Of course, the Treasury and Paulson are going to step in and throw money at the failing Detroit car makers, so you have to wonder why they even bothered to discuss it in Congress. We seem to waste a lot of time and energy in this country in hot debates over things that are really foregone conclusions, even though I must say I'm grateful for the efforts of Shelby and Armey to block the diversion of yet another major chunk of public money to yet another failing, badly run industry that ought to be allowed to die with dignity.
Paulson is going to use some of the TARP funds to prop up these sclerotic, uncompetitive businesses with their overpaid executives and bloated Union wages, thus removing all incentive for these companies to evolve into concerns that could compete under rapidly changing conditions,and supply us with useful products in the times ahead- times in which the market for automobiles will shrink drastically. We will be paying an even larger portion of our taxes to subsidize an obsolete industry while the Koreans or Russians or Chinese build the rail cars, wind turbines, innovative nuclear and coal technologies, super-efficient solar panels, and other new and yet-to-be-conceived-of technologies and products we will be needing for most people to have any motorized transportation, electrical power, heated homes, reliable supplies of clean water or decent sanitation, or any other technological amenity that enables a civilized existence for hundreds of millions of people.
We won't be inventing or manufacturing these things here in the U.S., because we're casting all our energy, and our money for years to come, at obsolete industries and at maintaining the fiction that we can do things exactly the way we've been doing them for the past forty years.
The denizens of Detroit, likewise, will continue in their Cargo Cult-like fixation on the dying auto industry, and continue to pour all their resources and energies into reviving its twitching corpse, instead of recreating their economy on another template, and making the city a place that any other sort of business might want locate in or commit to. This is the typical pattern of dying civilizations. A major cause of the deterioration and death of a culture is the tendency most people have to remain fixated on that which made them successful in the past, in the face of vastly altered conditions. I've always said that the best thing that could happen to Detroit is for all of the Big 3 to roll over dead, so that the citizens of that poor battered city could focus on rebuilding their economy along lines more in keeping with 21st Century realities. But as long as our politicians and policy wonks are controlling the economy, we will just keep on throwing our resources at investments gone bad, while nipping emerging industries in the bud.
Given that the rescue of the financial industry is an admitted failure, I don't expect the domestic auto makers to revive under the ministrations of the Feds, but I do expect that the $14 Billion in loans under consideration won't be the last cash call. Similarly, we will keep throwing money at the failing financial firms, and have committed around $7 Trillion in loans, buybacks, mortgage assistance, and general assistance to the failing effort, while failing to generate jobs or new investment in the private sector. General Motors has $60 Billion worth of debt, and its only profitable division, GMAC, committed suicide with its DiTech 125% mortgages. The auto rescue will probably entail over $100 Billion in loans that will most likely never be repaid; these companies will still fail, for they have rolled rapidly downhill for over 30 years, thanks in no small part to government assistance and accommodations that have enabled them to cling to outdated business models and products.
Locally, we continue to create more TIF districts even though almost every TIF district designated to date has failed of its stated purpose, sometimes spectacularly (remember March First?). Others have merely produced revenues that are less than if the development had not taken place, and all are funneling money from each tax hike away from essential municipal services, resulting in revenue shortfalls and the steep deterioration of essential services and infrastructure. Worse, much of the touted retail development our taxes paid for is failing. Border's Books will close four locations along the lakefront (Uptown on Broadway; Diversey& Clark, North & Clybourn, and Hyde Park) as soon as they can get the spaces sublet, and other chain retail is downsizing rapidly. In return for hundreds of millions of dollars in direct assistance and tax incentives, we will have empty spaces, most of which are too large for most of the business that might want space in these locations, while the suburbs will be littered with dozens of dying, half-empty shopping malls and power centers that are of no use to any other type of concern, and will blight every neighborhood they're located in.
A 'rescue' of the failing airlines is now be discussed, even though we already render $14 Billion a year in direct subsidies to the commercial carriers. That the airlines have been failing for years because air travel is intrinsically uneconomical and inefficient for short distances, and the whole industry is predicated on plentiful supplies of extremely cheap fuel, is not discussed. We speak of rendering larger subsidies to Amtrak, but we do not discuss removing the multiple regulatory barriers to the development of private rail carriers and otherwise leveling the playing field between them and thier extensively subsidized auto and airline competition, so that passenger service can be profitable for them. Instead, we think only of tossing more money at another mismanaged, government-owned entity. Likewise, we continue to subsidize other failing industries, as well as lifestyles and patterns of development that we would have evolved away from decades ago had not our hamfisted policy makers had the ability, granted by our taxing authorities, to implement policies whose reach extended down through decades, far beyond the limited vision of any collection of human beings, no matter how brilliant and knowledgeable. The result is continued misinvestment on a gargantuan scale, with borrowed money we will never be able to pay back, in industries and lifeways that have no future.
The economic carnage and physical blight left behind by government assistance, incentives, and other interventions is visible in every municipality in the United States, and in almost every industry. It began with many of the social programs of the New Deal era, that included low-income housing projects that were supposed to be a cure for the teeming slums, and the policy-driven and tax-funded steering of the general population toward auto suburbs and car dependence via FHA loans available only for homes in newly constructed subdivisions, and the construction of the highway system that tore apart fine-grained urban neighborhoods a;d isolated remaining residents from jobs and mobility. It is culminating in the disastrous failure and unprecedented destruction of our financial system, the complete socialization of our economy and the destruction of budding new technologies and business models, while draining the last of our diminishing economic power and depleting resources to keep failed Old Economy business afloat, that would have died a natural death many years before without such intervention.
Yet, we can blithely babble about the failure of something we call the "free market". What free market? We haven't had anything resembling that since the late 19th century, and it is difficult for most people to imagine an economy that somehow functions without "partnerships" between business and the government. We fail to see that the more an industry is subsidized, the more it fails- and almost every industry in this country is subsidized, to the extent that it has become impossible to tell what really supports itself and makes economic sense, and what doesn't. The debt bubble would never have reached the proportions it did without the easy money policies of the Fed in conjunction with massive subsidies for home builders and buyers, and the implicit guarantees of rescue for feckless financial institutions should they (again) encounter problems with the layers of bad debt our policy makers urged them to underwrite. And our domestic auto makers might have remained innovative and competitive had they not been spoiled with the easy profits of defense contracting where they never had to justify their costs, or their friends in Congress and in their local governments, who enabled them in continuing to build obsolete products by favored tax treatment and incentives.
Now that our leaders have publicly admitted that the housing "rescue" is a flop, can we reasonably expect the auto or airline bailouts to succeed? And can we also expect that government policy makers and politicians will do a better job of operating these concerns that their current managment has?
Could we start rolling back all the "rescue" programs, and instead make the emergency provisions we should have made to begin with? Government intervention is warranted only for emergencies, and the appropriate response to the failure of our financial institutions would have been to protect the innocent by protecting all "demand" money in checking, savings, and money market accounts up to any amount, as well as fixed insurance policies and annuities, and then let the tottering institutions fail. We could then spend a portion of the money we have misinvested so far, instead, on extending unemployment and on necessary infrastructure repair and replacement. The idea is to protect the innocent and their money, while providing a minimal safety net for the swelling numbers of unemployed and destitute until they can regain their footing. The idea should not be to socialize the entire economy, and it's time to look at the massive hairball of subsidies and government incentives, going clear back to 1900, that have caused so much misinvestment and pernicious development at the expense of industries and development that would be more appropriate to where and what we are now, and would be flexible enough to adjust to changing conditions as they emerge.