Monday, November 17, 2008

yet more thoughts

I'm someone who has the failing, as I think a lot of us do, of becoming more intractable in my positions the more I argue about them. I can be quite stubborn, sometimes. But then you knew that!

Many smart people are arguing against the bailout, and I need to say at this point that I feel it is an open question as to whether or not it is a wise or prudent move. But there's a lot to attend to about it that I think is getting squeezed out of the discussion.

First, I think we should be pessimistic when it comes to trying to gauge the financial impact of not bailing out the Big Three. I think even those least disposed to supporting the bailout would admit that we are going to have some major financial damage if these huge companies should fail. There isn't going to be a happy ending to this, no matter which way we turn, and I think those who are opposed to the bailout should be careful not to minimize the kind of damage we are going to see. These companies cast long shadows. Paul Krugman argued on the This Week yesterday that the automakers could not pursue Chapter 11 bankruptcy, because of the lack of available credit, and would have to slide into Chapter 7, liquidation. To me, that's a huge question. I'm much more supportive of a bailout if the alternative is Chapter 7, than I am if the alternative is Chapter 11.

In the unlikely but definitely possible event that we're talking about real liquidation, we're in for some very tough times for a lot of people, and a really discouraging unemployment situation. That may, in fact, be the case no matter what-- as my peers have been telling me, we might merely be taking jobs from others by bailing out the automakers. In any event, a real collapse of any or all of the Big Three is going to result in a lot of people without jobs. That may actually be a bit of a happy coincidence, because we are in a unique time in American politics, in a position where a very broad range of economic thinkers agree that we need some sort of government driven stimulus, and specifically a jobs stimulus. My question is whether those opposed to the bailout would be amenable to a broad retraining and jobs program for those displaced by GM failing-- for both blue collar and white collar employees. (Management has mouths to feed too.)

If the problem with bailing out the automakers is really just basic insolvency, then I would think many would indeed be sympathetic to a real jobs program for these people. After all, we're talking about the same sort of thing even absent the collapse of one of the American automakers. It does seem, from my uneducated perch, that many people not ordinarily disposed to government intervention in the economy are supporting a major government stimulus. However, if someone is a dedicated proponent of the free market, the are unlikely to enjoy the prospect a major government push for retraining and job growth. That's also large government expenditure, it's also introducing government inefficiency into the system, it's also an affront to free market principles.

Many people are saying "well we've got to do something," which makes my trick knee act up-- usually when you're saying that you've got to do something, anything, you're in bad shape. Then again, that pretty much seems to be the way the wind is blowing no matter how you cut it.

I know attaching the "green" term to any old thing is an annoying and shallow practice. It does seem like we have a really unusual opportunity, though, where we have a pressing environmental problem, a need for a big public expenditure to stimulate the economy, and the political will to really undertake a major infrastructure project. No government expansion of public transit and clean energy production is going to be perfect, but I think this is a real opportunity to make some strides, both environmentally and in job creation.


ryan said...

I would definitely agree that a Chapter 7 bankruptcy would be far worse for the economy than a Chapter 11 filing. But my resistance to the bailout--and to so-called "jobs programs"--is deeper than the fact that I think such programs have unintended consequences. I'm also pretty convinced, though amenable to persuasion, that these stimulus packages and retraining programs just don't work.

Retraining large numbers of people for new jobs doesn't produce anything other than another hole in the budget unless there are actually sufficient jobs available to employ those people with their new skillset. Where are these people going to work? Construction? There's a slowdown on, in case you hadn't noticed, and a lot of those "jobs" are currently occupied by illegals. Heavy industry is all but dead. The only industries I see that are massively short-staffed either require post-secondary/advanced degrees (teaching and nursing come to mind) or are menial service jobs. And the service jobs aren't actually short of warm bodies as much as they are warm bodies that are worth a damn. In any case, I don't think the retail and food service industries are actually positioned to soak up an extra few hundred thousand potential employees, especially concentrated in the northern midwest.

What we need is a new industry, and I think that the government, and in fact all governments, are simply incapable of creating these things. Talk of creating a "clean energy economy" is just magical thinking. The only industries that the government is actually capable of keeping going on its own are defense contractors and the military, and I don't think that a massive expansion of the military would be a healthy direction for our country at this particular moment. It is simply impossible for the government to set radical new economic directions. The Chinese tried it, and tens of millions of people died in a three-year period.

I think we need to come to terms with the fact that there isn't anything to be done. The best we can hope for here is to mitigate the human cost by alleviating symptoms by things like extending unemployment benefits and expanding the credit for charitable donations. That I'm all in favor of. But "stimulus" packages? Is there any empirical reason to think that these things actually do anything like what they're supposed to?

faith healer said...

I am against the bailout, but I would enthusiastically support spending a lot to extend unemployment benefits, provide retraining, etc. The government could even provide the DIP financing that would allow GM to go into chapter 11, rather than liquidate.

I think there is a false dichotomy when people say are we going to bail out the big 3 or leave autoworkers in the cold. Bailing out GM directly robs them of their chance to restructure in a meaningful way. And there is a lot we can do to ease the pain, while not encouraging GM to continue operating as a losing company.

We can't allow the Republicans to validate their vision of liberals as people who want government spending for the sake of more spending. Or similarly that liberals just "throw money at problems". If we're going to spend billions (or actually hundreds of billions) on economic stimulus, we have to spend it smartly. Let's make sure it's spent in ways that stimulate the economy, help workers, encourage energy independence, lower greenhouse gas emissions, and (maybe above all) encourage innovation.

ryan said...

faith healer, see, when you give that list of things that we should make sure we're spending money on, all I hear is "throw money at it and it will get better." Making a list of things at which you will be throwing money does not actually change the fact that that's what you're doing.

How exactly is government expenditure supposed to promote energy independence? We currently consume almost 21 million barrels of oil per day, while producing about 7.5 million. How is spending government money supposed to change that? Drilling offshore or in ANWR? Utility companies would love to build nuclear plants, but they don't need more money to do that. They couldn't build a new nuke plant if they wanted to. And they do, actually. Nuclear power is the only way to effectively reduce our dependence upon foreign oil without a massive drop in energy consumption, and lack of capital isn't the thing that's stopping our nuclear buildout.

Lowering greenhouse gas emissions sounds good too, but how is that supposed to happen, exactly? And how is a spending package supposed to accomplish that? Even if your spending package managed to magically reduce gasoline consumption by 50%, we'd still be burning almost 15 million barrels of fossil fuels per day, mostly for power generation. Dollars don't even burn all that well, so I don't see how spending is realistically related to greenhouse emissions. Again: you want to reduce greenhouse gasses, start letting utilities build nuke plants, which they can do without the need for much in the way of government money.

Helping workers? Sure, I'm in favor of expanded unemployment benefits too, but how is that not "throwing money at it"? Job retraining? See my first comment: retraining them to do what? If you've got some magical new source of employment, more power to you, but if you don't how is this not just spending money to spend it? Maybe we feel compelled to spend this money out of a sense of social awareness, but let's be honest about that, hmm?

"Stimulate the economy?" Sounds great. The US economy will be almost $12 trillion this year. A few billion isn't going to make much of a difference there. The $700 billion financial bailout doesn't seem to have accomplished much, as we're not even out of the "complete meltdown" woods yet. You want to really jumpstart things, you may need two, three times that or more. How many hundred billion dollars do we need to throw at this before you'll be satisfied that it just doesn't work?

Why do people persist in the magical belief that the government can actually do anything about these problems? It certainly would be nice if it were true, but I don't see any reason to think it's even probable. I'm not actually opposed to the government doing things. I'm no free market ideologue. I don't actually really believe in the "free market" as a concept: it's incoherent. "The free market" doesn't secure human happiness or financial stability. I think libertarianism is actually antithetical to human flourishing. But I also think that while the government may not be able to promote many of the things we think are good, it is entirely capable of screwing them up.

Either come up with a rigorous explanation that connects government spending with any of the things you want to accomplish or stop proposing massively expensive boondoggles. Seriously.

Freddie said...

The consensus among many people, ryan, seems to be that we have a unique problem here, where the various nuances of this crisis make the traditional methods of solving recession impotent. Many people who are educated on the issue are insisting that things like managing interest rates are just not going to be up to the task this time around, and that the only way to spur growth is if the government gets involved. Recessions require stimulus, and though we'd love to have that stimulus be organic and private, that may not be a viable option right now.

They could be wrong, of course. But I don't find many people actually arguing to get government involved for its own sake, just out of necessity.

faith healer said...

ryan You're right--there are some pretty large leaps to go from "promote energy independence" to actually accomplishing it. You won't be satisfied hear that I consider the policy details of accomplishing all of those things as outside the scope of my comment.

My main point was that even though we're in a crisis, let's not take our eye off the ball. Let's try to make sure that the money we spend on stimulus is also helping to achieve our strategic medium and longterm goals. I listed some of the goals that I think are important and I believe other progressives think are important.

You may not believe that government is capable of addressing these problems effectively. I guess that's one of the main differences between liberals and libertarians.

I do believe the government can accomplish a lot if it's run effectively and strategically.

To circle back to your questions about how government can promote energy independence. Yes some more drilling might help. Reducing energy consumption is possible too. The government can fund more research on technology that increases fuel efficiency. We can generate a larger share of our power from solar, wind, geothermal, and yes, nuclear. Again, you're right that nuclear power currently has too much red tape to proceed--I certainly won't argue against that point. But people are concerned about its safety, both in terms of the operations of the plant and in waste disposal.

Anyway, I think there are plenty of good proposals out there to advance these goals, e.g., at CAP. You're telling me to either spell out all the policies that would achieve these goals or STFU. I don't personally have all the answers, but I hope as a society we can work toward getting there.

Mark said...

Ryan is correct in arguing that retraining, at least as traditionally conceived, is unlikely to be effective.

But while I am completely opposed to a bailout, and I am a fairly straight-line libertarian, I do recognize the need for social safety nets, and extending unemployment benefits is a completely logical option. I also recognize that there is something fundamentally wrong with condemning laid-off workers to what will inevitably become an economic cess-pool.

If the Big Three wind up going Chapter 7 (admittedly not the best outcome), my suspicion is that at least some of their Midwest plants would be bought up by foreign-based manufacturers...there's also the less-distinct possibility that they would get bought at cut-rate prices by someone looking to start up a new auto manufactuer. That would at least bring back some percentage (though probably not even half) of the lost jobs relatively quickly.

What to do about the remainder of workers, though? While they may bear some indirect responsibility for the mess, it is extremely tenuous at best - for the most part, those who were in the unions when the most destructive deals were made are retired. And to the extent the UAW's leadership has continued to contribute to the problem (and it has), I'm not sure how appropriate it is to blame individual members for the failings of their leaders, particularly if you take a trusteeship (rather than a delegate) view of union representation. I tend to think a formal retraining program would have tremendous problems - government is terribly bad at predicting what jobs will and will not be needed, and there's really no way of making those jobs appear in a particular locale.

One thing that would be superior than a bailout of the manufacturers, I suspect, would be to give much of the money for the bailout directly to those who become unemployed as a result. This would take the form of vouchers (or something to that effect) that could be used either for relocation expenses or for education expenses. Maybe you could even allow workers to pool their vouchers together to form seed money for their own business venture.

If 2 million people became unemployed (and did not quickly get new jobs when their old factories are bought up) as a result of the Big Three going Chapter 7, this would leave approximately $12,500 per unemployed person. That would be more than enough money to fund a relocation (keeping in mind that they're getting unemployment while looking to relocate) or find an appropriate retraining program, etc.

To be sure - this is an imperfect solution. For instance, the relocations would in the short term contribute to further depressing home values in the Midwest. But an exodus from those areas has been underway for quite some time, anyways.

I can see an argument for some sort of a "stimulus" in the form of more spending on transportation infrastructure (whether it be "green" or otherwise), which is largely in need of an overhaul anyhow (and therefore a legitimate public good). But the areas where those improvements are most worthwhile are in areas where population is increasing, not where it is decreasing. So even then, relocation assistance becomes necessary.

Either way, I think we have to resign ourselves to a significant reshaping of the American Midwest if the people who currently populate the region are to have any opportunity to get on with their lives.