The bow of the Titanic
Tuesday, December 9, 2008


Bailouts

The picture above, from NOAA, shows the bow of the Titanic. Some thoughts regarding the Big 3 bailout.

  1. Congress passed CAFE standards that the companies are supposed to implement. The cost of meeting these standards, or of the retooling to meet them is estimated to be $85 billion. Why not cancel the CAFE standards? If the market is actually demanding vehicles that meet these standards, then let the market make its demand felt. Otherwise, let it alone.
  2. The cost of labor due to UAW contracts is supposed to be in the neighborhood of $70 per hour. The cost in non-union plants in Kentucky is about $48 per hour. Every dollar per hour for 300,000 employees is $600 million per year. Bringing the cost down $20 per hour would save $12 billion in labor costs.
  3. Unions have a right to exist. I think you can make a case that this right is derivable within either the natural law or the natural rights framework. Do they have a right to a monopoly, such as they enjoy in Detroit? Do they have the right to intimidate, and make threats, which underlies the strike? My sole experience with crossing a union picket line was back in 1973 when I was in New York, and I wanted to go to the Museum of Modern Art. My wife and I crossed the picket line because we had journeyed 200 miles, and knew that it would be years before we got back there. (I went to the MLA convention in 1992, and my wife has never been back.) I don’t recall any catcalls or any overt threats, but there was the notion that we were doing something wrong. Inherent in the presence of the pickets is the threat that they will pass over into violence.
  4. The creation of a car czar simply means that there will be more bureaucracy. The czar will need a secretary, and he will need support staff, this includes analysts, IT people, and the whole smorgasbord of modern bureaucrats. The market is saying that GM, Chrysler, and Ford are not making the cars that the public wants. The simple solution is to let them go bankrupt, get out from under the union contracts, close dealerships, get out from under whatever restrictive state and local laws exist. Then let them start producing cars that people actually want.
  5. These companies are losing money, and yet they’re advertising employee pricing, plus cash back. Are they expecting to make it back on volume? It’s not going to happen. If GM and Chrysler, the two that are actually running out of money, had viable prospects of actually paying back the loan, they would be able to find a private facility, not the taxpayers, to make the loan. The fact that they’re begging the government for money is an implicit confession that neither they nor anyone else believes that they can survive.
On the other bailouts:
  1. As I understand it, and I admit that I don’t know much about accounting, a good deal of the problem arises from the mark-to-market rule. When mortgages are bundled up for resale as securities, those that are performing well are bundled with the underperforming or nonperforming mortgages. Before Enron you would evaluate the package as being that of the performing mortgages and the non-performing ones wouldn’t be counted. Post-Enron, the rule was changed so that the whole bundle was valued at zero. This results in a serious understatement. There was supposed to be a move by the SEC to change the rule, but it hasn’t happened.
  2. Reduce government spending while cutting taxes. On the federal level there are whole departments that could be reduced (Agriculture) or eliminated (Education). Put through a tax code that is comprehensible by the average high school graduate, not one that requires lawyers and accountants to understand.
  3. In the Carter Era everything was supposed to revolve around zero-based budgeting. That went nowhere. In the Obama era the promise is that programs will be reviewed for their effectiveness. That too will go nowhere. What is needed is not to take a pen to the budget, but a bloody axe.
  4. Reduce state and local expenditures as well as state and local taxes. One notable area that can be eliminated is education. Get the state and localities out of the education business where they are failing. Sell off the physical plant to developers. If necessary mandate that the developers include an educational facility comparable to the one sold in any project that replaces the existing structures. Get rid of boards of education, and related facilities. Use the proceeds from the sale to establish scholarships and endowments that will be available to all citizens or legal immigrants to supplement whatever they are able to afford for tuition. Lower taxes so that the benefit derived from the sale is transferred to the taxpayers. Freeing the schools from the public purse means that they will operate as independent units. This means that unions and pressure groups such as the NEA will have less influence in pay, tenure, and other matters. Parents will have a greater say in curriculum. This latter idea naturally scares some who fear that a bunch of Yahoos will ban Darwin and Harry Potter. That may happen, but it will be on a school by school basis, and parents who approve of Darwin and like Harry Potter will be free to send their children to schools that teach those books.
  5. Change or abolish the requirements for teacher certification. When I went to George Washington University (1964-70, 1970-73), the Department of English required either or a 3.0 or 3.25 GPA, depending on the type of major, to graduate. The Department of Education, on the other hand, required a 2.5 GPA. So the education degree was cheapened in relation to other degrees. Much of the course work, from the little I saw, was essentially methods or nonsense courses, such as “Sociology of urban youth.”
  6. Some years after receiving my M.A. I took the National Teachers Exam. I’d been out of school for 14 years, and had never taken an education course. Somehow I managed to score in the 89th percentile on the practical knowledge portion of the test. Presumably this was the stuff that the education courses teach. Nevertheless, despite high scores on the general test and the subject matter test I was unable to get a job teaching high school because I lacked the education courses. Virginia, however, was perfectly willing to hire from the top 80 percent on the NTE, as long as they had the education course work.
  7. Now that I have Piled Higher and Deeper, I am presumably qualified to teach at the college level, while unqualified to teach high school.
  8. I am sure that many retired chemists, physicists, writers, reporters, and others of that ilk would be willing to teach, and would provide better education than is currently received from the School of Ed pukes.
  9. Go through the remainder of state and local budgets. Reduce taxes, cut expenditures, and let the people keep and dispose of their money as they see fit.
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