“Experience is a dear school,” wrote Benjamin Franklin, “but fools learn at no other.” Right again, Uncle Ben. Since we are definitely going through some of the “dearest” schooling that has been inflicted on any American generation since the Great Depression, I can only hope that we will at least come out of it understanding how important it is to have at least an acquaintance with fundamental economics. In these dismal times, it would be fitting, I suppose, to see increased interest in what is often called “the dismal science,” although I have to confess that I have always found economics fascinating, and at the risk of seeming terminally geeky, even fun. In addition to the fact that economics is still missing from the curricula in way too many high schools, there is the simple reality that when it is taught, it sometimes isn’t taught very well. People with economic degrees can generally find more lucrative ways to put their training to use than trying to pound it into the heads of high schoolers, and at the college level, introductory economics courses are all too frequently mass production affairs which are often taught by folks who don’t want to be there any more than the people they are supposed to turn on to some really important but not necessarily exciting concepts like elasticity of demand.
Luckily for me, I took an honors class in economics taught by a curmudgeonly old dude who didn’t suffer fools gladly but who clearly knew his stuff and how to impart it. I hardly became an expert as a result of this one class, but it did stoke my interest in learning more, and what little extra I have managed to pick up has been enormously useful to me as a historian, even if a few economists might feel it has made me a bit dangerous as well. I have even been described as an “economic determinist,” (which, by the way, I ain’t) but mostly by people I would call cultural determinists who find it easier to label every form of behavior they can’t explain after fifteen minutes of effort as the manifestation of some ancient, inbred cultural trait passed on from generation to generation.
I’m particularly sensitive to this, I guess, because so much of the writing about southerners has slipped into this track. For example, antebellum planters were said to have persisted in owning slaves and growing cotton (instead of diversifying their investments and supporting industrialization) because they were caught up in an old European pre-capitalist mentality that had long since disappeared among those who settled in the more progressive North. This is total horse-pucky, of course. As a group, southern slaveholders were the richest people in the United States and some of the richest people in the world in 1860, and it’s been my observation that people who are doing well at what they are doing generally keep doing it, for just that reason rather than because of any flimsy-as-a-fart-on-a toothpick nonsense about being raised in a genteel tradition that frowned upon acquisitiveness.
Enough of this history talk. Let’s consider the big enchilada of the here and now, the much-debated bailout of Detroit’s Big Three. Harry Truman’s oft-quoted (by me, at least) comment about really wanting to meet a “one-handed economist” bears repeating because it is so relevant here. Truman was actually complaining that, when asked about the impact of any proposed initiative, his economic advisers would invariably respond, “Well, on the one hand . . . but, on the other hand,” Truman should actually have been heartened by this response because it meant his advisors were genuine economists who understood their obligation to evaluate the various outcomes that might result from decisions about how scarce resources were to be allocated to meet a multitude of competing needs and goals. Since there could be no valid scenario where every need was equally well met, economists were always looking at the upside and downside of every proposition.
One of the biggest problems with our collective ignorance of economics is that it allows our politicians to get away with being one-handed economists. Witness all the posturing about the auto bailout. First, there’s the self-appointed, conservative watchdogs of the “peoples’ money,” who are, by the way, generally the same folks who invariably oppose things like hiking the minimum wage or restructuring the tax system in order to increase the amount of “the people’s money” that goes and stays in the people’s pockets. Although the watchdogs have also voted uncritically for the massive expenditures of “the peoples’ money” in Iraq, they’re suddenly worried about forking over it over to Detroit, and they’re definitely not saying much about the “people” who won’t be making any money at all after their employers go belly-up. The liberals, meanwhile, are worried about protecting the wages, benefits, and pensions of past and present autoworkers, even though the cost of maintaining them at anything remotely close to the current level is surely an insurmountable obstacle to any agreement that would keep the companies afloat and their workers at work.
I understand the UAW is refusing to accept any of the proposed wage-and-benefit cuts until 2011. I’m a huge believer in paying working people a decent wage, but the UAW crowd might want to rethink their position on this. Saving the wages and benefits package until 2011 won’t be much to brag about to the people who are standing with you in the unemployment line six months from now.
Frankly, I don’t think whatever arrangement they wind up with is going to work unless Congress simply buys into the idea of long-term nationalization of the auto industry. Even then, the real kicker will be whether, after five years or so to re-tool, Detroit can start to build cars that anybody really wants to buy. Much has been made, understandably, of GM’s obligations to its more than 432,000 retirees, who outnumber its current employees by nearly 7 to 1 and account for roughly $15 of the $70 plus that GM calculates it pays per current employee-hour worked. David Leonhard makes a telling point when he estimates that even if Congress agree to take on $10 per hour in retiree benefits, and the UAW is ultimately gracious
enough to accept $45 per hour in wages and benefits for current employees, the typical savings per car would be only about $800. Since the Big Three price average is already some $2,500 below the Japanese competitors who have been taking them to the woodshed since Hector was a pup, how much difference will another 800 bucks make unless Detroit learns how to make a car that you don’t wind up hoping some woefully ill-informed thief will take off your hands? Beyond that, there’s the question of why, with every car lot you see overflowing with Detroit’s hardcore unsellables, we would want to invest public money in glutting the market even further until these guys, (we can only hope,) finally develop the capacity to build autos that might sell?
All of this sounds like a bailout is nothing more than flinging good money after bad—only this time’ it’s our money, but, on the other hand, before we vow and declare that it’s no skin off our behineys if the Big Three become the Big Zero, maybe we better check on the thickness of our behiney hides and the extent of their potential exposure to the toxic economic shock wave that’s certain to radiate from ground zero.
Even by the mid-1920s, the automobile industry was already critical enough to our economy that dwindling demand for cars should have been a signal that we were headed for the big trouble that ultimately became the Great Depression. Just for starters, a complete shutdown of today’s Big Three would mean the direct loss of some 200,000 jobs paying as much as 20 percent more than the average manufacturing worker gets. Even though recent cutbacks by carmakers have already been felt in many of the critical related industries like parts, rubber, metal, glass, and electronics, to name but a few, the “ripple” effect of the Big Three going completely dark would still be more like a tidal wave. Take a gander at this study, just released, strikingly enough, on Election Day. It puts overall job losses from a total Big Three shutdown in 2009 at nearly three million. That would amount to a roughly $151 billion loss in personal income, a 25 percent decrease in income tax collections and a 20 percent dip in social security collections, just for next year alone.
Think the foreclosure rate is bad now? You truly ain’t seen nothing yet. “Repo Man” is going to be a busy boy as well. Already feeble consumer buying will obviously take a huge hit, and welfare and social services will be stressed to an extent we’ve never seen and certainly well beyond their shrunken budgets. Ditto public education at every level. There’s always the option, I suppose, of collecting more tax revenue from the folks who are still working, including those who could see no merit whatsoever in keeping those car companies afloat in order to give them the chance to right their course.
In addition to the direct and indirect economic implications of withholding life support from the American auto industry, the political implications might be profound as well. I’ve been thinking in particular about the reaction when it finally sinks in that the Gen Y’ers may be the first group of kids in our recent history, certainly, who, as a group, wind up with a lower relative standard of living than their parents enjoyed. We’re quick to brag about our brilliant and enduring system of government, but while I’m as big an admirer of the Founding Dads as anybody, I’m inclined to think that we may have been ignoring the importance of our historic economic success to our political stability. Taking due note of the peculiarly disadvantaged and those held back by discrimination, Americans have traditionally had good reason to believe that, with the requisite effort, they will be able to live better than their parents and that their own children can anticipate the same.
By and large, for the last hundred years or so, we have been reasonably content to choose our presidents and members of congress from two major political parties because we felt that, at any one time, at least one of these outfits could get the job done in helping us not just maintain our current individual and household status but to improve on it. Now, however, we as a nation may be in the middle of an unfolding perception that neither the Demos or the GOP will be able to offer credible assurances that they can just keep things from getting worse, much less make us believe they can make tomorrow look better than today.
If we don’t see significant improvement over the next four years, I wouldn’t be terribly surprised to see a significant “third” party and maybe even a fourth or fifth one as well. This may sound like a healthy thing on the face of it, and it might well be if one of these aggregations rejects partisanship and ideological rigidity in favor of simply trying to help as many people of all stripes as possible. However, depending on how dire our economic and related social conditions and prospects might be, we could also be assailed by people coming from considerably farther right and/or left than most of us would be comfortable with, purporting to protect the particular perceived interests of some groups while demonizing or scapegoating anybody else who might somehow be characterized as a competing claimant for a bigger piece of that shrunken ol’ pie.
I don’t know much, but I do know this: Whatever can be done by political means to get us out of this hellacious mess won’t come as a result of pitting us against each other. Relax, this is not going to dissolve into a weepy liberal plea that we all join hands and sing “KUMBAYAH,” but before we leap to condemn proposals that don’t seem at first glance to benefit us directly and immediately, maybe we should at least take time to consider that contemporary spheres of economic interest overlap a lot more than most people realize. We’re all living in an exceedingly complicated, tightly intertwined, and global rather than national economic and sociopolitical matrix. Lest we get sucked into falling for some for some one-handed economics, which can be mighty appealing in times as frightening and confusing as these, let’s first recall ol’ H. L. Mencken’s reminder to the effect that “for every complex problem, there’s always a simple solution. And it’s always wrong.”
PS. OK, I admit I’m one of those people likely to see the glass half empty. That’s because I’ve had a lot of experience with glasses—and bottles, too, for that matter—and while I’ve seen a helluva lot of mine get emptier, not a single one of them has ever gotten fuller. In any event, I apologize for posting such a “downer” this close to Christmas. By way of recompense, the Ol’ Bloviator promises a much “lighter” offering before St. Nick arrives.