Insomniactive

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One of my friends asked about my reaction to Paul Krugman’s piece in the NYT, “While Detroit Slept.” An excerpt:

…our bailout of Detroit will be remembered as the equivalent of pouring billions of dollars of taxpayer money into the mail-order-catalogue business on the eve of the birth of eBay. It will be remembered as pouring billions of dollars into the CD music business on the eve of the birth of the iPod and iTunes. It will be remembered as pouring billions of dollars into a book-store chain on the eve of the birth of Amazon.com and the Kindle. It will be remembered as pouring billions of dollars into improving typewriters on the eve of the birth of the PC and the Internet. What business model am I talking about? It is Shai Agassi’s electric car network company, called Better Place.

Like Krugman, I wish with all my heart that someone with a really loud voice would stand astride the ramparts of the Big 3 Bailout and cry, “stop the line!!” I’m not sure how imminent is the future of electric cars, and I don’t think anybody is. So Krugman’s ipod/cd’s analogy may be a stretch. But certainly, putting up real taxpayer money to save U.S. Auto could be uncharitably compared to betting on the Bad News Bears of the disappointing sequel to run-rule the 1998 Yankees.

Secretary James Baker said it best a couple of weeks ago on one of the Sunday news shows. Diplomatic as he is, he could barely conceal his sneer when asked about a potential bailout of the Big 3. He reminded us that when he was Treasury Secretary in 1987, Detroit was beating down his door to help them against the Japanese. So not only have they seen this coming for a generation, they actually got lucky. Remember, the Japanese economy crashed into a decade-long recession just after Reagan left office, and all the fears of a “Japan Inc.” innovation and manufacturing juggernaut turned out to about as misplaced as the concern that Y2K would trigger the launch codes of every nuclear power’s entire arsenal. Even with that wind blowing in its face, Toyota kicked Detroit’s ass relentlessly, with its recent share gains only picking up momentum.

How could the math of the bailout possibly make sense? If there are really 3 million jobs in jeopardy, how does $5k per job really get a horribly unprofitable and competitively disadvantaged industry out of trouble? Wouldn’t it make more sense to spend that (and regretfully, probably a lot more) on retraining displaced workers up and down the U.S. automotive supply chain; providing incentives to (or even investing in) startups like Better Place; and even providing supplemental, directed unemployment benefits? Isn’t that a better use than propping up a busted business model with no real game-changing plan for the future? Surely, holders of stock and debt in these enterprises should get up close and personal with the meanings of “common” and “unsecured, ” respectively, before the taxpayers start writing checks. Shouldn’t they?

Additionally, the U.S. government likely must decide sooner than later what to do with these ridiculously underfunded defined benefit pension plans. What about redirecting some of the bailout dough toward the solvency of the Pension Benefit Guaranty Corp? How about a comprehensive re-look at ERISA, which is now a generation old and clearly not keeping up with its authors’ intent?

To me, these are the big issues. Whether or not America is in the Cadillac business? Not so much.