E-mails From Strategy

[hblask 1]

Look, I sure hope you put money behind this incredible conviction when ford was at its 2008 low. The rest of the world--the people that had serious money involved--saw ford's credit rating (it was junk, lots of institutional investors couldn't even buy their debt anymore) and decided there was a very real risk that government would be handed the keys. Ford was toast without government intervention, but as I said, they found a way to do it without harming equity. Why are we unable to agree on this?we're just arguing about how long it takes for the industry to recover from losing the big three. and I really don't see how you think it could be back to today's vol in just four years given the economic conditions.

I'm saying two things: First, no industry has ever disappeared due to "supply chain failure" or any of the other made up excuses for this corporate welfare, and second, propping up inefficiency is far more harmful than eliminating it and getting on with life. GM will continue to produce crap for another decade now until their next bailout, and which time the precedent will be set and it will be even harder to turn them down.Bailouts are bad economics. If this type of central planning worked, we'd all be working for the Soviet Union right now.

[BaseJester 1]

I would think people who believe certain companies are "too big to fail" should feel some urgency to break those companies into smaller ones, whose individual collapse doesn't threaten the national economy.

[LongLiveYorke 38]

Look, I sure hope you put money behind this incredible conviction when ford was at its 2008 low. The rest of the world--the people that had serious money involved--saw ford's credit rating (it was junk, lots of institutional investors couldn't even buy their debt anymore) and decided there was a very real risk that government would be handed the keys. Ford was toast without government intervention, but as I said, they found a way to do it without harming equity. Why are we unable to agree on this?we're just arguing about how long it takes for the industry to recover from losing the big three. and I really don't see how you think it could be back to today's vol in just four years given the economic conditions.

Your problem is that you're not fully grasping the following facts:1) hblask believes first and foremost that anything that happens economically which isn't related to government MUST be good, and anything done by government MUST be bad2) All of his arguments start from point 1 and work from there3) He believes that simply stating point 1 is enough to win an argument. It's evidence for itself.

[LongLiveYorke 38]

I'm saying two things: First, no industry has ever disappeared due to "supply chain failure" or any of the other made up excuses for this corporate welfare, and second, propping up inefficiency is far more harmful than eliminating it and getting on with life. GM will continue to produce crap for another decade now until their next bailout, and which time the precedent will be set and it will be even harder to turn them down.Bailouts are bad economics. If this type of central planning worked, we'd all be working for the Soviet Union right now.

No one is arguing that the auto industry will disappear. No one thinks that people will simply stop making cars, so stop arguing that.Some are arguing that the economic trauma that would have taken place had the big 3 american auto companies went fully bankrupt would have been devastating to the country's economy at the time when it was weakest. Millions in the industry itself or who were employed along the supply chain would have lost their jobs, and the effect would have cascaded through the economy. To prevent this, the government temporarily propped them up so that they could again become profitable. There is no reason whatsoever to believe that cars would be cheaper or more people would be employed today if the government had not done that. Simply stating "government=bad" is a terrible way to argue.

[vbnautilus 48]

No one is arguing that the auto industry will disappear. No one thinks that people will simply stop making cars, so stop arguing that.

However, it is a possibility that americans would simply stop making cars and buy the imported ones instead.

[InternetExplorer 2,609]

Your problem is that you're not fully grasping the following facts:1) hblask believes first and foremost that anything that happens economically which isn't related to government MUST be good, and anything done by government MUST be bad2) All of his arguments start from point 1 and work from there3) He believes that simply stating point 1 is enough to win an argument. It's evidence for itself.

the thing is, I don't even really disagree with what he's saying on its face. I don't mind the idea of a bunch of new companies that aren't constrained by union agreements, short-sighted employee benefits packages, etc. but you cannot expect a return to normalcy on a reasonable time frame, especially not in today's fucked world of finance. which is, again, why I think santorum is a lying sack who's only saying what his delusional detroit audience wants to hear.

[hblask 1]

No one is arguing that the auto industry will disappear.

This isn't true; in fact it is specifically stated in one of the posts I was responding to. For example:

GM lost $31 billion in 2008... on $91 billion in assets. chrysler was in inexplicably worse shape. if these two go down, you better believe ford dies with the supply chain. the industry was NOT surviving without government help.

It was one of the primary arguments for the bailout.

Some are arguing that the economic trauma that would have taken place had the big 3 american auto companies went fully bankrupt would have been devastating to the country's economy at the time when it was weakest.

This is a theory without evidence or precedent.

To prevent this, the government temporarily propped them up so that they could again become profitable. There is no reason whatsoever to believe that cars would be cheaper or more people would be employed today if the government had not done that. Simply stating "government=bad" is a terrible way to argue.

Except, you know, economics 101. Moving money from high value uses to low value uses will *always* reduce productivity and employment. This is such a basic, fundamental part of economics that I have a hard time believing anyone would argue otherwise. It would be like a physicist arguing that particles don't really have charges, that really it is an illusion created by magic pixies.

[hblask 1]

the thing is, I don't even really disagree with what he's saying on its face. I don't mind the idea of a bunch of new companies that aren't constrained by union agreements, short-sighted employee benefits packages, etc. but you cannot expect a return to normalcy on a reasonable time frame, especially not in today's fucked world of finance. which is, again, why I think santorum is a lying sack who's only saying what his delusional detroit audience wants to hear.

The problem with your "return to mormalcy" statement is that we are *still* not returned to normalcy. The market is being distorted by political concerns. Remember the sudden surge of problems with Toyota right after the bailout -- wow, turns out it didn't happen, it was just made up crap. But they've been sufficiently slapped down now. The other companies have learned not to compete too hard or the government will bail out the competitors or their name will be dragged through the mud. GM is producing subsidized cars that nobody wants.The whole thing is the equivalent of hiring people to dig holes and fill them back in and pretending we are better off because those jobs exist. If it were that easy to create jobs, we could just outlaw machinery, we'd have full employment overnight. Harming the economy does not create jobs in either the short or long term.

[mrdannyg 274]

This is a theory without evidence or precedent.

Except for highly relevant, recent precedent. Remember AIG? Bear Stearns? Remember the fallout from the issues involving those companies going down? You should, we're still experiencing it. And don't argue the auto and financial industries are not sufficiently related - we're talking about significant shocks to very large and structurally important industries.

[BaseJester 1]

To prevent this, the government temporarily propped them up so that they could again become profitable.

Do you think GM is profitable now? What changed?

There is no reason whatsoever to believe that cars would be cheaper or more people would be employed today if the government had not done that. Simply stating "government=bad" is a terrible way to argue.

Any reasonable definition of the expense of cars to Americans includes the taxes used to subsidize the industry. I'm pretty confident without doing any math that Americans are spending more on cars by this definition.

[hblask 1]

Except for highly relevant, recent precedent. Remember AIG? Bear Stearns? Remember the fallout from the issues involving those companies going down? You should, we're still experiencing it. And don't argue the auto and financial industries are not sufficiently related - we're talking about significant shocks to very large and structurally important industries.

So your evidence that we needed to bail out the banks is that it didn't work?Uh,....OK.

[hblask 1]

The belief that we needed to bailout the auto industry is the equivalent to this statement in the 70s:"We need to bail out the vacuum tube industry because too many jobs will be lost if we don't. This is far more important than the future existence of Amazon, Google, and the rest of the internet".Bad economists discuss the seen. Good economists include the unseen in their calculations. All the auto bailouts did was ensure another 20 years of the status quo. Instead of some startup with a computer-driven high efficiency smart car taking a share of the market, instead anyone trying to do that has no had to subsidize and promote a direct competitor who was a proven failure. The Google of cars is now pushed back a generation.

[LongLiveYorke 38]

Do you think GM is profitable now? What changed?

Well, they just had their most profitable year ever, so in that sense, yes, I think they're profitable.What changed was a number of things. A restructuring of the company, including renegotiating union deals, closing unprofitable factories and car models, etc allowed them to be more profitable.At the same time, simply getting through the worse of the financial crisis and getting to an economic climate where people have a bit more spending cash and are willing to make big purchases will of coures help the major auto companies. Part of the bailout was simply enabling the companies to survive during those worse times.

The belief that we needed to bailout the auto industry is the equivalent to this statement in the 70s:"We need to bail out the vacuum tube industry because too many jobs will be lost if we don't. This is far more important than the future existence of Amazon, Google, and the rest of the internet".

No, it's not. You're being extremely foolish. The vacuum industry didn't support 3 million jobs. The president realized that the fall of the US auto industry would have been devastating to the economy. If you're denying this (which you are), you're being crazy. You're just being wrong and showing that your believes are in no way based in the real world. If you're really saying that keeping GM alive will somehow prevent the development of better cars (or whatever) and that should be the main focus of the President's decisions, rather than maintaining US jobs and keeping our economy stable, then you're being silly.This is why people don't take libertarians seriously.

[InternetExplorer 2,609]

GM is producing subsidized cars that nobody wants.

disagree. citation. the whole reason we're having this discussion is because it appears as though the bailouts worked well, and the republicans (santorum in particular) feel obligated to make these idiotic statements.as I have maintained for the last year or two, I don't know who was right, and I don't think it's knowable. we can't 'run it twice' in the real world and it's too complicated to model it.

[BaseJester 1]

Well, they just had their most profitable year ever, so in that sense, yes, I think they're profitable.

I have to give you that.

What changed was a number of things. A restructuring of the company, including renegotiating union deals, closing unprofitable factories and car models, etc allowed them to be more profitable.

Right, and GM was unwilling to do those things on its own. The bankruptcy (and threat of bankruptcy) eliminated the liabilities of the past mistakes but (with the notable exception of the CEO) kept the entity that made those decisions intact.

At the same time, simply getting through the worse of the financial crisis and getting to an economic climate where people have a bit more spending cash and are willing to make big purchases will of coures help the major auto companies. Part of the bailout was simply enabling the companies to survive during those worse times.

When the times are good, GM isn't going to provide bonuses and interest-free loans back to the American taxpayers. The policy is: heads I win, tails you lose. GM should be responsible for their own cash-flow management.If GM goes 25 years without coming back for more bailouts, then we might be able to call them fixed and profitable.

[LongLiveYorke 38]

Right, and GM was unwilling to do those things on its own. The bankruptcy (and threat of bankruptcy) eliminated the liabilities of the past mistakes but (with the notable exception of the CEO) kept the entity that made those decisions intact.

I don't disagree. They certainly needed some sort of shake up. The options were a pure-bankruptcy situation, or a government supported bailout situation. We did the latter, and it seems to have worked. The former could have also worked, or it could have ended with the breaking-up of GM and having parts be sold off or lost completely (and the same for Chrysler). And it's not obvious that such a situation would have been better for the country or for auto-workers. It probably would have been better for Fiat and Honda, though.

[hblask 1]

No, it's not. You're being extremely foolish. The vacuum industry didn't support 3 million jobs.

So pick a different obsolete industry. I just picked a really obvious example. Phone operators. Carriage makers. Heck, farming used to take up something like 70% of the economy. Should we be propping up all those unemployed farmers? Or do you think we are better off now that less than 3% of the population is employed in agriculture? See, that's the thing -- I've got hundreds of examples of industries that went obsolete without serious harm to the economy, and nobody can provide a single example of an industry that "brought down the economy". And yet you call me crazy? LOL.

The president realized that the fall of the US auto industry would have been devastating to the economy. If you're denying this (which you are), you're being crazy.

BS. It's a claim without a reasonable theory behind it or a precedent in history.

If you're really saying that keeping GM alive will somehow prevent the development of better cars (or whatever) and that should be the main focus of the President's decisions, rather than maintaining US jobs and keeping our economy stable, then you're being silly.

Of course that shouldn't be the focus of the president's decisions. The focus of the president's decision should be to get out of the way of inefficiency -- the exact opposite of what the bailouts did.

This is why people don't take libertarians seriously.

I agree that lack of understanding of economics is a serious impediment to rational policy, leading to nonsense like corporate welfare disguised as "saving the economy".

[mrdannyg 274]

So your evidence that we needed to bail out the banks is that it didn't work?Uh,....OK.

Try reading that series of posts again and see if you can come up with a halfway relevant response.

[hblask 1]

Try reading that series of posts again and see if you can come up with a halfway relevant response.

Your example of why we need bailouts was the banks, and in the same sentence you admit we are still suffering from the effects of that. That was exactly my point: when the govt props up mis-managed and failing institutions, the necessary economic adjustments are delayed in a way that a crisis that could've been over quickly is dragged out for a long time, with much of the adjustment still remaining. That is where the auto industry is, it's where the banking industry is.

[LongLiveYorke 38]

So pick a different obsolete industry. I just picked a really obvious example. Phone operators. Carriage makers. Heck, farming used to take up something like 70% of the economy. Should we be propping up all those unemployed farmers? Or do you think we are better off now that less than 3% of the population is employed in agriculture? See, that's the thing -- I've got hundreds of examples of industries that went obsolete without serious harm to the economy, and nobody can provide a single example of an industry that "brought down the economy". And yet you call me crazy? LOL.

I'm not sure how you think these examples are relevant.But to play along and explain the difference: these industries gradually went away because they were obsolete. True.The auto industry isn't obsolete. People still need cars. We don't have hover-cars that should naturally be eliminating the auto industry, or whatever.The question is: should the US be in the auto industry, or should we have let our major companies break up and be sold off piecemeal? I would argue that the current profitability of the US auto industry is a good indicator that it's still a good business. The fact that it came close to bankruptcy during an exceptional time doesn't mean that it can't be profitable in a more normal time, especially after restructuring and streamlining. Therefore, I think the President made the right decision in bailing them out using government money and organization and quickly turning them around, instead of letting them die in more uncertain ways.I'm not sure what that has to do with phone operators or any of your other examples, or how supporting government bailouts makes me a luddite. But it is the MO of a libertarian to speak on purely abstract and hypothetical terms, so I'm not too surprised by your argument. I'm pretty sure that others reading it find it quite silly, though.

[BaseJester 1]

I'm not sure how you think these examples are relevant.But to play along and explain the difference: these industries gradually went away because they were obsolete. True.The auto industry isn't obsolete. People still need cars. We don't have hover-cars that should naturally be eliminating the auto industry, or whatever.

Food and transportation aren't obsolete. Some methods of acquiring food and transportation are obsolete.We might very well be delaying the introduction of improvements (probably electric cars rather than hover ones, but we can hope) because of the huge barrier to entry that subsidies represent to the new companies. If you're LongLiveYorke Motors, you not only have to compete with GM's manufacturing and design but also their lobbying team. Look at Ford's argument: We don't actually need subsidies to survive per se, but we need subsidies to compete with GM.

[mrdannyg 274]

Your example of why we need bailouts was the banks, and in the same sentence you admit we are still suffering from the effects of that. That was exactly my point: when the govt props up mis-managed and failing institutions, the necessary economic adjustments are delayed in a way that a crisis that could've been over quickly is dragged out for a long time, with much of the adjustment still remaining. That is where the auto industry is, it's where the banking industry is.

Wrong! Strategy posted:"Some are arguing that the economic trauma that would have taken place had the big 3 american auto companies went fully bankrupt would have been devastating to the country's economy at the time when it was weakest."Your response: "This is a theory without evidence or precedent." So I pointed out that it had happened in the financial industry. Large, structurally important companies went bankrupt, and we had a crapfest. So you responded with...the bank bailout didn't work. Which, of course, implies that the crisis happened. Which means it is not "without precedent," n'est-ce pas?Anyway, the financial bailout actually worked quite well, so you're double-wrong. The auto bailout would've been great if it just meant dragging the companies along so they could've been broken up in an orderly fashion. In most countries, that's what would've happened. But the "BUY AMERICAN OR YOU ARE A TERRORIST" mentality meant that the bailout had to try to actually prop them back up. I'm as surprised as anyone, but GM's recent performance actually suggests that might've been for the best.Your suggestion that the government bailout is akin to 'paying someone to dig a hole and fill it' is more ideological sillyisms. A better analogy would be if there are millions of americans being paid right now to dig holes. They are being paid $1 to dig these holes. The $1 is structurally important - they pay taxes and buy goods with this $1. Losing the $1 is no big deal, but losing millions of these $1's would be a negative shock to the system - a long-term negative effect by most economic standards. Oh, and the value of these holes is $1.02, so we should all be happy. The problem is, of course, that 20 years ago, the holes were worth $1.52, so they agreed to pay people $1.50 to dig them, signed long-term union agreements to pay them $1.50, and would still pay them $1 even after they stopped digging. So the company, in its current state, is efficient and positive - the government just had to step in to help get rid of the $1.50 guys still hanging around.Is that fair? Probably not. If I was another company, would I be pissed? Definitely. If I'm Japan, or someone with an auto industry that didn't screw up 20 years ago, and should have reaped the benefits, would I be screaming about free trade? Yes.This isn't the same as vacuum tubes or IBM. This is still a profitable industry, without government help, which by libertarian definition, means it is good. Same with the banks. Propping up a still-profitabile and still-useful industry who followed an inevitable path created by society and the markets insane need for constant growth to growing too fast is not the same as funding vacuum tubes or steam engines.

[hblask 1]

I'm not sure how you think these examples are relevant.But to play along and explain the difference: these industries gradually went away because they were obsolete. True.The auto industry isn't obsolete. People still need cars. We don't have hover-cars that should naturally be eliminating the auto industry, or whatever.The question is: should the US be in the auto industry, or should we have let our major companies break up and be sold off piecemeal? I would argue that the current profitability of the US auto industry is a good indicator that it's still a good business. The fact that it came close to bankruptcy during an exceptional time doesn't mean that it can't be profitable in a more normal time, especially after restructuring and streamlining. Therefore, I think the President made the right decision in bailing them out using government money and organization and quickly turning them around, instead of letting them die in more uncertain ways.I'm not sure what that has to do with phone operators or any of your other examples, or how supporting government bailouts makes me a luddite. But it is the MO of a libertarian to speak on purely abstract and hypothetical terms, so I'm not too surprised by your argument. I'm pretty sure that others reading it find it quite silly, though.

So wait.... you have to make up your mind here. You are saying they are profitable, and therefore need the help of the government? Or are you saying they are not profitable and we are propping up failing industries? Or are you just claiming that we should reward mismanagement with corporate welfare and taxpayer dollars?The "exceptional time" excuse is always the last resort of the corporate welfare whores. The truth is there is no such thing as an *unexceptional* time. Good companies get through them, and should be rewarded; bad companies should go away and suffer the consequences. Rewarding failure and propping up inefficiency is terrible policy, and extremely immoral to those who made the choices that led to success.Why do you feel that mismanagement should be rewarded at the expense of those who are successful? Do you really feel that is ethically moral or economically rational?

[hblask 1]

Wrong! Strategy posted:"Some are arguing that the economic trauma that would have taken place had the big 3 american auto companies went fully bankrupt would have been devastating to the country's economy at the time when it was weakest."Your response: "This is a theory without evidence or precedent." So I pointed out that it had happened in the financial industry. Large, structurally important companies went bankrupt, and we had a crapfest. So you responded with...the bank bailout didn't work. Which, of course, implies that the crisis happened. Which means it is not "without precedent," n'est-ce pas?

So your claim is that we no longer have banks? Uh, I'm pretty sure we do. Lots and lots of them. Many of them didn't even require corporate welfare to survive.

Anyway, the financial bailout actually worked quite well, so you're double-wrong.

And your evidence for this is that this recession is the longest lasting since.... the last time the government intervened that actively into the economy?

Your suggestion that the government bailout is akin to 'paying someone to dig a hole and fill it' is more ideological sillyisms. A better analogy would be if there are millions of americans being paid right now to dig holes. They are being paid $1 to dig these holes. The $1 is structurally important - they pay taxes and buy goods with this $1. Losing the $1 is no big deal, but losing millions of these $1's would be a negative shock to the system - a long-term negative effect by most economic standards.

Wow, that is about the most amount of economic ridiculousness that could be packed into that few words.Digging holes and filling them back in is *always* bad for the economy. Always. The reason is because our standard of living is based on producing the things that improve our lives. Digging holes doesn't do that -- it wastes resources and labor that could've been used for improving our lives. And that's why the bailouts are so harmful -- they take resources that could've been used on highly valued efficiently produced products and services, and moved them uses that were inefficiently produced.

This isn't the same as vacuum tubes or IBM. This is still a profitable industry, without government help, which by libertarian definition, means it is good. Same with the banks. Propping up a still-profitabile and still-useful industry who followed an inevitable path created by society and the markets insane need for constant growth to growing too fast is not the same as funding vacuum tubes or steam engines.

If the industry is profitable, then it didn't need propping up. If it was not profitable, propping it up was the wrong move. You can't have it both ways.The industry would've survived because Americans love cars. GM *might* have gone away -- and the pieces sold to efficient producers, which is a huge net improvement in societal good. Never, not once, in all of history has the bankruptcy of a single company brought down an industry. Never, not once, in all of history, has the bankruptcy of a single company done more than minor passing harm to the economy. These bailouts were pure corporate welfare and capital cronyism of the worst kind.

[strategy 4]

So your claim is that we no longer have banks? Uh, I'm pretty sure we do. Lotas and lots of them. Many of them didn't even require corporate welfare to survive.

we've been over this one. everyone had exposure to everyone else. without AIG's bailout, the weaker megabanks (bofa and citi) are gone. the financial market implodes in a way that the it is not actually possible for the FDIC to cover balances. this trickles down. local banks, even ones that don't directly have dealings with wall st., have surplus that gets wrecked. ditto for insurance firms.your issue is that you believe the rules still apply in the financial doomsday, that the constitution means anything at all when everyone's bank balance goes poof (we actually have prior evidence here). in the scheme of things, this crash wasn't even close to the extent of pain that we could've seen, and yet there's still this vocal group of people who think capitalism can't work. I really don't even want to think about what would be possible politically in that scenario.