In Which I Agree with Richard Shelby, and Ask the Next Question

Via Dr. Black, the NYT quotes the Alabama Senator:

“Companies fail every day and others take their place. I think this is a road we should not go down,” said Mr. Shelby, the senior Republican on the Senate Banking, Housing and Urban Affairs Committee.

“They’re not building the right products,” he said. “They’ve got good workers, but I don’t believe they’ve got good management. They don’t innovate. They’re a dinosaur in a sense.”

The first sentence (“Companies fail every day and others take their place.”) is clearly true. I believe we refer to this as “creative destruction” if we are feeling positive.

The second sentence (“I think this is a road we should not go down”) is clearly a lie, since they have gone down that road with AIG, The Hartford, and several other firms.

The next four sentences are subject to interpretation, but let us assume the first two (“They’re not building the right products,” he said. “They’ve got good workers, but I don’t believe they’ve got good management.”) are true, while leaving the third (“They don’t innovate.”) as an exercise for Tom* and the fourth as beyond the pale, even if you assume all of the above.

So we have, in the words of Richard Shelby:

  1. Bad management, selecting
  2. the wrong products, being made by
  3. Good workers.

So what is the solution Shelby proposes?

Defenestrate the workers. (Is anyone surprised that Tyler Cowen, Bruce Bartlett, and Greg Mankiw appear to endorse this idea?)

The strange thing is that if you follow Mankiw’s link into CATO-land, you find the “dinosaurs” argument falling apart:

As the article accompanying this table notes:

Two significant factors jump out of the data: the gap among the six is narrowing – the narrowest margin since the study began in 1989; and the domestics, albeit they had the most improvement required, have made dramatic progress.

The gap in 2007 is a scant five labor hours, roughly, from No. 6 Ford to No. 1 Toyota. Harbour [Consulting] said that amounts to no more than a $250 to $300 per vehicle cost disadvantage to the domestics.

So the workers are (in general) performing better and even the complete cf that is F is not severely underperforming the market (though its moves in the past five years have borne a rather bitter fruit, judging by the production numbers).

In short, the work is being done, and being done well. It’s the management that has, for the past 25-plus years, misallocated funds to itself. Looks as if it’s an industry that is a prime candidate for a bailout that puts a tight lease on the self-indulgent management. What’s the phrase, “auto czar“?

And that’s even ignoring any national security considerations (h/t Mark Thoma):

But in 1991, the Persian Gulf war demonstrated the awesome utility of American land power, and the Humvee (and its civilian version, the Hummer) became a star. Likewise, the ubiquitous homemade bombs of the current Iraq insurgency have led to the development of innovative armor-protected wheeled vehicles for American forces, as well as improvements in our fleets of Humvees, tanks, armored fighting vehicles, trucks and cargo carriers.

In a little more than a year, the Army has procured and fielded in Iraq more than a thousand so-called mine-resistant ambush-protected vehicles. The lives of hundreds of soldiers and marines have been saved, and their tasks made more achievable, by the efforts of the American automotive industry. And unlike in World War II, America didn’t have to divert much civilian capacity to meet these military needs. Without a vigorous automotive sector, those needs could not have been quickly met.

I guess Andrew Samwick’s “team-crafted in Indiana” Subaru** really isn’t fungible with a Dodge Magnum or even a GM Daewoo Nubria.

*I’m inclined to argue that they do innovate, but much of the evidence to which one might point is not in the U.S. market. So let’s leave Stormy’s post—specifically, “[Canadian Minister of Industry] Tony Clement is well aware that the auto industry must transform itself”—as the AB position-of-record, subject to new information.)

**At least Samwick and I agree on choice of car.