December 13, 2008

World Economic Forum/Flickr

It's been a lonely road for still-President Bush these last few months.

Many things have been on my mind since this auto bailout rigmarole began. It’s tough enough trying to sort out where I stand on the issue. Harder still is trying to figure out where major political actors will come down on the matter. And then there’s the most difficult question of all: why yesterday did the president break ranks with his party and threaten to fund an auto bailout without the approval of Congress?

Following some initial grandstanding, congressional democrats now seem firmly in favor of the bailout, whereas republicans have lined up against it (except for a few from states with heavy stakes in the auto industry). It’s an unusual standoff considering the original $700 billion bailout fund—more than 40 times than the sum promised to the car companies—passed with bipartisan support (although not without a bout of initial resistance by certain House Republicans).

Nevertheless, it looks like the White House is willing to bet $15 billion that something similar will happen again. Or, by providing GM and Chrysler with the funds to continue operations into January, the Bush Administration is trying to postpone the bankruptcies of two iconic American businesses until after it has left office and the democrats have taken control. Either way, the still-president is defying the legislative leadership in his party. Not only that, yesterday his press secretary took an unnecessary swipe at republican obstructionists, saying:

It is disappointing that while appropriate and effective legislation to assist and restructure troubled automakers received majority support in both houses, Congress nevertheless failed to pass final legislation.

(Reminds me of the bickering over President Bush’s judicial nominees in 2005. Democrats threatened to filibuster certain prospective judges while republicans called for “a simple majority vote,” to approve the contentious appointments.)

So why can’t the president and the legislators from his party agree? One explanation is that Republicans want to drive an ideological wedge between themselves and the highly unpopular president as he fades back into private life. Another possibility is that congressional republicans changed course on financial intervention because of widespread public disapproval of the first bailout bill.

Both options are reasonable and help explain this robust republican opposition to saving the car makers from bankruptcy. But neither explains President Bush’s actions. It’s silly to think the president would agree to take an unwelcome stance just to make his legislative colleagues look heroic in defying him. He has an ego too, and you can bet his own party’s rejection is not something he takes lightly. And if public opinion is firmly set against lending money to failing corporations, why wouldn’t Bush cave to the demands of the populous? True he doesn’t have to worry about reelection anymore, but that only frees him to make the right choice rather than the popular one.

So it follows that Bush must really believe the effects of an auto bailout are in his best interests. A cynic might assume he’s just trying to postpone the crisis until someone else takes over. If everything falls apart, let it tarnish someone else’s administration, the thinking goes. But this is a president who seems to trust that the historians of the next generation will somehow redeem his disastrous administration. How much could a couple of bankrupt car companies hurt him in their eyes? It seems most likely to me that Bush truly believes that allowing Detroit to go under will cause disastrous ripples throughout the American economy. The press secretary’s statement lends support:

Under normal economic conditions we would prefer that markets determine the ultimate fate of private firms. However, given the current weakened state of the U.S. economy, we will consider other options if necessary - including use of the TARP program -- to prevent a collapse of troubled automakers. A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilize our economy at this time.

And it is this that I find most interesting and surprising. Somehow a presidency that has been guided by strict adherence to pure neoconservative ideology is now looking at the facts of the present situation and forming an independent opinion. It’s so refreshing to see that it almost makes me want to believe he’s right. But I guess we’ll all find that out in the painful months to come.

December 12, 2008

JohnLeGear/Flickr

I hope I haven't hurt the venerable Boston paper's feelings.

Just a quick pat of self-congratulations for a prescient blog post I wrote a few weeks ago following a remarkable study of some of the public health benefits of smoking bans in Massachusetts.

Last month the Massachusetts Department of Public Health announced that on average 577 fewer people a year died from heart attacks due to the implementation of a statewide workplace smoking ban four years ago. At the time the Globe wrote a story about this wonderful discovery and then noted that the evidence would only strengthen the case for implementing additional tobacco restrictions this month.

I decried this illogical conclusion—just because one smoking restriction saves lives doesn’t mean that every restriction will do so. Public health expert Dr. Michael Siegel agreed with my opinion. Today The Globe followed my example, getting Dr. Siegel to question the effectiveness of the newest smoking laws which were put into effect yesterday.

Being unemployed, I’m available for public policy consultant work.

December 11, 2008

fordmotorcompany/Flickr

If only putting together a bailout were as efficient a process.

Somebody has to say it. “Car Czar” is an asinine title. And I’m not all that sure it’s not an asinine idea too. But if we're determined to bailout the automakers, it may be the best we can do.

For years Detroit has been flagrantly unwilling to accept the technological evolution of its products. I’m reminded of a stinging critique “Big and Bad” by Malcolm Gladwell from 2004 in The New Yorker (I cannot link to it because, sadly, the magazine’s article archives are now under lock and key). In the piece Gladwell shows, among other things, how making less safe, less mechanically advanced vehicles earned large returns for the Big Three during the age of the SUV. So on some level I’m hoping they get their comeuppance, and a heroic Car Czar might be just the person to do it.

But this isn’t and can’t be about exacting revenge. If we are to bailout these sputtering giants, the process is going to be long, painful and expensive. Long because this downturn is not about to disappear. People didn’t buy zero yield US debt today for nothing. We’re a dozen months from any sort of good news at least. Painful because we can’t predict the hardships we’ll have to weather. The plan is likely to disappoint the capitalists, nationalists and environmentalists at different points along the way. And expensive because that $15 billion Congress is preparing to use to prop up GM and Chrysler will just be the beginning of this Odyssey. The one thing we should have learned about the size of this crisis is that, to adapt a line from Shakespeare, it beggars all estimation. One hundred billion dollars will be necessary at a minimum.

The Car Czar’s job is to put the imperiled automakers on firmer financial footing. But this is hardly a job for a single person. If teams of professional businesspeople couldn’t keep Detroit from driving over the edge, how can one person with a Dr. Seuss-worthy title save the day? The solution is more complex than mandating the production of hybrid cars. Business Week wrote an illuminating article on how the czar might enact meaningful change. In essence the recommendations are 1) renegotiate the companies’ debt and contractual obligations and 2) don’t micromanage. They make it sound so easy, but that’s the one thing this crisis is certainly not.

The best piece I’ve seen on the automaker bailout was published in the New York Times Wednesday. It breaks down the reported $73 per hour cost for GM assembly line workers and dissects the extent of the resulting competitive disadvantage. It’s certain that management will renegotiate its labor contracts to cut back on that cost, but, as the article concludes, the real challenge for Detroit will be convincing consumers to buy their cars again. Toyota sold $54 billion in cars in its most recent quarter, ended September 30, 2008. During that same time period, GM only managed to sell $37.5 billion. The marketplace has spoken and the Car Czar won't change its mind.

The one positive I can see in this mess is that one of Detroit’s major stresses is its sizable obligations for employee benefits and retiree pensions. For instance, $15 of those $73 per hour are devoted solely to retiree pensions. With more automated assembly lines, the automakers of today have to hire only a fraction of the workers they once required. This is an excellent way to cut costs, but a poor way to support the retirees of that less efficient era. By having been successful for many decades, the Detroit car makers have accrued large numbers of retirees dating from that earlier era. This means that pension costs per worker are especially high. Why is this good news? Because it so clearly illustrates the benefit of a robust national pension system. By spreading the cost of retiree pensions across all sectors of the economy, we can insure that certain companies, like GM, are not saddled with prohibitively expensive benefit payments. Let younger companies like Google shoulder some of this societal burden. If we can learn that lesson, maybe we won’t lose as much as I fear under the reign of the Car Czar.