Paul Krugman’s Always Low Wages contrasted how Walmart treats its workers with how GM’s workers were treated 40 years ago. Let’s contrast how he looks at finally troubled companies such as GM with a couple of recent op-eds at the National Review. Tom Nugent argued that GM is financially troubled because it failed to listen to his advice to build even more guzzling vehicles such as SUVs, while Krugman points out that GM’s troubles emanate from the fact that they did listen to this advice:
Last week Standard and Poor’s, a bond rating agency, downgraded both Ford and General Motors bonds to junk status. That is, it sees a significant risk that the companies won’t be able to pay their debts. Don’t cry for the bondholders, but do cry for the workers. Standard and Poor’s downgraded GM and Ford sooner rather than later because it believes that the public is losing interest in S.U.V.’s. But the companies were vulnerable because they still pay decent wages and offer good benefits, in an age when taking care of employees has gone out of style. In particular, they are weighed down by health care costs for current and retired workers …
Besides giving bad advice to GM, Nugent would also have us trust our Social Security retirement funds to entities such as PlanMember Advisors and Victoria Capital Management.
The more interesting feature of how Krugman led his op-ed comes from the realization that the stakeholders of companies such as GM and United Airlines include not only equity holder and bond holders but also workers who received deferred compensation in the form of pension plans – often in lieu of wages for services performed a generation ago when such entities also had cash flow problems from intense competition. In what might be seen as a Crony Capitalist Manifesto, William Buckley repetitively asks “whose money is it” as he appears to put equity holders and bond holders ahead of workers if the future profits of a company are insufficient to pay both the deferred compensation for past labor services and a nice return for the holders of equity and debt. While some of us might find this abuse of bankruptcy proceedings offensive, it came up as the gals of CNN discussed the financial woes United Airlines with Kathleen Hayes – who pretends to have learned economics from Stanford – expressing the view that Buckley merely implied (at best):
Well, of course United Airlines says that if they do this, if they can offload this obligation, they can come out of bankruptcy, they can get to be profitable again. And in fairness to the airlines, let’s remember that this big jump in oil prices, which means higher jet fuel prices, which they have no control over, except of course to try and hedge it in the financial markets –maybe they could have done a better job of that, but they don’t control the oil market. That’s one of the big, big things that has hit them.
I was not aware that the Stanford economics department offered a course in the Virtues of Crony Capitalism where the Proudhon title: “What is Property? Property is Theft” is seen as praise and not condemnation. I always thought that the reason equity holders deserved the upside benefits of profits possibly exceeding expectations is that they also bore the downside risk of the market place. Ms. Hayes would allow companies the Bankruptcy Option of unloading downside risk onto workers and taxpayers without any apparent compensation.
Mr. Buckley’s writing may seem to ramble, but it strikes me that he actually presents quite starkly the philosophy of the National Review and other organizations that champion the crony capitalism practiced by the GOP leadership in Washington, D.C. I would actually prefer the capitalism of Adam Smith as practiced by Walmart as at least workers know what they are receiving for their efforts. The United Airlines bankruptcy is a very good metaphor for what President Bush wants to do with the payroll contributions we have made into the Social Security Trust Fund over the past generation – let the government give dividend checks to wealthy taxpayers paid for by raiding the retirement trust fund. Yes, Class Warfare is on with the Crony Capitalists in power. And if the average America worker is under any illusion that it is his money, let him consider carefully how Ms. Hayes might answer Mr. Buckley’s question.