somewhat caught up in this :o( ).

It became a malignant, accelerating inflation snowball. It reached the point where Bernanke faced a choice - keep printing the money, and watch inflation go vertical, a la Weimar Germany or Zimbabwe, or prick the real-estate bubble by stopping inflation. He chose the latter. The bubble burst, as any Austrian School economist could have told him. Then, when all the froth started to fall down around us, and Wall Street started to get hurt, Hank Paulson (R. Goldman-Sachs) got the politicians involved.

The bailout of the financial sector’s bad investments then required TRILLIONS of dollars worth of new inflation, occurring as I write this, because the government HAS NO MONEY. Because imposing massive new current, overt taxes and reducing spending (!) are not an option, the government has to borrow (future taxes) and print the money (hidden taxes). There is no money, the $700 billion is all debt and inflation, the $25 billion Detroit wants is all debt and inflation. The wars are all funded by debt and inflation. The merchants of death are all getting fat on debt and inflation.

THERE IS NO MONEY. We are simply forcing as Ron Paul says, poor people to bail out the rich, good people to bail out bad people, smart investors to bail out dumb investors. We are transferring the losses of Wall Street (and Detroit) to innocent present and future Americans. Nothing good can come of this.

This morning on NPR (!) they are crowing about a couple of tenths of a drop in the Consumer Price Index (CPI), and worrying aloud about the “specter of deflation”. This is being done to counter the entirely sensible idea that creating trillions of dollars out of nothing at an unprecedented rate might possibly be bad. This is complete hogwash. I am unconvinced that this drop is anything but the price of SUVs and big-screen TVs coming down as a result of consumers sensibly spending less in the face of an economic calamity. Remember the price of five ordinary goods you buy today, then revisit those prices in a year. Price deflation would not be a bad thing for most people, only for the overleveraged.

2) There is absolutely nothing wrong with workers banding together and forming unions. There is absolutely nothing wrong with those unions freely negotiating with employers regarding their compensation, work rules, etc. Where the thing breaks down is when the government compels employers to deal exclusively with a (labor monopoly) union. Enforced union privileges allow unions to push up wages beyond the actual marginal revenue product of their labor by excluding non-union workers from competition, great if you belong to the union, unbelievably bad if you don’t or can’t. Obama shows troubling signs of making this worse, of eliminating secret union balloting, and voiding state “right-to-work” laws. This will exacerbate the monopoly behavior of unions, and make the problem that much worse.

The increased labor costs do all kinds of bad, uneconomic things to the cost structure of the companies, including increasing investment in economically dubious technology, increased government lobbying for subsidies, and pushing up the salaries of incompetent nitwit drones like Rick Wagoner and Bob Nardelli. The Big Three automakers, in exchange for their accepting the National Labor Relations Act and unionization, demanded protection from foreign producers (see Smoot-Hawley), which they had uninterrupted from Roosevelt until the late 60’s when it became impossible to keep the Japanese out, so they really didn’t care if wages were kept artificially high, it didn’t hurt them.

This is classic cartel behavior. They are still running those companies that way. Now it’s killing them, because they can’t change. Let them go bankrupt, and let new owners negotiate new contracts with the workers, free of federal interference, and try to deploy the assets of these failed companies in an economic (profitable) way.

And let Wall Street go bankrupt. They deserve it.