But how would they work the pedals in those big shoes?

Muirgeo, I cannot wait for universal health care, and your salary being set by government. I think you should make no more than 10% more than a nurse. I am so tired of dealing with doctors and having to visit the office and be charged for things that can be done over the phone in 3 minutes. I hope the evil health care industry dies.

The above is exactly what you sound like, I just substituted your industry in place of financial,.

Second, the automotive industry is not in trouble because of wall street - not even close. They are in trouble because of 30+ years of mismanagement, and massive overcapacity. Do your homework. We need less cars not more, or do you not really care for the environment.

That's some bleeding heart you've got there...

Oh and another thing Mesa. I'm HAPPY to see all the lay-offs in the financial sector. Now we can retrain you guys to do something useful like put the bolts on the wheels of the new electric auto fleet.

Hey Mesa,

No YOU shut up. It is your industry that created the Great Depression and the current massive screw up that's effecting the whole world. Plan on a little more over-sight from now on Ok? And again shut up yourself ignoramus.

"You're a zealous ideologue"

No, I'm just someone who believes the economics. You're obviously someone who does not.

The question is, why are you here?

The only thing that bothers me is that I'm not sure the auto makers would be in such trouble had the finance and Wall Street companies not committed their crimes.

Posted by: muirgeo | Dec 5, 2008 7:22:50 AM

Oh Christ.

Yeah, Chrysler’s never been in trouble before, and unions had nothing to do with it. They're well-run companies with highly profitable and sustainable business models, like government.

Just stop. Please. Just shut up.

Then maybe you should say it somewhere else, since that's somewhat contrary to the premises on an economics blog.

You're obviously no authority on the premises of an economics blog. You're a zealous ideologue instead.

Cheers,

The only problem with your position is you presume that as a segment of the U.S. economy fails, something else will take its place... in the U.S.

We've seen that, while the economy is never a zero-sum game, national and regional economies are very subject to dramatic shifts. The U.S. is presently not competitive in any manufacturing area... and so we should, under your scenario, be willing to see all of those areas fail.

We should also see our agriculture fail except for government subsidies. We should see our pharmacological industry fail except for government protections. We should see our electronics industry failing... and it is witness IBM to Lenovo.

The statistics often cited about the strength of our economy are based on a consumer and service sector that is rapidly failing.

So let's enumerate the failings:

* finance


* heavy manufacturing


* agriculture


* service


* high tech

Our growth sectors, based on BLS information, are:

* the Federal government


* health care

Explain, how that is viable in the long run?

Bruce Hall:

Yes. Free-fall is great, but it won't happen.

A few months ago, I had my breaks replaced on my car. It cost $75. They were OEM brakes from a third party supplier. Last week a person I know well had a personal unsecured line of credit extended to 100,000. These events as described will continue to happen next year and the year after. Somehow we are still able to purchase candles, chopsticks and toothpicks, even though production has moved out of North America. The system is not in free-fall. It is self-regulating.

What astounds me is the ignorance betrayed at positing the fall of any of those industries. Do you think that no-one will be willing to advance a loan regardless of the return? Do you believe that the only entities to produce vehicles in North America are American? Perhaps you could simply answer me one question:

Why are the labor rates for manufacturing increasing higher than their level elsewhere in the world?

My imagination would dictate that the only reason they would be is because those wages are required to keep them in the positions they are filling instead of working elsewhere. If the sector were really collapsing, and if people were really losing jobs en masse with no hope for the future, don't you think you might see a pretty sharp decline in the cost of labor? Further, if it requires subsidization to maintain this industry in North America, wouldn't it stand to reason that there is a preference for a different industry? And wouldn't it stand to reason that the requirement to subsidize means that we are preventing a shift to a more ideal state of affairs?

Thoughts?

"Guys on Wall Street job is to allocate dollar resources and decrease risk..."

Sigh. No, this isn't their job at all. Their jobs are to make money for their clients. That often entails risk; not the avoidance of it.

*excuses

Muirgeo, cite the excused that Chris and cpurick are making; I don't see them.

Chris, cprick,

Guys on Wall Street job is to allocate dollar resources and decrease risk whom break public trust using opaque products that do exactly the opposite are like physicians selling snake oil to an ill person who entrust their health to them. Stop making excuses for the greatest rip off of the hard working Americans ever.

They continue to rip us off in the form of wrangling trillions of dollars of bail out money. Making excuses for them is again in my opinion a form of Economic Stockholm syndrome.

http://www.pbs.org/now/shows/446/index.html

Watch the NOW episode I linked to above and at 18:03 mark . An internal memo from a Standard and Poor's employee dated in 2006..."rating agencies continue to create [an] even bigger monster - the CDO [collateralized debt obligation] market. Let's hope we are all wealthy and retired by the time this house of cards falters." These guys knew exactly what they were doing and it was a planned rip off. They should be in jail for life IMO.

If you believe that the U.S. actually operates as a "free market" system, then you should be perfectly comfortable with a "free fall" phenomenon.

That includes allowing one sector of the system to bring the entire system down.

Let the banking system fail; let manufacturing fail; let retailing fail... all because one sector abused the system. And I thought people had brains to think. How naive.

http://www.nytimes.com/2008/12/06/business/economy/06jobs.html

dilemma, not "delimma"

save_the_rustbelt:

Please tell us what economic and/or policy theories you have developed into book form and how well you did . . .

Muirgeo --

Lots and lots of those white-collar guys are losing their jobs also. Citigroup just announced a plan to cut 50,000 positions; Credit Suisse is laying off 5,300.

In any case, the value of somebody's work is not determined by whether they make something physical. There is an amazing amount of value in "grease" -- allowing information and resources to go to people who need them.

As a pediatrician, I'm surprised that you haven't learned this yourself. I'll bet that today, the following happens to you at least 5 times: a patient comes to you saying that he is hot and his ear hurts. You poke and prod him with various devices, shine a light in a couple of orifices and ask some questions, At the end, he leaves your office with, at most, a small piece of paper with some scrawl on it and a sticker. And, he paid you ~$100 for the privilege.

A space alien looking at this transaction would perceive it exactly how you perceive bankers making "toxic paper." They think that you could just do one piece of paper, make a million photocopies and sell each copy for 10 cents. Everything above that is just waste.

stephen: "The problem is that there is little or no penalty for setting such "enticements" unreasonably high."

Of course there's a penalty. If a company channels too large a portion of its earning to executive compensation, it won't have enough for research and development, for marketing, for equipment maintenace, etc. Further, overcompensating executives makes it much harder to hold the line on labor wages. Over the long term there's a huge penalty for overpaying executives relative to your competitors.

STR,

Watch you ad hominems. What organizations have you saved, or economies have you improved, or industries have you put on better footing with sound government policies?

Russ:

Please tell us about the biggest organization you have managed and how well you did....

"Just the double standard of white collar guys who make toxic worthless paper getting bailed out while the blue collar guys (who actually make something of value) are allowed to feel the market is a bit bothersome."

I propose that "white collar guys who make toxic worthless paper" be added to the list of worn-out Muirgeo deflections that are no longer acceptable here. Since he has been prohibited from using other invalid arguments, lately this one has been popping up as the apparent root of all evil.

"I'll go on saying that compensation packages are not a consequence of free markets and needn't reflect the fruit of anyone's labor."

Then maybe you should say it somewhere else, since that's somewhat contrary to the premises on an economics blog. What's the point of discussing economics if the words have different meaning for you? You're a bit of a troll if you keep trying to throw out the premises of the discussion here. Perhaps you should go someplace where those premises are debated, instead of disrupting conversations that try to build on those premises between people who accept them?

Troll elsewhere, lib.

"those CEO salares are NOT (generally) set by the market. They are set by a fairly tight and closed society of board members who enjoy meaningful privileges in return for awarding generous compensation."

All those different governing boards ARE the market for CEO's. A relatively small market compared to, say, women's shoes, but the market none the less. It turns out that most of the participants in that market think the value of a CEO is pretty high in dollar amount, though perhaps they are over shooting. Still, it is not as though the boards couldn't hire someone cheaper if they wished, or paid someone more money. Maybe their incentives are not in just the right place, spending mostly other people's money and all, but that's what they were hired to do after all.

I am in agreement with Muirgeo but would add the overservation that two wrongs don't make a right.

As for bankruptcy destroying consumer confidence, I can't imagine that the clown act before congress, begging for money, and the prospect of government clowns, the master clowns, directing the restructuring process, will solve the problem of consumer confidence. The idea, now, that bankruptcy will destroy consumer confidence is one of the most humorous aspects of all this sorry display.

The problem is that the auto companies are suffering from corporate/government enmeshment and over-regulation, squeezed in a battle between two forms of favortism -- corporation and union -- while one government hand pets them, another government hand beats them. They've been destroyed by government intervention and their own desire for advantages. Now that they understand the prostitutes delimma, let them fail redemptively, because their fix is beyond more money, and more government manipulation is certainly not the answer. You can't calculate the market fairness of what their executives are paid, because it's not tested in a free market.

I've yet to hear an explanation as to why a declaration of Chapter 11 by each of the Big Three means the death of the Big Three.

Neither have I. The only pretense of an explanation I've heard is that they can't raise sufficient capital to operate during the court's lengthy proceedings. After all, these companies are huge and have more obligations than one man can comprehend in years of study. So whose obligation is abrogated in the bankruptcy? "Shareholders" isn't a sufficient answer, because they could own less than nothing already.

In principle, I might favor a temporary measure of this kind, wherein Congress or the Fed becomes a preferred shareholder by fiat, entitled to all of its cash back before any other GM interest gets a dime, including bondholders and pensioners, while an independent, fully transparent bankruptcy court examines and reorganizes the company's resources. After all, Congress makes bankruptcy law in the first place, and this arrangement could be only an orderly bankruptcy, in principle.

In fact, of course, I don't believe the Congress would play this role, and I expect the taxpayers would not see their "investment" returned any more than we'll ever see a net benefit from the occupation of Iraq or billion dollar strategic aircraft or submarines or whatever NASA is squandering billions of dollars to do this year. Sure, these expenditures suck countless technical resources out of the economy and thus make my own labor more scarce and thus more valuable in the production for profit sector, but beyond this benefit, I'm not sure what the expenditures buy me.

A tax during one year of 24 cents per gallon on the 390 million gallons of gas consumed daily gives you the 34 billion dollars and the right message! But it seems you prefer doling out without having to think about how to pay for it. I get it, it’s more fun!

The only thing that bothers me is that I'm not sure the auto makers would be in such trouble had the finance and Wall Street companies not committed their crimes. AIG getting $150 billion for screwing the world? Hell take $50 billion of that and give it to the auto companies if we must.

Just the double standard of white collar guys who make toxic worthless paper getting bailed out while the blue collar guys (who actually make something of value) are allowed to feel the market is a bit bothersome.

Martin on Dec 4, 2008 11:56:01 PM says:

"I prefer that bankrupt companies declare bankruptcy."

I've yet to hear an explanation as to why a declaration of Chapter 11 by each of the Big Three means the death of the Big Three.

LMAO @ David Johnson!

If they'd taken AmTrack, they'd have had to leave in September to get to DC in time for this week's hearings!

If they wanted the funding, the symbolism was necessary and close to sufficient. The Dems want to do the deal, but they want to look like they are extracting some extra flesh for doing it. The Dems are chomping at the bit to open the door to more regulation, higher CAFE standards, more green initiatives, etc. They see the Big 3 as desperate and willing to do anything to get a bailout. They'll even accept an evolving (read increasing) price tag to buy the control they are going to get. The symbolic drive was likely organized by Dodd or his staff as a way for the CEOs to indicate that they were going to play ball with Dodd.

As for the clown insinuation... John Wayne Gacy called and he wants his self-respect back.

a) Are Detroit's CEO's overpaid?

CEOs are paid precisely what they are paid.

b) Should Detroit's CEO's companies be bailed out which will have the necessary effect of saving their jobs?

Detroit's CEOs are paid, very handsomely, to lobby Congress for favors. This is a matter of empirical fact and has nothing to do with any preference of mine, one way or the other.

I prefer that bankrupt companies declare bankruptcy. I've said so many times here and have never said anything else.

You seem to have serious difficulties coming to grips with the fact that people can disagree with you about what something is worth, and not be so horribly wrong that foul play must be in evidence.

I never anywhere suggest this difficulty. It's a figment of your imagination.

I am just a foreigner but I like many foreigners I do have a vested interest in the US doing the things right and so, once again, letting your congressmen believe they’ve done their duty by making some car industry executives drive to Washington is plainly irresponsible. Come on! We expect, as a minimum, that our Dear Tenured Professors produce some timely letters to the editor.

And follow-up question, if I may Jay, if subsidies and government assistance are so wonderful, how come Detroit isn’t paradise?

Question for Martin and other like minded individuals:

a) Are Detroit's CEO's overpaid?

and

b) Should Detroit's CEO's companies be bailed out which will have the necessary effect of saving their jobs?

If youre answer(s) to both are "yes," please explain why.

These are the most disingenuous and dishonest people I have ever seen.

All of them.

Which is why this blog constantly warns against moral hazard and political fealty and opportunism.

Let them fail. Including (and especially) the politicians...

Stephen:

Yes there is a penalty. It's called bankruptcy. One of the reason these guys are resorting to political whoredom is they know if the creditors get to demand their way ,the board, the corporate officers, etc will be gone.

But, Hammer - those CEO salares are NOT (generally) set by the market. They are set by a fairly tight and closed society of board members who enjoy meaningful privileges in return for awarding generous compensation.

Yes, those directors are free (as you posit) to offer a wide variety of enticements and compensation. (no kidding) The problem is that there is little or no penalty for setting such "enticements" unreasonably high.

That is NO free market.

     Left alone, they would have gone their
merry way building the cars Americans wanted,
not those politicians and activists did.

It seems to me that Americans wanted cars that could last longer than 70-100k miles. It has nothing to do with "Cafe Standards, padded dashes, air bags." High-quality Japanese automakers recognized the desire of Americans for cars that could last longer; the big 3 wanted you to buy a new car every 70k miles.

Martin, just because someone is paid more than you think they should be paid does not imply that their compensation is a result of some forces external to the market. It just means that who pays them disagrees with you over what that payment should be.

You seem to have serious difficulties coming to grips with the fact that people can disagree with you about what something is worth, and not be so horribly wrong that foul play must be in evidence.

There is a pretty darn free market for CEOs. There are few laws in place limiting the people the governing council of a company can choose, and they are free to offer a wide variety of enticements and compensation. Whether they are compensated more or less than they are worth is a matter between those hiring the CEO and the CEO themselves. Yet you constantly state that they are crooks who did not earn their money, and wail about their behavior. To what end other than to imply "someone should do something about it!"?

In any market, even one perfectly free, there are going to be differences in income. There will always be a point where you think "those clowns are being paid too much". Unless you are the one paying them, however, it is none of your business, and implying that they somehow stole or defrauded in order to get their paycheck is disgusting and childish in the worst way. It reeks of envy, the sort that begs for laws to limit how much people are allowed to produce and consume in the name of fairness, or justice, or whatever concept you want to attach to it.

I think Patrick has it right. It might have made sense, as a business decision, for the CEOs to take corporate jets. Certainly, if I were a stockholder, I'd be a bit annoyed that the CEO of my company was wasting his time driving from Detroit to DC instead of using that time productively. But, when you're talking to Congressmen, you can't do things just because they make sense -- you have to appeal to the Congress' sense of indignation and self-importance. Had the CEOs walked into the capital in sackcloth, flailing themselves on the backs, and acted, bowing down before the Congressmen and never looking them in the eye, THEN they would be sure to get the money.

What a bunch of fakers! If they were really concerned and properly contrite, they would have taken Amtrak™.

If you believe the market's not free, then the prescription is to free it -- not to use that fact as an excuse for the central planning of compensation packages.

I observe that the market is not free, and I haven't proposed any central planning of compensation packages, but I'll go on saying that compensation packages are not a consequence of free markets and needn't reflect the fruit of anyone's labor.

I wonder if Washington, Jefferson, Madison, and the rest are looking down on all this with a look of horror on the faces of their souls, wondering why the hell they bothered with the hardships if it all comes to this. Should have just gave up, went back to the life of a servant to the king and grabbed the ankles for ol' King George. We should be embarrassed by the actions of our government and the lack of principle in the business community.

Oh, c'mon. The CEOs are just jumping through the hoops the politicians held up. How do you think it would play if they showed up and told the cold hard truth about the real problems created by several decades of political interference in environment the American auto industry had to operate?

GM execs in the 50s and 60s lived in fear of exceeding 50% American market share, because the Justice Dept would have broken the company up if they had. Which left an opening for the Japanese and Germans to enter the market.

Ralph Nader put a pretty innovative car--the Corvair--out of production in the 60s, because he didn't like it. A decade later Nader's acolyte (and John Kerry's Yale debating team partner) Bradford Snell was allowed to indulge his taste for conspiracy theories before a congressional committee: 'American Ground Transport

A Proposal for Restructuring the Automobile, Truck, Bus, and Rail Industries'
.

(Snell and Nader appear to still be at it, now they're traveling to China with their Ahab and the Great White Whale song and dance).

Cafe Standards, padded dashes, air bags? None of that was the Big 3's fault. Left alone, they would have gone their merry way building the cars Americans wanted, not those politicians and activists did.

Amazing! How could you economically or otherwise justify these executives of important companies that supposedly are on the brink of bankruptcy having to drive up to Washington? Is this part of a Congress ritual that I as a foreigner am not aware of?

Nobody's asking you to believe anything inconsistent. The philosophy here is that the market should be free, and CEOs' compensation should be market driven.

If you believe the market's not free, then the prescription is to free it -- not to use that fact as an excuse for the central planning of compensation packages.

Like you said, you're libertarian. Right, Martin?

So all three CEOs of the Big Three U.S. automakers perform the same hybrid driving stunt at the same time as they converge on D.C. seeking bailouts at the same time, and I'm supposed to believe that the U.S. has a vigorously competitive, free market economy. Furthermore, I'm supposed to believe that the CEO's fat compensation packages are "fruits of their labor" awarded by "the market" and thus sacrosanct, and that anyone disputing this "fact" is not a proper fasc... ur ... libertarian.

But I don't believe it.