To the Letter!

by Don Boudreaux on December 23, 2008

in Complexity & Emergence

Here’s a great letter in today’s Washington Post:

After witnessing the Big Three automakers come to Washington to beg for money, and seeing GM and Chrysler take the bailout ["Aid in Hand, Clock Ticks for Detroit," front page, Dec. 20], I know that I will never buy another GM or Chrysler product, and maybe not another Ford. Which is too bad, because I have one Ford and one GM car in my garage right now, and both are pretty nice vehicles.

But I’m disgusted by the automakers and by our government for undermining the American free enterprise system. Now the only way to truly revive our economy is to drive these terminally ill companies into bankruptcy by boycotting their products. Successfully doing so would free their human and capital resources to reengage in economically viable businesses. The government can force us to pay taxes, and it can misuse the revenue, but it can’t (yet) force us to buy cars from a failed, nationalized industry.

Would this be painful economically? Absolutely. Would it deepen the recession? Absolutely. Would it cost us, the taxpayers, even more? Absolutely.

But it’s the only way to correct the system so my children can grow up to live in a prosperous and free country.

MICHAEL HIGGINS
New Market

I don’t know Mr. Higgins, or anything about him.  But I applaud the soundness of his economic wisdom.

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{ 34 comments }

George December 23, 2008 at 9:07 am

Bravo! My thoughts exactly!

muirgeo December 23, 2008 at 9:42 am

To be consistent I guess he'll need to boycott AIG, Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. (including Merrill Lynch), Citigroup Inc., Wells Fargo & Co., Bank of New York Mellon and State Street Corp. along with some other 116 banks that recieved in total 20 times $15 billion in bailout money.

EJ December 23, 2008 at 9:48 am

to be fair wells fargo had the bailout money forced down their throats…they didn't want it and put up a fuss initially but in the end were forced to give the government prefferred shares. The idea being that the government didn't want to create a "stigma" differing institutions with bailout money and without it so the first big 9 were all forced. Some wanted it surely, others were reluctant.

Randy December 23, 2008 at 9:59 am

Muirgeo,

I agree, and that is my intention.

Harry Becker December 23, 2008 at 11:09 am

Bailouts Destroy! A wanton waste of taxpayer money, they destroy businesses. Businesses that left alone might have fought their way back to profitability but if they ended in bankruptcy others might have transformed them or parts of them into important contributors to our economy & to society. Unlike government & their bureaucracy that is how the real world works. What we need is to do the same thing with branches of government that don't make a positive contribution to society. Any that take more than taxpayers willingly give should go on the auction block. Start with Congress & then the Executive Branch, Agency by Agency, then the Courts. Give that a few years to shake out & start over. Harry Becker

Martin Brock December 23, 2008 at 11:21 am

I oppose this bailout, not least because GM's current market cap is well below the promised financing; however, I'll play devil's advocate here.

Congress arguably has authority that other creditors do not have. Specifically, Congress can place itself in line ahead of other creditors, assuming this positioning doesn't violate the fifth amendment. I suppose the bailout authorization does this, so that taxpayers are repaid before other creditors if bankruptcy ultimately occurs. In this event, the low market cap doesn't necessarily imply a high risk to taxpayers.

I don't know details of the bailout, but I hear words like "orderly bankruptcy", which I interpret as follows. TARP extends credit enabling GM to operate for a few months with its current cost structure. During this period, creditors, unions and other parties must renegotiate terms of their agreements to restore the company to profitability; otherwise, TARP drives the company into bankruptcy with itself first in line for repayment.

The parties have every reason to avoid this fate, if TARP's threat is credible, because they now stand to lose even more in the bankruptcy. If the parties themselves don't object to this arrangement, and if the risk to taxpayers is negligible, I suppose one could call this arrangement "orderly bankruptcy". Needless to say, the devil is in the details, and politicians are notoriously devilish.

BoscoH December 23, 2008 at 12:56 pm

On the upside, maybe the stigma of accepting bailout money will lead GM and Chrysler designers to create a car whose form is the brand rather than adding all the ugly badging to it.

But seriously, it doesn't have to be about punishing them. That sounds too Republican anyway. It could just be that GM fans suddenly discover German brands. Fickleness and ambiguity are far better destroyers of weak market players.

faultolerant December 23, 2008 at 2:37 pm

With one obvious exception, I'm pleased that this discussion isn't about the usual namecalling….i.e. "They make bad cars", "The public doesn't want to buy their cars", "Their cars are poor quality", yadda, yadda, yadda. Simply put, all of that "my opinion is the ONLY opinion" stuff is nonsense.

I'm not nuts about loaning money to the Big 3. I'd much prefer a prepackaged bankruptcy, where the UAW in particular, would be forced to bring their wages/benefits inline with the rest of the auto manufacturers in the US. Legacy costs and some very bad management decisions are the things Detroit is trying to overcome.

A very good friend is a retired GM executive, having worked his way up to a Sr. VP level in Detroit. He tells me that if the Big 3 were to have an equal internal playing field – meaning their legacy and payroll/union costs were comparable to the transplants – the cost of American cars would be significantly lower than the transplants, at the same option level.

Now, to me, this sounds a bit counterintuitive, to which he responds: Most of the US manufacturers have to price their vehicles at or below transplant manufacturer pricing in order to compete. Some of this is caused by market perception based on historical quality, styling, et al. However, the internal costs, which some have said are about $1,500 per unit higher than transplants, expresses only some of the "seen" legacy/union costs.

If the UAW were as flexible and expenses were comparable to the transplants, the Big 3 have already overcome some hurdles the transplants have yet to face. Ultimately, what he asserts is that GM/F/C have improved quality, added content and done very well on styling/engineering IN SPITE of the handicaps they face. Once they can get past these legacy costs they will be extremely competitive – and will most certainly give the transplants a run for their money.

I'd much prefer to see the Big 3 run through the bankruptcy courts, giving them the "Big Stick" they need to deal with the union negotiators. Of course, dropping some of the bonds and other legacy financing would also help the market cap of each company. I know that many consumers say they won't buy a car from a mfr. who's bankrupt – but once the BK is over and done, that issue will be settled in short order. Better some short term pain for a lot of long term gain.

One can only hope Congress in their finite wisdom extend to the Big 3 the "benefits" of BK (discharges, forced contract termination, etc.) without necessarily using the word bankrupcty. If not, then I fear all this money is just keeping the patient alive for a few months longer….with death occurring anyway.

scott clark December 23, 2008 at 3:03 pm

faultolerant,

If that's correct, that the car companies would be sitting pretty if it could just get rid of legacy UAW costs, then why was management angling for the bailout? What you've laid out here is a textbook case for the managers to actually just go bankrupt, or angle for a re-org, even if they have to have congressional help on the sly, so auto workers don't pillory their reps. Since that is not what auto management has done, I take it to mean that their problems are far graver and more difficult and the incumbents will try to milk their clout for as long as they can, you know, ride it until the motherfu-kin' wheels fall off.

Mathieu Bédard December 23, 2008 at 3:29 pm

There's no way that would "cost more" than a bailout..

Douglas Johnson December 23, 2008 at 3:51 pm

Good letter, but I hope Mr. Higgins plans to boycott every Japanese manufacturer, where keiretsu cross-shareholding, government subsidies (through FILP postal accounts), and a nearly innumerable number of practices make the big three look as if they operate inside an Adam Smith petri dish by comparison.

It's too late for the Big Three and so the bailout is a waste. But let's not kid ourselves that the Big Three lost in a battle of free market competition.

BoscoH December 23, 2008 at 3:59 pm

@faulttollerant: Reread my comment. Badging is something that all manufacturers, foreign and domestic, do way too much of for *my* tastes. But I'm also the guy who likes the Macs he's bought for 2 decades have never had a bunch of stupid stickers on them. I have a Mustang and a Blazer in my garage. The Mustang line is probably the worst badger in the history of cars. Seriously, how is going from a "5.0" badge to a "4.6" badge at the back of the front quarterpanel in the mid 90s any kind of improvement except in some parallel universe of style where having 50 badges makes the car cool?

The next new car I buy, which probably won't be a welfare car from GM, will probably get $1000 of body work to remove all the stupid badges and make the paint look like the badges were never there. Ick.

DCLawyer December 24, 2008 at 11:11 am

I share the letter's sentiments. I would happily do business with an organization going through Chapter 11 (for an appropriate discount) but not one "on the dole." As someone who grew up watching the industry in Detroit, I can say that there problems have been decades in the making and that the current downturn just exacerbated them.

The bailouts of the financial firms were necessary due to systemic issues. These organizations weren't "too big" to fail – they were too systemic. The Big 3 were the first to be bailed out on a simple "too big" theory.

I am in the market for a new car, and have now crossed GM and Chrysler off my list.

C Lord December 24, 2008 at 11:27 am

Regarding Martin's acknowledgment that government can place itself at the top of a business' capital structure (senior to existing creditors), I'm a bit amazed that this hasn't been more controversial. Simplistically, this move subordinates debt that previously had the first claim on GM's assets (and which I would expect has negative covenants restricting such subordination).

While one could argue that the creditors are in a better position b/c GM has more cash to "bridge it to viability" (not going to happen). I'd be pretty upset if as an investor in GM's debt, my contractually protected first-dollar claim on GM was now sitting behind $10-15 billion due to the US.

If you assume that GM will burn through their "bailout" and be in the same position soon, this destroys a lot of value for the senior debt investors. While politically popular (i.e., "the taxpayers' investment is safe"), this facilitates a recapitalization that would be otherwise illegal.

Greg December 24, 2008 at 12:22 pm

I think Mr. Higgins has not completely thought through all of the options. In 1773, the Colonists did not simply stop buying tea from England. My ancestors took it upon themselves to change the corrupt government and establish one that, sadly we have once again lost. It appears we may be fast approaching the 1770s conditions again.

vidyohs December 24, 2008 at 2:20 pm

Here is an excellent little video from Fred Thompson on the bailout and alleged financial crisis.

http://tinyurl.com/6caqej

austin December 24, 2008 at 4:41 pm

Perhaps it was this michael higgins:

http://chocolateandgoldcoins.blogspot.com/

Ken December 24, 2008 at 5:02 pm

Mr. Higgins is clearly wrong. Doesn't he know that Laissez-Faire Capitalism Should Be as Dead as Soviet Communism according to Arianna Huffington?

Crusader December 24, 2008 at 8:39 pm

One time I agree with muirduck, boycott all failed companies that don't serve the consumer.

vidyohs December 24, 2008 at 10:56 pm

Muirduck speaks tongue-in-cheek, he/she/it attempts to write satire when all that is in his/hers/its head is a flat tire.

Do what I do, muirduck, boycott the one single entity that is most burdensome on the shoulders of man, the government.

After all, muirduck, AIG, would not get a single penny of bailout money if it weren't for the middleman government that takes it out of your pocket and gives it to them.

What I am saying, muirduck, is "hey stupid, its the government that's the problem!"

Why is it a problem? Because it has listened to stupid socialist for too many decades now. Now we reap what you assholes have sown.

muirgeo December 25, 2008 at 2:25 am

Vidyohs,

Can you remind us how much a month government pension we are paying for your ridiculous ass? STFU you clueless dope.

brotio December 25, 2008 at 3:10 am

"STFU you clueless dope. – Mierduck

I'll bet that really put Vidyohs in his place! I'd like to remind Mierduck that Vidyohs never shies away from answering a direct question, and that his answers are always from his own mind and not mindless regurgitation of Daily Kos – or a variation of, "Because His Holiness: The Divine Prophet Algore I said so, you clueless dopes!"

Let's see!

Vidyohs,

Do you favor Card Check, and why he does or doesn't favor taking away a secret ballot vote for whether to accept a union or not.

I expect that when Vidyohs sees the question that I'll get a direct reply.

brotio December 25, 2008 at 3:38 am

I shouldn't try and edit posts this late on Christmas eve, so let me fix that question for Vidyohs!

Vidyohs,

Do you favor Card Check, which would eliminate a secret ballot vote on whether to unionize or not? Why, or why not?

That makes more sense.

TrUmPiT December 25, 2008 at 1:09 pm

What I am saying, muirduck, is "hey stupid, its the government that's the problem!"

Why is it a problem? Because it has listened to stupid socialist for too many decades now. Now we reap what you assholes have sown. – Vididiot

Sorry, but you are the biggest loudmouth asshole around here. You bite the hand that fed your sorry ass, your whole life. You were in the military and drew a paycheck for 20 years or more, which is totally government owned. Everyone knows that the VA medical treatment that you get for free is TOTALLY SOCIALIZED medicine, and I'm sick of paying for you. You are a socialist by default if you partake in a socialist system which you did for your whole life, you putrid hypocrite. I hate you.

I'm sick of your pollution and foul mouth on this blog and your insulting, uninsightful nature. You need to be locked up in Guantanamo Bay and have the key thrown away. What you know and are can be summed up in one number: zero.

TrUmPiT December 25, 2008 at 1:26 pm

I have more sympathy for the car manufacturers than I do for the car dealers. What a bunch of crooks and ripoff artists they are. The dealerships add little if anything in value to car, and make you pay threw the nose. You need a lawyer to read through the documents they want you to sign. I want a car, not a contract of adhesion.

Most auto mechanics are also a bunch of crooks. And the rightwingers want to take away our ability to sue them. Thanks for nothing. If you buy a used car, you can't trust the speedometer because it was probably set back by a crooked mechanic. Unregulated, unenforced laws had made capitalism a big fat joke and continuing failure. And the unethical piglets who run the show must be brought down and weeded out wherever they exist, juat like the so many bugs that they are.

vidyohs December 25, 2008 at 2:26 pm

Ahh my little STrUmPiT, I love you too.

Yep drew that little check for 21 years and that is the way you learn just how corrupt it is, by being surrounded by it, fighting it, and suffering for that fight.

Yep, no VA for me, I pay my health insurance quarterly.

And, yep again, you prove my point about the socialist being the real haters in this world.

The reason you can't handle my insights are that you never got beyond your indoctrinators recording of socialist doctrine in your little tape deck mind. Play, rewind, play rewind, what a small life, STrUmPiT. Instead of wanting to live where you can make your own glory and satisfaction, you want all brought down to your level so as to be as miserably ignorant and small as you.

You and muirduck, a true pair, to stupid to see how you've been taught to foul your own nest, and having fouled it, you two did learn how to blame others for your own condition.

Merry Christmas nino/a whatever you may be.

Russ Roberts December 25, 2008 at 4:05 pm

Gentlemen,

Too much name-calling here. Please stick to reason, logic and data or I will start deleting your comments.

vidyohs December 25, 2008 at 7:06 pm

"Vidyohs,
Do you favor Card Check, which would eliminate a secret ballot vote on whether to unionize or not? Why, or why not?
That makes more sense.
Posted by: brotio | Dec 25, 2008 3:38:10 AM"

Brotio,

I have made my position clear on this question numerous times. I'll restate it.

The "Employees Free Choice Act" is clearly one of those government bassackwards labels that states exactly what it isn't.

Only the "useful idiots of socialism" tout that bill as an act that establishes free choice. It does exactly the opposite and eliminates free choice.

Free unintimidated and uncoerced choice comes from the secret ballot, which is how the choice is made currently on whether to unionize or not. It is this free choice that is the anathema to unions because they can't frighten or attack those who cast ballots…the only thing they can do now is scare employees away from voting and since a majority of employees are needed to unionize that defeats the whole purpose.

As we have both stated, if the secret ballot is sacred in selecting leaders to every single public office in this nation, then the secret ballot is equally sacred as a right to select an individual's choice of leaders and associations in any field.

But, Brotio, muirduck and stumpit, are not about clear anything, much less clear thought.

A devout socialist is broken in a way that you and I will never understand. We can only read the words they write and hear the words they speak and know that somehow something in their brains either never formed or else was broken in the early stages of their life. There is no other explanation for the wretched depths of their consistent blind stupidity.

vidyohs December 25, 2008 at 7:09 pm

"Vidyohs,
Can you remind us how much a month government pension we are paying for your ridiculous ass? STFU you clueless dope.
Posted by: muirgeo | Dec 25, 2008 2:25:50 AM"

Why muirduck, it is one of your typical silly-ass questions, but in your case I would hope the amount is truly burdensum. I would thrill to the information that you alone bear the cost of paying government's commitment to me. LOL!

Hey you love your leftwing government, don't bitch about what they have done.

brotio December 26, 2008 at 7:09 pm

Thanks, Vidyohs!

Anonymous December 26, 2008 at 8:07 pm

The unions have the power to tax, too. They are a government within a government.

We need a national right to work law.

vidyohs December 26, 2008 at 9:39 pm

http://www.kaisernetwork.org/Daily_reports/print_report.cfm?DR_ID=1453&dr_cat=3

Seems we (term used loosely) have a right to free health care as well as a right to work……but sheeeet man, why work to pay for something when you can get it free?

Google the term Harris County Gold Card and look at the sites that pop up.

I do my predominant work in Harris County, do doctor depos virtually 2 to 3 times a week and never heard of this program until in my depo today.

Okay, we are paying for UAW members to work and we are paying for free healthcare for Keesha, Keyshawn, Manuel, and Maria; God Allmighty, I just realized today that if I want to be truly well off all I have to do is quit work and become destitute. Leisure time and eternal care…..how could I have been so foolish as to go to work today???

sethstorm December 29, 2008 at 8:45 am


but it can't (yet) force us to buy cars from a failed, nationalized industry.

It can force people to eventually buy against their wishes. That brought to you courtesy of the South.

No thank you, but I make it a point to buy a car, not a oversized all-season golf cart for $20k new.

If the transplants were smart, they'd stop pandering to the Sierra Club and start thinking of how to win the perennial Big Three buyer(the ones who have no issue with maintenance).

tegwar January 1, 2009 at 3:29 pm

I fear that Mr. Huggins employs the reasoning typically associated with dangerous radical ideologies – i.e., that we must burn this village in order to save it. First of all, it is not, strictly speaking, economic wisdom to boycott a product you view as superior because of other factors (seems a bit like 'social investing' when you think about it).

More importantly, he concludes "it's the only way to correct the system." This is a hypothesis, not a fact, and it is drawn from the one step backwards / two steps forward outlook of social change / progress. But there is no guarantee that the result will be one backward / two forward. Would you back the course if you knew it was two backwards/ one forward or some even less advantageous deal to let GM fail? Backward steps are dangerous business and shouldn't be taken lightly.

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