Sunday, November 30, 2008

Bailing Out Your Rich Neighbor

It has become axiomatic: If you read the New York Times, you will read something stupid.

The title of Bob Herbert's column, Putting A Face On Big Auto, should be warning enough.
But if it's not, then the fact that's it's printed in the New York Times should remove any lingering doubt that what you're about to read will not be the economic case for bailing out Detroit's Big 3, but the emotional appeal, based on the anecdotal story of one good, honest, innocent, hardworking man, for keeping these sinking, mismanaged behemoths afloat with taxpayer money.

To wit, Mr Herbert's opening sentence, "If we were interested in making the best possible decisions with regard to the U.S. auto industry, someone like Rich Breen would be seen as the face of the industry, not the chief executives of General Motors, Ford and Chrysler."

(We'll ignore the fact that Ford chief, Alan Mullaly, was hired after the fact, and played no role Ford's decline).

The implication is clear: if we just knew Rich's story, that he's a real salt-of-the-earth, hardworking common man, we would open the federal money trough for the Big 3 and rain money down on them quicker than you can say, "Hey! There's gold in this pinata!"

Well, as the elite, main stream media would have it, that's exactly Rich's story!
Who'd a-thunk it!

Yep, Rich is a teamster, a car hauler who delivers new vehicles for the Big 3.
And, as it turns out, he's also an economist!
Wow! Wasn't the New York Times fortunate to find this guy!

Rich, putting on his Paul Krugman hat, tells us, "I see the tool and die industry dying in the light industrial areas. I see the clientele decreasing in the local barbershops, hardware stores and restaurants. I hear people saying if the Big 3 shuts down it wouldn't affect them. They have no idea. It would have a domino effect that we've never had before in the United States. The bottom would fall out and the ripple effects would go all over the country."

So, Rich is smarter than the rest of us, too.
Just like Paul Krugman!

But he ignores the basics, namely, demand for a product does not vanish just because an inefficient producer goes belly up. More efficient producers would step in to fill that demand.
And Mr Herbert admits as much, but he has different take on it, "Analysts have suggested that even if the Big 3 were to disappear, the foreign car makers would fill the vacuum, as if the cornerstone of American manufacturing -and everything it has meant and still could mean to American life and culture- were somehow disposable, like a worn-out paper bag. Get real."

Fine, here's real for you: My cousin works at a Toyota plant in Kentucky.

The foreign car makers are already stepping in, and have been for years.
It's just that the slope is a bit more steep now, which has served the role of further clarifying the situation.

But Mr Herbert throws a couple of numbers at us to convince us that good, decent, honest, hard working men are doing their part to save the country, "The UAW agreed to extraordinary contract concessions in 2005 and 2007. Starting pay for new hires at the Big 3 has been cut by 50 percent -to $14 to $16 an hour."
Which mean that new hires, until recently, were making $28 to $32 an hour.
That's about 4x the federal minimum wage.
And remember, that was starting pay!

Suddenly, I don't feel so good about bailing Rich out.

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