In which Kati waffles about the car industry bailout failure.

OK, I'll admit up front that I don't know much about the proposed American auto industry bailout. I'm discussing from a very theoretical standpoint, and as such I don't mind if someone wants to give me some more information or gently correct errors.

Now, just from an academic standpoint, I was torn about the idea of a bailout. On one hand, this industry falling right now would be positively detrimental, but on the other, the American auto industry has been doing poorly for twenty or thirty years. The Big Three have been run on an insanely short-sighted "business strategy" when this result was quite predictable to anyone willing to take a long-term view, and our government has done them no favors by coddling them during that time. For example, the American government's refusal to set any reasonable gas mileage standards (and overturning states who did so) and the corporations' neglect of developing higher mileage cars on their own insured that the American car makers' market is limited exclusively to the United States. Any analyst could tell you that's a horrible state for a multi-billion dollar corporation to be in, but investing in a wider (and thus more stable) market long-term would have amounted to higher expenses short term.

Next, with the bailout work that just fell through, I think the UAW should have been included at least as much as the high company executives were -- especially as cutting UAW wages became the primary mechanism to reestablish profitability. I think it is also essential that CEO wage limits be a part of any type of bailout. It's not just a matter of the money -- although at the money CEOs get, that is significant. It's a matter of proving good faith. A limit on a CEO's wages is the same as the earnest money you pay when negotiating to buy a house. The limit is to prove that "yes, we really are in this much trouble and yes, we really are serious about fixing the problems."
Furthermore, if we're going to expect the ground-pounding workers to be paid as much as their counterparts working for Japanese companies, isn't it only fair that we expect the American company CEOs to be paid as much as their Japanese company equivalents?

Also with that, although I could be wrong and I don't have any statistics to back this up, I strongly suspect that the Japanese-owned plants are safer than the American-owned ones. I base this on a comparison of how Japanese corporations usually operate and how they balance long-term versus short-term costs, compared to American corporations. The higher wages and benefits negotiated for workers in American plants are not just smoke and mirrors. They have been at least partially negotiated to compensate for higher risks.


Finally, I find this unthinking economic recovery strategy of corporate welfare, coupled with the abhorrence of citizen-level socialism, to be pretty scary. For example, with the auto industry bailout, instead of giving $34 billion in handouts to the companies, couldn't we instead give $34 billion of rebates to households that buy a brand new, American made automobile? We pump the money directly into the economy, it ultimately gets more money to the auto industry because the households that participate will be adding in some of their own, it increases the market for the companies' products and probably trickles down to other industries. I can't say that it's the best option, since on the flip side there's also the risk of crashing the used car market as it's flooded with trade-ins (although on the third side, that also reduces the price of them, encouraging those who couldn't afford a brand new car even with rebate to buy a used car) and who knows what other effects. But my point is that it was never even on the table.

You can see this also in the 700 billion bailout. $700 billion would stop a LOT of home foreclosures, which is what caused the problem. But it was never considered to give this money to citizens, to directly benefit the American people. The only lever our politicians consider pulling is dumping money on companies that have proven their irresponsibility and hoping that it trickles down.

That's absurd.

Well, that was sickening.

I had to get my car worked on this morning. And OF COURSE the television was on in the waiting room, and it was on the news, talking about the economic crisis with some so-called experts.

If ever I have wanted to hit the button that blows up the world because it's a lost freakin' cause...

Honestly, it was truly sickening. It made me want to hurt someone. Some highlights:
1) We shouldn't raise taxes on rich people because they don't like it. *jaw, meet floor. Floor, jaw. You two are going to be muchly acquainted.*
2) Besides, the rich people will cheat out of it anyway. (Um, isn't this like saying we shouldn't make serial killing illegal, since most serial killers are smart enough that they never get caught?)
3) Instead, we should take money away from the working classes and give it to the rich. This, somehow, will solve everything and there will be rainbows and unicorns and little kittens who never scratch or poop.

You know, I can't help but think that if we had econ 101 classes in middle school instead of college, our public policy discussions would look completely different. The only reason some of this bullshit is even allowed in polite discourse is because most people don't understand how money actually works -- and as evidence towards that, I present the percentage of non-regular readers who read that and went "Duh, don't you know how money works? You give some money to the store and they give you something in return."

That's one step out of hundreds or thousands, guys.

So, very briefly, how money works. Say, I've got a buck. I spend my dollar at my yarn store. I now have $1 worth of yarn and the yarn store lady now has a physical dollar bill. She spends that bill at the butcher's and gets $1 of meat.
That single dollar bill has now bought $2 worth of stuff. Butcher goes to buy something from the bakery, now it's bought $3 of stuff, and so on.

So, what happens if the baker puts it in the bank instead spending it? Now something interesting happens. The bank lends to someone else -- and suddenly that single physical dollar bill is two dollars -- one owned by the banker, and one simultaneously being used the borrower. This works as long as there is growth, so that the dollar the borrower spent returns more than a dollar, so they can return what they borrowed plus interest and hopefully keep something. However, if the borrower defaults, not so good things happen.

So, you can see that money on a large scale is a lot more complicated than a stack of bills.

Now, let's take a quick high-level look at so called "trickle down" economics versus bottom up approaches. At best, you can now see there's no advantage to giving the money to the rich. They won't be spending it, so they'll invest it and it'll get out that way. However, there are some problems with this.
1) It's a slower process than giving the money directly to the poor and working classes. The lower classes spend what they have; they have to. It immediately gets out flowing through the economy buying people food and electricity and houses and all that stuff people need. Give it to the rich, it has to go through the delay of going to the bank and getting lent and then the borrower spending it and so on.
2) Think about who borrows from banks. It's not people trying to meet their everyday needs -- those people don't get lent to. It's businesses and larger investors -- which can be small businesses and home buyers, but is OFTEN large corporations spending someone else's money so they don't put their own at risk, or the rich doing the same.
Furthermore, the richer you are, the more return you're going to demand for the money you invest -- which means the harder it will be for others to borrow it, and thus the more elite the borrowers will be.

What this amounts to is that money tends to move upwards. Oh, there will be little bits that temporarily go to the gardener or the maid or the burger flipper, but most of it moves upwards and stays there.

If you want a quick jolt to the economic system, you put money into the lowest levels. It circulates (and thus multiples) quickly there, improving the customer base which is required to be in place to support the larger business that money will eventually move into as it gets invested.
There is some decent argument for simultaneously injecting funds into the middle levels -- local business, that sort of thing -- so that they can be prepared for the growing consumer base coming from the low-level injection.

But there is no justification for taking money from the lower levels to put into the highest levels unless you are intentionally trying to crash 80% of the population, or you just don't care as long as you personally benefit. Unfortunately, look at who is in that last group: every corporation by definition, and thus the media that are corporate owned; and large chunks of our government.

It's *ALWAYS* the economy, stupid.

Dear Senator McCain,
Thank you for resolutely refusing to talk about, much less have a workable proposal to address, the biggest issue in this country right now, the one that is on just about everyone's lips. In all your much-vaunted years of experience, surely you've seen how often this one single issue wins or loses an election under normal circumstances. Here we are in terribly abnormal circumstances, possibly facing the worst economic disaster in 80 years, yet you refuse to talk about it unless your arm is absolutely twisted. Then you suggest the same policies that got us into this mess, funded by taking money away from the people who need it most. Then you try to divert to absolutely stupid shit.
By the way, thank you for your absolutely stupid shit, too. You've already got the insane bigot vote, after all. As for undecided voters, I have enough faith in my fellow citizens to think that "Obama is a terrorist" is the level of Big Lie that makes people go "WTF? That can't be right." And when they hear what the real deal is with that Ayers guy, you look like a fucking moron. You look like a half-senile dimwit who's grasping at the tiniest of straws because he doesn't have a leg to stand on. Which is what you are, so I appreciate your honesty.
Keep up the good work. You're giving me a glimmer of hope that there might be a chance for this country after all.
~Jinnayah

OK, this is really sad.

I saw gas for $3.98 a gallon, and I got excited. *shakes head*

So, people out there who are following the election: does any candidate support getting the Federal Reserve a flippin' clue? Earlier this week, they decided to leave the interest rate at 2%, but they're now putting back on the table the option of raising it later to combat inflation, because the economy is looking better.

*blinkblink*

Economy is looking better. Where do I start here?
1) I don't know anyone, including myself, who is doing as well now as they were a year ago. Most people I know, including myself, are doing noticeably worse than they were 3-6 months ago. I'm seeing a noticeable Not Improvement here.
2) One of the big problems is that the dollar exchange rate has been in the toilet for years. YEARS. What's one way to fix that? Raise the interest rates, thus making other countries want to invest in this one, thus making dollars more desirable in order to do so. (To put it in highly simplified terms, of course.)

As I touched on in February, I am very much getting to the point where I think "economic growth" is a euphemism for corporations pumping resources out of this country as quickly as possible for the benefit of a few. The more the economy "grows", the worse actual people seem to be doing.

An Economic Thought

And perhaps one that shows my ignorance on just what Ben Bernanke is thinking at any given time, but let me throw it out there nonetheless. And, BTW, forgive that this entry is very Ameri-centric.

Interest rates have been kept low for ages to "encourage economic growth." But, on the level of private citizens, the economy has been in the crapper for years, and now the word 'recession' is being bandied about.

Now, theoretically, high interest rates encourage saving, and low interest rates encourage borrowing and spending.

But, a private individual can only borrow so much before they've reached the point where they can't pay it back. Have we reached the point where we as a citizenry are tapped out, and lower interest rates are hurting the situation by giving us no way to build real assets?

Worse, have we reached a point where corporate and individual good are diametrically opposed. It is often to a corporation's benefit to borrow money, use it for development, and pay it back later rather than spend there own. This is especially true since bankruptcy laws are SO much more lenient for corporations than individuals. (Individuals can declare bankruptcy only once in a lifetime. Corporations can declare multiple times, with less obligation attached.)

But, individuals are rarely in a position where it's beneficial to borrow, spend, and pay back later.

Now, add on that many corporations are doing most of their investing overseas. In other words, the money they borrow here is not being spent here, and so is not enriching out economy as a whole. In that case, are lower interest rates actually hurting us by funneling resources out of our country faster?

After all, the last several years have proven that "business" can be doing well, while the population as a whole, the people, are doing very poorly.