"The Truth About Cars and Trucks"

Here is more evidence to support my remarks in a previous post concerning the UAW as the WSJ's Holman C. Jenkins, Jr. tells "The Truth About Cars and Trucks":

For more than 40 years, a 25% tariff has kept out foreign-built pickup trucks even as a studied loophole was created in fuel-economy regulations to let the Big Three develop a lucrative, protected niche in the "passenger truck" business.

This became the long-running unwritten deal. This was Washington's real auto policy.

For three decades, the Big Three were able to survive precisely because they skimped on quality and features in the money-losing sedans they were required under Congress's fuel economy rules to build in high-cost UAW factories. In return, Washington compensated them with the hothouse, politically protected opportunity to profit from pickups and SUVs.

...the muddled, covert bailout continues: Washington's latest fuel-economy rules actually reward manufacturers for increasing the size and weight of some vehicles. The truck tariff remains in place. The fuel-mileage rules continue to protect the UAW monopoly by discouraging the Big Three from shipping small-car production offshore.

Lately some have doted, with wonderment and admiration, on the Obama administration's apparent willingness to drive a hard bargain with the UAW as it tries to impose a stage-managed replica of bankruptcy on GM and Chrysler. Please.

In a real bankruptcy, which is the natural fate of companies unable to meet their obligations, Chrysler and GM would be run (or liquidated) for the benefit of their creditors, not their workers. But, here, "pattern bargaining" will remain the law of the Detroit jungle. The UAW will continue to use its unnaturally augmented clout to extract uncompetitive pay and benefits (it can do no other given its internal incentives). As it has for 40 years, Washington will pitch in with one improvisation after another, disguised as energy policy, trade policy, health-care policy or environmental policy, to stop the rivets from popping off. Politics, especially Democratic electoral politics, will play a more dominant role than ever.

Look closely and the hidden subsidies to keep the dismal beast alive have already started flowing -- tax credits for UAW retirees to make up for reduced health-care benefits, loans to help Detroit "invest in green cars." And plenty more will be needed to sustain Obama Motors on life support, at least through the 2012 election.

The Obama strategy does nothing to change the basic dynamics of the homegrown auto sector -- a labor monopoly combined with endless finagles in Washington to help the Big Three survive competition from Japanese, German and Korean auto makers. But maybe the shock of seeing GM nationalized will at least cause some in politics and the press finally to think about how we got here.

The travesty is how long this will continue to play out to the detriment of the US auto industry and especially to the US taxpayer.

Contrary to Too Big to Fail

The following quote is from John Tamny in Real Clear Markets. Dr. Thurow, who is quoted, spent a day with one of my senior year undergraduate macroeconomics classes and I have been a 'fan' of his ever since.

MIT economist Lester Thurow once observed that, “One man’s security [protection] is another man’s lack of opportunity.” Thurow’s words take on greater relevance today given the seeming reluctance on the part of Treasury secretary Tim Geithner and other administration officials to let banks pay back the protective loans foisted upon them through TARP....

...within capitalist economies new substitutes regularly reveal themselves such that industries as we define them regularly take new shapes. Schumpeter was writing about the retail sector, but as he observed, “the competition that matters arises not from additional shops of the same type, but from the department store, the chain store, the mail-order house and the supermarket which are bound to destroy those pyramids sooner or later.”

Indeed, Blockbuster Video was not crushed by a like competitor along the lines of Movie Gallery, but instead by Netflix. When we consider finance, for years retailer Wal-Mart has been panting to get into banking only to be thwarted by many of the same banks presently on life support. Quicken began as a company peddling personal finance software, and ETrade low-cost stock trades, but now both are very much in the loan business. Most in the U.S. think of British retailer Tesco as a retail behemoth, but its lending arm is growing by leaps and bounds.

Looked at from the perspective of banks, it’s quite simply not true that finance would have dried up had one or many big U.S. banks failed. Instead, and as Thurow made clear, their failure would have created an opportunity for substitutes to fill in where their predecessors failed. So while it’s seemingly settled “logic” on both sides of the political aisle that we must empower to an even greater degree the very regulators who proved so unequal to the crises before us, and that occurred on their watch, it seems the better answer is less regulation so that well-run companies inside and outside the financial sector can do what gasping banks could not.

Thurow concluded long ago that “demands for protection” arise due to the abandonment of “belief in the virtues of a competitive, unplanned economy.” His words describe today’s economic environment very well, and as long our federal minders keep offering us false security, the alleged economic recovery will be stillborn thanks to a bipartisan lurch away from the very competitive economic principles that made us so prosperous to begin with.

The above passage perhaps applies even more aptly to the automotive sector as great substitutes currently exist without lingering union problems nor closed plant locations with environmental clean-up legacies. And these substitutes have US plants employing large numbers of US workers. Consumers have already proven the demand for Mercedes from Alabama, BMW's from SC and Honda's and Toyota's from the mid-west. It also troubles me that the US Government is giving financial support to the "big three" (of which two of the three should have filed for bankruptcy already) and not support to the domestic producers with 'foreign' ownership. Is that fair, I ask rhetorically? Did not the Honda Prius represent what the US government wants US citizens to drive?

No doubt the huge support of labor unions for the Democrat party has influenced the decisions of the executive and legislative branches. Perhaps what is too big to fail is political support not certain formerly private companies.

Fixing Broken Government

Cal Thomas is out today with "Competence Above Ideology". Here are some highlights:

We pour increasing amounts of time, attention and money into giving children, especially underprivileged children, a chance to succeed. Do the candidates really believe the problem is not enough money, or is it too much money and not enough choice as to which school -- public or private -- best serves the needs of children? Ending the education monopoly would help those languishing in substandard schools. Are the candidates -- especially Democrats -- so beholden to the teachers unions that they care more about winning their approval than they do about educating children? The answer for Democrats is "yes." Why don't the overpaid interrogators/moderators ask the question this way?

H. George Frederickson, a professor in the Department of Public Administration at the University of Kansas, has written a compelling essay on "Repairing Broken Government." It addresses the need to focus on competence more than ideology. Noting the familiar list most people make on the reasons for broken government -- the pervasive influence of money in politics, the power of interest groups and lobbyists, legislative gridlock and more -- Frederickson touches on something of perhaps even greater importance: "bureaucracy, ineffective management, or poor policy implementation are central elements of a broken national government."

Instead of "sound-byting," character assassination and sloganeering, Frederickson calls for "substantive competence (think Katrina)" in government. He wants more competent people running things and he suggests the way to make that happen is to amend the Civil Service Reform Act of 1978.

That law, he writes, "added a thick layer of political appointees to the upper ranks of federal agencies" while the ranks of merit-based civil servants were reduced from almost 3 million to about 1.8 million. "From the standpoint of government effectiveness, this has been a deadly combination," he says.

Where are the voices of the presidential candidates promising to clean house of political appointees and replace them, not with political appointees from their party and persuasion, but with people who know what they are doing?

I care about social issues and the eroding morality of the country, but I care more about competent government. We are spending more on government than ever and getting less for our money...

Let's have a little less ideology from the presidential candidates of both parties and a lot more talk of how to repair broken government.

These remarks fits perfectly with my recent post on school failure, see here.

I also think in a way that a focus on competence in managing government fits into points being made repeatedly by Giuliani and Romney as to the importance of managerial experience in the presidential election campaign. I hope that the public and candidates from all sides see this not however as a party issue but that a real need exists for America to fix our schools and to fix the inability of government to carry out basic duties.

By the way, The New Republic has a funny parody out today, listed on the web site as "The Absurd Comedy of the Dems' Labor Suck Up". I hope this writer does one on the next Republican debate as well.

Gingrich on School Failure

Newt Gingrich may be grating to a lot of people as reflected in his high negative polling numbers (like Sen. Clinton.) I suspect that in the case of the former Speaker those numbers are primarily because he is right so often and tells everybody that he is right so often too.

In any event, he is absolutely correct in the opinions he is expressing about Detroit city schools utter failure and what that fact reveals about all of our government's inability to accomplish goals and its structural incompetence. In today's issue of The Detroit News we find "Gingrich: Will Detroit Save Its Kids or Bureaucracy?". Gingrich explains that according to the Gates Foundation that Detroit schools are dead last in its independent study and noted that "the Detroit school system graduates only one-fourth of its entering freshmen on time, placing Detroit dead last on its list." Now here's more from Newt:

But this failure is not just Detroit's failure. It is an American failure. When American children are being cheated out of the education needed to succeed and an American city is allowed to decline while its leaders refuse to confront the failure, it should concern every American.

This human tragedy extends well beyond the schools. The New York Times reported that an African-American male who drops out of high school faces a 72 percent unemployment rate in his 20s and a 60 percent possibility of going to jail by his mid-30s. The Detroit bureaucracy now presides over a school system whose black male students are more likely to go to jail than go to college.

...This bureaucracy is so focused on protecting its monopoly, it turned down a $200 million offer from a Metro Detroit philanthropist to help high school students learn. Faced with such appalling failure, why would the Detroit bureaucracy be so aggressive in defending itself? And why would it be so unwilling to adopt bold changes to improve its performance?

It could be that the Detroit school system is the single largest employer in the city, followed by the city government. Of Detroit's 25 largest employers, state, county and city governments provide 40 percent of the jobs.

These numbers raise a critical question: What is the purpose of our government bureaucracies? Clearly, we have a fundamental disagreement about how to measure success, and it goes right to the heart of the issue.

If the purpose of the Detroit school system is to provide jobs for members of a unionized bureaucracy, pay them well and pay them on time, then Detroit's school system is a stunning success. If this is the primary purpose of the bureaucracy, Detroit may very well be the most successful school district in the nation.

If, however, the purpose of the school system is to provide Detroit's children with an education, the knowledge, the tools and the motivation to succeed in the real world, a prerequisite to prosperous, productive communities, then Detroit's bureaucratic schools are an abysmal failure.

There is ample evidence of what works in education, but the bureaucracy has systematically ignored all of it. The innovations include merit-based pay; increasing teacher-to-student ratios; revamping union rules to reward the best teachers; bonuses and incentives for new teachers; charter schools; and offering parents a coupon that allows them to send their children to the school that works best for their children and not the bureaucracies.

...[R]eal change requires real change, not new rhetoric while doing more of the same old thing. Propping up the failed past at the expense of future generations leads to prison and poverty vouchers for too many of our children.

The time for excuses is over. The crisis is not about money. The crisis is a failure of responsibility, accountability, honesty, transparency and determination to protect the children from the bureaucracies that are crippling their lives. Who will the people of Detroit save -- their failing bureaucracies or our American children?

Here is what I asked in a post at the end of July, from "Big Labor & Presidential Politics":

"Can you draw any obvious correlation between the fact that education and our government is widely perceived to be dysfunctional despite the amount of money devoted to those undertakings and the fact that those employees are almost completely unionized and have almost zero turnover? Dysfunctional and employed for life does not a good combination for performance make."

Big Labor & Presidential Politics

As individuals most union members are great people while unions as organizations, to speak politely, are not great. I say this not lightly and with feeling. From my Labor Economics professor in undergraduate school who was an avowed socialist who never appeared in public without his peace symbol button firmly affixed to his tie, to my first lead role as a management negotiator versus the Teamsters ( the only time I have, coincidentally of course, been shot at - twice), and now seeing how the automotive unions have decimated the American automobile manufacturers, worked to kill Social Security reform, oppose free trade and every other sensible economic reform that is good for this country and the world, to teacher's unions opposing student measurements and school choice, and on and on -- I do not like unions.

So I give you this New York Times 'editorial', "Democrats' Field Creates Pleasant Predicament for Unions":

Union leaders say they are so happy with the Democratic presidential aspirants, though unsure of whom to support, that they are unlikely to endorse any of them before the primaries next year....

“There’s a pretty strong sentiment across the labor movement for Edwards,” Steve Rosenthal, a former political director of the A.F.L.-C.I.O., said. “But I think some unions are a little leery of endorsing him without more evidence that he can win.”

Another reason many unions are hesitating to endorse a candidate is their overall happiness with the eight hopefuls. Several back universal health coverage, a major union goal. All have endorsed labor’s main legislative priority, a bill that would make it easier to unionize workers.

“This is a pro-worker field of dreams,” said Bruce Raynor, president of Unite Here, which represents hotel, restaurant and apparel workers. “The field is much better from a worker’s standpoint than it was four years ago.” [Note: You should recall Mr. Raynor driving the textile industry out of North Carolina and much of the South and the jobs that went with the firms.]

Mrs. Clinton and Mr. Obama are wooing unions partly to prevent Mr. Edwards’s securing the A.F.L.-C.I.O. endorsement and partly to pick up individual union endorsements for themselves. Mr. Obama has repeatedly campaigned on behalf of a unionization drive at Resurrection Health Care’s nine facilities around Chicago.

The A.F.L.-C.I.O. endorsement is prized because it opens the door to major union contributions and to support from the federation’s political program, which contacted 13 million members of unions and union households in the 2006 campaign.

The political director of the federation, Karen Ackerman, said that thanks largely to the A.F.L.-C.I.O. efforts, 74 percent of union members voted for union-backed candidates in the Congressional elections last year.

Mr. Edwards has been by far the most aggressive in wooing labor. He spent a day in April working alongside a nursing home worker at the behest of the Service Employees International Union, and he has marched alongside striking Goodyear workers.

“If our board voted today, it would be leaning toward Edwards,” Leo Gerard, president of the United Steelworkers, said. “He showed up at a Goodyear picket line. He just called and said, ‘I’ll be there.’ That kind of stuff really rings home with our members.”

Mr. Gerard said his union would respect the A.F.L.-C.I.O. policy that its 55 member unions not endorse anyone until the federation decided whether it would make an overall endorsement. The Democratic candidates are scheduled to participate in an A.F.L.-C.I.O.-sponsored debate on Aug. 7 in Chicago. The federation said it was expecting 15,000 union members to attend the debate, at Soldier Field.

The president of the federation, John J. Sweeney, said the earliest it would endorse anyone would be late October. Mr. Sweeney said he doubted that any candidate could muster the requisite two-thirds support.

He cautioned against any rush, saying many unions acted too hastily in endorsing Howard Dean and Richard A. Gephardt in 2004, only to see those candidacies flounder early in the primaries. “There’s merit to delaying, because there are so many good candidates,” Mr. Sweeney said. “We’re seeing a very different attitude this time around. We learned from the last time that we had better be sure that when we endorse we’re supporting the candidate our members want to support. And there’s also an interest in backing a candidate who can win.”

Gerry McEntee, president of the American Federation of State, County and Municipal Employees, acknowledges having learned a lesson in endorsing Mr. Dean.

“We made a big error,” Mr. McEntee said. “The error was that to a large extent it was a leadership decision made without a deep enough effort to see how our members really felt.” Mr. Edwards and the other candidates are also seeking the endorsement of Change to Win, a rival federation made up of the service employees, the Teamsters and five other unions that left the A.F.L.-C.I.O.

The president of Change to Win, Anna Burger, said her group would probably not make a pre-primary endorsement. Ms. Burger also counseled against any rush to endorse a particular candidate, saying it might discourage other candidates from speaking out on workers’ issues. “We should give them space” she said.

Andrew L. Stern, the service employees’ president, also suggested that his group was in no hurry to endorse.

“This time, Edwards has done the most to win our support, but Senators Clinton and Obama, they’re not going to let Edwards sneak by them,” Mr. Stern said. “It’s like Roller Derby. We’re waiting for someone to break from the pack. We’re getting closer, but there’s no particular clarity.”

If neither labor federation endorses, that would open the door to individual unions’ endorsements. Union leaders said that the American Federation of Teachers and the Office and Professional Employees International Union were leaning toward Mrs. Clinton and that Unite Here, the Teamsters and the steelworkers were leaning toward Mr. Edwards. A Unite Here endorsement would be a boon in Nevada, because its Las Vegas local has 40,000 members and could dominate that state’s Democratic caucuses.

Two big unions, the service employees and the state, county and municipal employees, might be too torn to endorse anyone. Their locals in Illinois are enthusiastic about Mr. Obama. Several of their locals in New York favor Mrs. Clinton.

“There’s a certain amount of rooting for the home team,” Ms. Burger said.

Just a couple of footnotes here:
Can you draw any obvious correlation between the fact that education and our government is widely perceived to be dysfunctional despite the amount of money devoted to those undertakings and the fact that those employees are almost completely unionized and have almost zero turnover? Dysfunctional and employed for life does not a good combination for performance make.

And right or wrong, when President Reagan broke the air traffic controller's union did not the Republican Party cement and make unmistakable its honest opinion of unions, not union workers as individuals but union tactics?

And see my post "Labor's Impact on Free Trade: Bad Economics, Bad Foreign Policy, Bad for America" here.