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Back at you on GM argument

by cactus

General Motors and Social Security – Two Sides of the Same Coin

There’s a group of folks out there who are busy pinning the blame for GM’s four-decade long implosion on unions. Those folks tend to also bleat the loudest about the crisis with Social Security. People like this miss the point with both situations… and the point is about the same.

First, Social Security. Writers like Bruce Webb and Coberly here at Angry Bear, plus numerous others, have pointed out many times – there is no problem with Social Security. Social Security has accumulated a fortune in IOUs from the rest of the Federal Government, which has happily borrowed that money and promised to pay it back. If there’s a problem, its with the rest of the government’s ability to pay those IOUs back once Social Security stops running a surplus. The problem is only being exacerbated now, when the government is taking on additional new debt to cover and handing it to the likes of Goldman, Welfare, Queen & Sachs and Citi so they could continue to pay the talent that created the financial crisis. Similarly, since WW2, the problem has generally been made worse under Republican Presidents and been alleviated under Democratic Presidents – debt held by the public as a percentage of GDP has decreased under every Democratic President beginning with Truman, and has increased under every Republican President beginning with Ford. Clearly, bailing out bankers is seen by some as a better option than honoring long-extant promises to the nation’s retirees. Tax cuts, gutting regulations, and generally producing slow growth are also more worthwhile goals.

What does all off that have to do with GM and unions, you ask? Well, like the Federal Government, GM had a choice as to how to finance its operations. When it (and the rest of the US auto industry) were producing world beating vehicles back before the world was cursed with knowledge of the Bee Gees, it was doing so in part by asking its employees, especially its unions, to forgo some payment at the time in exchange for some payment later. Put another way, by offering pensions and other benefits, GM got its union employees to accept lower salaries in the 40s and 50s and 60s. It built the world-beating cars of the time by borrowing the future, much like St. Ronald the Reagan and GW Bush “paid” for their “tax cuts.” Would GM of the 1950s had been GM of the 1950s if it had paid its employees the future value of their retirement benefits at the time? I am pretty sure the answer is “heck no.” Would it have gotten the same work out of its employees without those promises? Again, I’m pretty sure the answer is “heck no.” Complaining about GM’s obligations to its retirees is essentially saying: “if only GM reneged on its deals, it would have lower costs.” No doubt the statement is true, but there’s something seriously wrong with anyone who sees that as the way a company should choose to do business.

Of course, its only certain deals that some folks want to see reneged. Nobody would ever suggest that GM should refuse to pay for parts and equipment it has already used, or that the Federal Government should refuse to pay for equipment we transfer to Pakistani intelligence so they could train the new generation of Taliban who are fighting against our troops in Afghanistan. But weaseling out of obligations to folks who worked on assembly lines for decades seems to actually be a good thing. And any suggestion otherwise is class warfare or envy or even socialism.
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by cactus

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A line of connection in experienced disconnected thought: Southern economic growth, anti-union, free trade job loss, today’s economy

by divorced one like Bush
caution, a long read

I’ve been reading: Making Government Work by Ernest F. “Fritz” Hollings. Yes, that Hollings of Gramm and Rudman legislation fame. It is kind of rambling read, but I now understand why our congress of the democratic party side has been acting like moderate republicans and not liberal or progressive. I recommend it just as a bit of a fly on the wall experience, be it a southern conservative Democratic fly. He does not like unions. He does not like free trade as currently practiced.

And, as much as he hates unions, he can not see that his fight against GATT and NAFTA in support of the textile industry as jobs moved south and over seas is and was the large version of his attracting jobs from the north east because of the cheap, non-union labor. He understands the impetus of cheap labor found in Mexico and China for business as a problem of “free trade” for our country as currently practiced, but totally fails to see it in his anti-union position. He can see the “fight” between nations for capital in flows due to labor cost advantages and how that is harmful to higher developed nations, but Hollings never indicates an understanding that he helped create the game of pitting one area of people against another by bidding down labor when he promoted the south as a union free area. That is, he sold his state, and thus sold out the northeast and the north midwest auto/rust belt social progress by bidding a lower labor cost. He fails to see his south played and still plays the roll of China to the unionized areas of America.

I mention this as an introduction to a person mentioned in the book who gave testimony in front of his senate committee hearings on GATT and NAFTA 11/15/94: Sir James Goldsmith. I present him and this bit of history as a compliment to Stormy’s postings on trade and the related postings regarding ours and the worlds current economic condition. Senator Hollings listened, but he did not hear.

Sir Goldsmith you can imagine, is no small potatoes. Nor is his background of the character one would expect as to be not so much in favor of GATT and NAFTA. Consider:

Anglo-French billionare financier
The Goldschmidts (family name changed to Goldsmith), like their neighbors and relatives the Rothschilds, had been prosperous merchant bankers in Frankfurt since the 16th century.
He was a greenmail corporate raider and asset stripper. (Including US timber companies.)
In 1990, Goldsmith also began a lower-profile, but also profitable, global “private equity style” investment operation. By 1994 executives working in his employ in Hong Kong had built a substantial position in the intermediation of global strategic raw-material flows.
Goldsmith… believed Britain had been victim of a socialist conspiracy and that communists had infiltrated the Labour party and the media.

So, what are you thinking? Money and more money, of the world market…total conservative. Certainly eccentric, if not a little paranoid regarding the communist bogyman. Except, he wrote a book in 1993: The Trap.
From the intro:

We have convinced ourselves that there exists only one valid economic and social model: our own. By attempting to impose it universally, we have exported to almost every corner of the world our diseases: crime, drugs, alcoholism, family breakdown, civil disorder in urban slums, accelerated abuse of the environment and all the other problems that we experience daily.”

But, this is the money quote:

“The economy is a tool to serve us. It is not a demi-god to be served by society.”

So, with no further ado, I present the Ross Perot of Europe in the epic battle of free trade, Sir James Goldsmith: (the audio of the transcript is at the same site)

I believe in free markets, I believe in free enterprise and I believe the purpose of the economy is not just to improve indices but to improve the state of the nation–yours, mine. So I’m not an anti-free-market man nor an anti-free-enterprise man; quite the contrary.
[regarding a prior witness] What you’ve heard today is the view from big business, of which I was part. And I believe the view from society in general is totally different.

Let’s pause right here and let that statement sink in. Society has a different view of the effects of “free trade” as practiced.

That’s nothing to do with productivity, Mr. Chairman; that’s moving to get the cheap labour forty times cheaper. And please don’t think this is unskilled jobs; these are skilled jobs; these are high-tech jobs going there. Of course there are also the unskilled jobs, but the skilled ones are going to highly skilled people and they are moving offshore; and if you think that’s productivity, then I think you would be wrong.

Well, surely the measure of competitiveness is the balance of trade. And as you, Senator, pointed out, if you have the second worst balance of trade in history, 150 billion dollars, that’s not being competitive in world markets.

In his [prior witness] testimony he talks about 500 billion dollars to be invested in China. And then what does he say? He says what America needs–and no doubt this is true about Europe as well–is an increased rate of savings. What for? To invest in China?…we can’t increase our rates of savings just to invest them elsewhere and where we bleed to death in terms of capital and we bleed to death in terms of jobs.

And this is the big point, Mr. Chairman. What we are witnessing is the divorce of the interests of the major corporations and the interests of society as a whole.

Ok, time out. I just want to make a plug for my coined bit of nomenclature: United Corporations of Global. It’s an entirely new nation that has no grounding to any boundaries of the continents and thus no patriotism to any nation. Let’s all chant: UCG, UCG, UCG, UCG…

Sir James Goldsmith goes on in his opening to present some figures showing the decline to society’s non-GDP measures since free trade has come on the scene. So we’ll skip to the closer quote:

Now I’m not here as a bleeding heart liberal; I’m a hard-headed realist and it is my view that if we try and make profits and at the same time destroy our nations, no one will benefit from it–even those who make the profits. (can you say “2008”?)

Returning to the beginning of this post regarding Senator Hollings lack of connection to his own approach to saving the south, I present this comment made during Sir Goldsmiths testimony:

…These thinkers were telling us–in fact I was at [Renaissance] with President Clinton when Michael [Porter] from Harvard was there and he was still lecturing on the comparative advantage, David [Richardo], and I just looked and said, yeah, the comparative advantage, that’s why BMW’s come to South Carolina. We have never made an automobile in our history. I mean, come on, it’s the wage advantage; 30 dollars in Munich, 15 dollars in Spartanburg;

And that, ladies and gentleman, is the display of the disconnect of our thinkers in Washington concerning all issues. The disconnect is the segmentation of thought regarding the mechanisms of relationships when forming a position on an issue. Senator Hollings just laid right out there his selfish thought process. Now, I don’t mean this in a derogatory way. Read his book, you will see he always held in desire what is best for the people. Unfortunately, the set called “the people” changes with the focus of the argument. The mechanics of the issue is never seen as being the same at a scale unrelated to the scale of the current set of “the people”. His desire to help his south (small set of “the people”) made him unable to recognize in his approach to improving the economy of the south, the same mechanical principles he was arguing to prevent in the hearings regarding GATT and NAFTA. That is the selfishness unrealized by him. He is anti-union still today.

Returning to Sir Goldsmith’s testimony, these are relative to today:

The reason why this time there’s been a recovery in indices and GNP despite very substantial pressure, downward pressure, on interest rates and facilitating credit through the banking system is because salaries, earnings, have either gone down or risen very little relative to the period of recovery. And that is the whole philosophy, is we can keep inflation down by keeping wages down; and we have forgotten the purpose of the economy, which is to enrich, to create a stable society, and to include the population, the vast number of people in active life; and instead we believe that if we can reduce salaries we can keep inflation down. That’s the wrong way around; we just forgotten what the economy is about, what its purpose is. (Can you say last 8 years? Really, though it has been the last 28 years regarding interest rate decline, wage decline, inflation moderation with rising GDP.)
The alternatives are not just closing the market, becoming protectionist; the alternatives are not saying we are now going into protection and we’re going to isolate ourselves from the world, each one of them. The alternative is to have regional trading blocs which have similar economies so we’re not trying to make our labour forces compete with people whose labour costs 2 percent of theirs and thereby destroying them–but–and reducing their salaries and eliminating their jobs–but having negotiated bilateral agreements between trading blocs so that each region, each nation, imports those products that it needs, not those products that destroy its jobs.

Senator, when I was young I was taught, as we all were, that if we managed to create extraordinary material prosperity we would solve our problems. And we were brought up in the belief that there was an inevitability of progress: progress of wealth, progress of stability, progress of civilization. Well during the last fifty years, since I’ve been more or less an adult, we’ve had the greatest period of economic prosperity, economic growth in history. We have succeeded beyond our wildest dreams…And what has happened? Have we solved our problems? Are our towns more stable? Are our families more stable? Is there less crime, less people in prisons? Less people in–are there more people in permanent and noble employment? What have we done? We have profoundly destabilized our communities. We have done everything that was wrong in social terms; we’ve deracinated, we’ve uprooted people from the countrysides, we’ve shoved them into towns, we haven’t given them jobs; we’ve created ghettoes and underclasses; we’ve increased crime and drug addiction and family break-down–all this in a period of maximum prosperity. Why? Because we were only interested in economic indices. We forgot that the purpose of the economy is not just to improve the index; it is to improve prosperity along with social stability and social contentment. And GATT is typical of the economic instrument, whose purpose is to increase corporate profits; whose purpose is to increase gross national activity; and whose result will be the destruction of the stability of our society, a continued break-down in family life, a continued increase in crime, impoverishment and all the other ills that we are now suffering.

Read that last part again: …whose purpose is to increase gross national activity; and whose result will be the destruction of the stability of our society, a continued break-down in family life, a continued increase in crime, impoverishment and all the other ills that we are now suffering.

I think Sir Goldsmith was thinking in linear terms as to the increasing negative effects of the form of free trade being set up. I don’t think he imagined the deregulation that would give a false sense of reinforcement to the “free trade” weakening of the foundation. That business was able to shore up the crumbling base via debt against the social decline, just means, as we are now experiencing, that the crumbling of the pyramid will be of a greater energy. That is assuming we can not shore up the breaking of the foundation such that it is a controlled falling of the pyramid. Though, if we are lucky (fingers crossed, salt over shoulder) we may just engineer a solid repair of the base before it all falls down.

Can we broaden the discussion now?
Thank you.

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SRM sues WSJ

Financial Times carries this little note on one hedge fund.

SRM Global, the hedge fund run by the former star UBS trader Jon Wood, is suing The Wall Street Journal for publishing allegedly confidential information about its performance, setting up a high-stakes battle over the industry’s transparency.

SRM claims the newspaper acted in “flagrant disregard” of its rights by publishing in August that the fund was down about 85 per cent since its inception in 2006.

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Quote of the Day (though from four days ago)

Chris Dillow, beginning a post about legal avenues to reduce prostitution:

If a man wants quick, unfulfilling sex with a woman who despises him, he should get married.

The rest is one of Dillow’s usual rational exigeses of the vagaries of “rational” policy making. Tell me again about how Micro makes more sense than Macro.

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How To Bail Out the Economy – A Less Wrong Way

by cactus

How To Bail Out the Economy – A Less Wrong Way

Regular readers know I’ve had post after post explaining why a bail-out would be a bad idea and would not work, dating to long before the bail-out began. I predicted that the end result would be the further enrichment of some of the very folks who brought us this mess and junior versions of the same folks who were too young to get in on the original crime spree, but otherwise, we’d have nothing to show for the trillions that would get spent.

The supposed “rationale” for this bail-out is to make sure that companies that are willing and able to produce goods and services that consumers wish to purchase are able to do so, and that in turn consumers are willing and able to purchase goods and services that companies want to bring to market. The story line is that this can be accomplished by giving money to the financial sector, that sector of the economy that for the past few years has specialized in selling squirrel meat as fillet mignon. Give those talented folks some money to make up the massive losses pulled off in the past years and they will happily loan money to producers and consumers, we are told.

Its becoming obvious even to the likes of Henry Paulson that no matter how much money gets paid to Goldman, Welfare, Queen & Sachs and Citi and Countrywide and the rest of ’em, the “financial system” of old is gone forever. Compensating buyers of squirrel meat is more than enough burden on the taxpayer, but it seems we’re expected to make Goldman, Welfare, Queen & Sachs whole for paying the exorbitant salaries of folks like Henry Paulson in the past, and the current and future generations of Henry Paulson to boot. Clearly this is not only a very, very, indirect way to keep companies producing and consumers buying, its also adding a bunch of layers of unnecessary expenses.

So… if the goal is to stimulate production and/or consumption, why not cut out the unnecessary layers of exorbitant expense? I’m not sure I see the reason for bailing out car companies, but say that was the goal for some reason. In that case, the government could simply buy a $20K car for every single American, every single one, and spend less than the $7 trillion that’s been committed so far. That’s well over 30 times as many cars as GM made last year. Worldwide. You could bet the car companies would tool up for this, and it would employ a lot of people, and it would stimulate the economy. Additionally, we’d all have another car thrown in. Sure, it might be a GM vehicle, but its still something, which is more than the nothing we’re gonna get from pumping it into the Goldman, Welfare, Queen & Sachs black hole. Heck, it doesn’t have to be cars – the gubmint could simply commit to spending $20,000 on something, anything each of us picks. You could take your 20 G and spend it on a menu of American made options.

Preposterous, you say? Inflationary, you say? Jingoistic, you say? Sure, I say. Its a stupid idea and I don’t like it all. But I think its a much better idea than the current bail-out approach, which I think is worse than taking (for now) $7 trillion and setting it on fire. Giving the money to the likes of Henry Paulson’s former employer is simply rewarding bad behavior and sending the wrong message, not to mention preposterous, inflationary, and jingoistic.
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by cactus

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