Auto Industry bailouts vs. Financial Industry bailouts in the US
Now they are voting about bailing out Ford, GM and Chrysler.
The Democrats want to loan $25 Billion on the condition that the US car companies will make more fuel efficient cars. Executive pay will be limited and dividends suspended. Here's more on the plan proposed by the Democrats.
Let's analyze the US car industry first. They were kings of the world until the 70's, when Japanese started making cars. Then the Koreans (a large country of 50M people) also decided to make cars-climbing up the capitalism ladder (the private car companies had enough capital to compete head on with the Japanese and US car companies) to take market share away from the Japanese and US Car makers. Toyota and Honda were the jokes of the 70's, they became the top companies of the 90's. Hyundai was the joke of 1993, and it became a top seller in this decade, around 2005. The Japanese moved up the value chain of cars, then the Koreans did. And the US car industry really is a lifeless organ making metal boxes.
Will Government putting their money in make the GM and F employees and management work harder to make more fuel efficient cars, or generally improve the efficiency of the companies? That is the key question here. If you know examples of socialist car making companies in Russia, China and India-you know that Government ownership will REDUCE the efficiency of operation of these companies. The employees are less likely to work hard if they don't have the profit incentive, if you cut their pays, etc. Government ownership of pretty much everything lowers efficiency of the workplace. If the profit motive, of beating Toyota and Honda, of making and keeping multimillion dollar salaries could'nt keep these companies afloat-Government ownership will not help-even if some senator believe that it can be done but the "will" is not there. What is "will" anyway? Do I have the will power to rule the world? Unscientific terms like "will power" and "motivation" are modern day analogues of religious terms used in the 16th century. My "will power" has about the same bearing on the results of my actions as my prospects in an afterlife. These are not causes-"will power" is not a cause of anything. In scientific, which means biological or physical terms, not psychological or sociological terms (Psychology and Sociology are modern versions of Metaphysics and Ontology) if you explain to me what "will power" is, I might accept your causality.
The conditions of the bailout of $25B is like giving money to a cripple on the condition that they run faster in the future. It is bizarre.
Financial Industry bailouts are another animal. There you don't have the Japanese and Koreans competing head on in selling a tangible, hard to make product. You have a bunch of finance people in the business of buying and selling money-a product which can be generated in unlimited quantities, very easily, by a central bank by changing the interest rate.
It is comparing apples to oranges.
Financial bailout is okay-with severe pay restrictions. The Government could even completely take over the banking industry-after all, they buy and sell the main product of the Government-money! Nothing wrong with that. But bailing out a car company is another beast in it's entirety.
Sanjay
The Democrats want to loan $25 Billion on the condition that the US car companies will make more fuel efficient cars. Executive pay will be limited and dividends suspended. Here's more on the plan proposed by the Democrats.
Let's analyze the US car industry first. They were kings of the world until the 70's, when Japanese started making cars. Then the Koreans (a large country of 50M people) also decided to make cars-climbing up the capitalism ladder (the private car companies had enough capital to compete head on with the Japanese and US car companies) to take market share away from the Japanese and US Car makers. Toyota and Honda were the jokes of the 70's, they became the top companies of the 90's. Hyundai was the joke of 1993, and it became a top seller in this decade, around 2005. The Japanese moved up the value chain of cars, then the Koreans did. And the US car industry really is a lifeless organ making metal boxes.
Will Government putting their money in make the GM and F employees and management work harder to make more fuel efficient cars, or generally improve the efficiency of the companies? That is the key question here. If you know examples of socialist car making companies in Russia, China and India-you know that Government ownership will REDUCE the efficiency of operation of these companies. The employees are less likely to work hard if they don't have the profit incentive, if you cut their pays, etc. Government ownership of pretty much everything lowers efficiency of the workplace. If the profit motive, of beating Toyota and Honda, of making and keeping multimillion dollar salaries could'nt keep these companies afloat-Government ownership will not help-even if some senator believe that it can be done but the "will" is not there. What is "will" anyway? Do I have the will power to rule the world? Unscientific terms like "will power" and "motivation" are modern day analogues of religious terms used in the 16th century. My "will power" has about the same bearing on the results of my actions as my prospects in an afterlife. These are not causes-"will power" is not a cause of anything. In scientific, which means biological or physical terms, not psychological or sociological terms (Psychology and Sociology are modern versions of Metaphysics and Ontology) if you explain to me what "will power" is, I might accept your causality.
The conditions of the bailout of $25B is like giving money to a cripple on the condition that they run faster in the future. It is bizarre.
Financial Industry bailouts are another animal. There you don't have the Japanese and Koreans competing head on in selling a tangible, hard to make product. You have a bunch of finance people in the business of buying and selling money-a product which can be generated in unlimited quantities, very easily, by a central bank by changing the interest rate.
It is comparing apples to oranges.
Financial bailout is okay-with severe pay restrictions. The Government could even completely take over the banking industry-after all, they buy and sell the main product of the Government-money! Nothing wrong with that. But bailing out a car company is another beast in it's entirety.
Sanjay
Labels: general commentary
posted by Sanjay "John" Gandhi at 4:00 PM
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