I'm astonished how people think that socialization of industry won't come at a cost… People constantly complain at how bad government services are… these are the people we want owning our Car manufacturers and health care?
We need to take a group field trip to the DMV to remind ourselves about government failings.
Paul J CroeberDecember 9, 2008 at 6:47 pm
Nationalizing these industries is just coerced investment. Senator Dodd said some very troubling things on Face the Nation Sunday.
There are many good reasons we should not nationalize GM; investments in battery technology is not one of them.
Businesses often invest resources in technology which is not initially commercially viable. New products are often subsidized (by the firm itself) until production costs come into line with their price point.
The initial run of any product will be expensive as it must include the R&D, retooling and learning curve costs. As production increases the costs will decrease. Manufacturers understand this and plan for it.
Battery technology has been improving and will continue to improve during the development of electric cars. Mass production will reduce these costs even more if and when such cars are mass produced.
What Dan Neil is saying is GM is not in a position financially to withstand the losses it will incur while demand increases and production costs decrease. In the long run it is likely GM will be able to produce a car which is price competitive and uses very little gasoline.
Whether or not this is the best use of resources depends on your priorities but I believe a reduction in oil dependence is a worthwhile goal.
I.O.
BoscoHDecember 10, 2008 at 5:06 am
IO, what you neglect to consider is whether the public will accept welfare cars. I doubt it.
Do you keep track of those letters that are finally published?
MarkDecember 10, 2008 at 6:47 am
Maybe I am being to cynical, but with the nationalization of our industry and banks, I see a future where it will be much more difficult for the entrepreneur to succeed and us leading into a future where it will be much more difficult for the "have nots" to become "haves" through entrepreneurship and hard work.
If you look at industry in europe, the major companies either came into being pre-WWII or via massive govt backing.
Our Dear Tenured Professor says “Neither Neil nor Uncle Sam can know the value of what would never be created as a result of subsidizing unprofitable production in Detroit.”
Of course not! But this has does not mean that it should not be tried. Society takes risks and should take risks and it is when society decides not to take risks, for example by imposing an artificial regulatory risk adverseness on the banks by means of the current minimum capital requirements for banks, that it gets really risky and the world takes off en masse to the swamplands of badly awarded mortgages to the subprime sector.
That said it is indeed silly to build the cars before they are competitive and so any subsidies are better directed to research that to cover operational deficits.
That said, if possible, it is always better when the private sector takes the risks.
Cheers
vidyohsDecember 10, 2008 at 7:53 am
I.O.,
It seems you are over looking the public-private aspect of Don's letter.
Don is addressing government ownership of an auto manufacturer and using your money and my money to research and build a better battery.
I am sure Don (nor I and any right thinking person) would have no problem with encouraging GM to do it with their own money.
GM doesn't have any money? Oh darn. The invisible hand was ignored and they must go bankrupt and leave the battery development to someone else…..as Don points out, preferably not you and I unless we want to invest our private funds in it.
Martin BrockDecember 10, 2008 at 8:49 am
Nationalizing these industries is just coerced investment.
Most people don't have problem with coerced "investment" as long as the "investment" secures their own entitlement to consume. Even people who say they do really don't. Maybe, we've reached a tipping point in the U.S. Maybe, the malinvestment is so extensive that we can't avoid massive unemployment as unprofitable organizations dissolve.
The idea that we'll suffer some Great Depression with massive unemployment under the circumstances is naive. We won't tolerate the massive unemployment at this point, so we can only repeal the profit requirement instead, and we're then subject to an authoritarian, corporatist hierarchy rather than the demands of free consumers. This authoritarian organization is frightful to ponder, but it's not really impossible. Only more efficient calculation is impossible.
RandyDecember 10, 2008 at 9:03 am
Per Kurowski,
"Society takes risks and should take risks…"
Interesting concept. It leads in so many directions. For starters, what is the proper course of action for an individual when "society" places him at risk?
AnonymousDecember 10, 2008 at 10:19 am
… GM is not in a position financially to withstand the losses it will incur while demand increases and production costs decrease.
Which is maybe a clue that GM is not the best actor to undertake this mission.
The car companies and the UAW paid plenty of good money to the hit men in congress. They expect a much larger return on their bribes than they can ever hope for on the investment in their product. If somebody has to die, so be it. It's compassionate and right to pay the UAW workers $50/hour to do nothing while others lose their jobs entirely.
Posted by: Randy
"Society takes risks and should take risks…" – … what is the proper course of action for an individual when "society" places him at risk?
Well if he feels that is he more at risk because of the society than without the society then I guess he better run! As easy as that!
BillDecember 10, 2008 at 1:51 pm
Don's letter is an excellent illustration of how the economic way of thinking may be brought to bear on issues.
interested observerDecember 11, 2008 at 7:27 am
BoscoH,
From your comment (which I don’t think addressed the argument I posed in my own post) I assume you think I am in favor of the bail out. I am not.
Vidyohs,
I agree with your analysis. I believe GM especially, but Chrysler and Ford as well, made very poor business decisions (aided at times by government protectionism) and now should let more efficient businesses take over.
My only criticism with Don’s letter was his argument that it made no sense to invest in battery technology today because it was not yet economically viable as a product. I think there are times when it makes sense to invest in such products.
Obviously this still leaves open the debate as to whether the government should be spending taxpayer money on such investments, but it’s not an argument against such an investment which is what Don was intending.
Sam,
“Which is maybe a clue that GM is not the best actor to undertake this mission.”
Agreed.
What I find most amusing about the Big Three’s latest excuse for their failings is the “current economic environment” argument. As if Honda and Toyota don’t operate in the same environment.
If you’re swimming in the same ocean and you’re drowning while your competition is not, it’s time to admit you’re a weak swimmer.
I.O.
vidyohsDecember 11, 2008 at 10:56 pm
Ahh I.O., I see,
You and I just didn't rea Don the same way.
I read his letter as addressing the problem of one man, or many men, deciding how the future must go.
In other words if we spend money on developing a technology then the future will be bright because everyone will love it and benefit from it……..or in Don's words, "will it, will they?"
The title of the thread, "Making the invisible hand visible." is a clue.
Share
{ 17 comments }
Good letter.
I'm astonished how people think that socialization of industry won't come at a cost… People constantly complain at how bad government services are… these are the people we want owning our Car manufacturers and health care?
We need to take a group field trip to the DMV to remind ourselves about government failings.
Nationalizing these industries is just coerced investment. Senator Dodd said some very troubling things on Face the Nation Sunday.
http://www.cbsnews.com/sections/ftn/main3460.shtml?tag=frame;header
Do yourself a favor and don't watch Friedman.
Don,
There are many good reasons we should not nationalize GM; investments in battery technology is not one of them.
Businesses often invest resources in technology which is not initially commercially viable. New products are often subsidized (by the firm itself) until production costs come into line with their price point.
The initial run of any product will be expensive as it must include the R&D, retooling and learning curve costs. As production increases the costs will decrease. Manufacturers understand this and plan for it.
Battery technology has been improving and will continue to improve during the development of electric cars. Mass production will reduce these costs even more if and when such cars are mass produced.
What Dan Neil is saying is GM is not in a position financially to withstand the losses it will incur while demand increases and production costs decrease. In the long run it is likely GM will be able to produce a car which is price competitive and uses very little gasoline.
Whether or not this is the best use of resources depends on your priorities but I believe a reduction in oil dependence is a worthwhile goal.
I.O.
IO, what you neglect to consider is whether the public will accept welfare cars. I doubt it.
Do you keep track of those letters that are finally published?
Maybe I am being to cynical, but with the nationalization of our industry and banks, I see a future where it will be much more difficult for the entrepreneur to succeed and us leading into a future where it will be much more difficult for the "have nots" to become "haves" through entrepreneurship and hard work.
If you look at industry in europe, the major companies either came into being pre-WWII or via massive govt backing.
I dont like where we are going.
Our Dear Tenured Professor says “Neither Neil nor Uncle Sam can know the value of what would never be created as a result of subsidizing unprofitable production in Detroit.”
Of course not! But this has does not mean that it should not be tried. Society takes risks and should take risks and it is when society decides not to take risks, for example by imposing an artificial regulatory risk adverseness on the banks by means of the current minimum capital requirements for banks, that it gets really risky and the world takes off en masse to the swamplands of badly awarded mortgages to the subprime sector.
That said it is indeed silly to build the cars before they are competitive and so any subsidies are better directed to research that to cover operational deficits.
That said, if possible, it is always better when the private sector takes the risks.
Cheers
I.O.,
It seems you are over looking the public-private aspect of Don's letter.
Don is addressing government ownership of an auto manufacturer and using your money and my money to research and build a better battery.
I am sure Don (nor I and any right thinking person) would have no problem with encouraging GM to do it with their own money.
GM doesn't have any money? Oh darn. The invisible hand was ignored and they must go bankrupt and leave the battery development to someone else…..as Don points out, preferably not you and I unless we want to invest our private funds in it.
Most people don't have problem with coerced "investment" as long as the "investment" secures their own entitlement to consume. Even people who say they do really don't. Maybe, we've reached a tipping point in the U.S. Maybe, the malinvestment is so extensive that we can't avoid massive unemployment as unprofitable organizations dissolve.
The idea that we'll suffer some Great Depression with massive unemployment under the circumstances is naive. We won't tolerate the massive unemployment at this point, so we can only repeal the profit requirement instead, and we're then subject to an authoritarian, corporatist hierarchy rather than the demands of free consumers. This authoritarian organization is frightful to ponder, but it's not really impossible. Only more efficient calculation is impossible.
Per Kurowski,
"Society takes risks and should take risks…"
Interesting concept. It leads in so many directions. For starters, what is the proper course of action for an individual when "society" places him at risk?
… GM is not in a position financially to withstand the losses it will incur while demand increases and production costs decrease.
Which is maybe a clue that GM is not the best actor to undertake this mission.
twas I, sorry
Professor,
The car companies and the UAW paid plenty of good money to the hit men in congress. They expect a much larger return on their bribes than they can ever hope for on the investment in their product. If somebody has to die, so be it. It's compassionate and right to pay the UAW workers $50/hour to do nothing while others lose their jobs entirely.
Posted by: Randy
"Society takes risks and should take risks…" – … what is the proper course of action for an individual when "society" places him at risk?
Well if he feels that is he more at risk because of the society than without the society then I guess he better run! As easy as that!
Don's letter is an excellent illustration of how the economic way of thinking may be brought to bear on issues.
BoscoH,
From your comment (which I don’t think addressed the argument I posed in my own post) I assume you think I am in favor of the bail out. I am not.
Vidyohs,
I agree with your analysis. I believe GM especially, but Chrysler and Ford as well, made very poor business decisions (aided at times by government protectionism) and now should let more efficient businesses take over.
My only criticism with Don’s letter was his argument that it made no sense to invest in battery technology today because it was not yet economically viable as a product. I think there are times when it makes sense to invest in such products.
Obviously this still leaves open the debate as to whether the government should be spending taxpayer money on such investments, but it’s not an argument against such an investment which is what Don was intending.
Sam,
“Which is maybe a clue that GM is not the best actor to undertake this mission.”
Agreed.
What I find most amusing about the Big Three’s latest excuse for their failings is the “current economic environment” argument. As if Honda and Toyota don’t operate in the same environment.
If you’re swimming in the same ocean and you’re drowning while your competition is not, it’s time to admit you’re a weak swimmer.
I.O.
Ahh I.O., I see,
You and I just didn't rea Don the same way.
I read his letter as addressing the problem of one man, or many men, deciding how the future must go.
In other words if we spend money on developing a technology then the future will be bright because everyone will love it and benefit from it……..or in Don's words, "will it, will they?"
The title of the thread, "Making the invisible hand visible." is a clue.