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To Bail or not to Bail

by KRXA Hal 12/7/2008 - 2:54 pm   |

To bail or not to bail, that is the question,
whether tis nobler for Detroit to suffer
The slings and arrows of outrageously high unemployment
Or to guarantee huge loans against a sea of debt,
And by paying them off end them?

Certainly, we can set aside 15-30 billion dollars for GM & Chrysler and maybe even Ford to keep them going for another six months but to what end. There's simply no reason to believe that the Big Three will be able to compete in a super-competitive global market long-term given their cost structure. In the end, unless the environment for manufacturing in the US changes drastically, the domestic auto manufacturers will expire like our once mighty textile and electronics industries, toymakers, and virtually all US producers of plastic goods. If we're serious about protecting American carmakers and more importantly good American manufacturing jobs, here's what we should do immediately:

1) Provide universal health coverage for all Americans - this will immediately eliminate a very significant expense for domestic producers.
2) Impose on every vehicle manufactured overseas a surcharge that will make it possible for domestic producers to compete on price with comparable imported vehicles and still make a fair profit.
3) Use antitrust laws to break up the domestic manufacturers into their component marks, i.e., Chevrolet, Buick, Cadillac, Chrysler, Dodge, Ford, Mercury, etc. This will restore competition for the American consumer that would otherwise be lost by the imposition of tariffs.
4) Slap a $5 a gallon gas tax at the pump - this will stimulate the production of truly fuel-efficient vehicles that can compete anywhere in the world.

Politically, it may be impossible to pass legislation that will implement these recommendations. But, if you think about it, they are actually far less onerous and cheaper than the currently contemplated alternative which includes Congress monitoring every aspect of the domestic automotive business and ultimately the probable loss of whatever money we make available to a failing industry model.

The gas tax should certainly go up but not so far so fast and definitely not today. The last thing the economy needs right now is a stagflation shot. The other problem with gas taxes is that they've very regressive. Working class people who have to commute would get nailed, and they can't afford to go out and buy priuses. I'd rather see higher taxes on automobiles that don't meet stringent fuel standards. But again, not today with the auto industry already reeling.

And I offer a vehement "no way" on surcharges. Remember the Smoot-Hawley Tariff Act? Many blame it for the Great Depression. The problem is what I hereby dub the Law of Conservation of Tariffs: For every tariff there is an equal and opposite counter-tariff. Japan and Germany would not sit by idly while we tax their cars. The Big 3 might come out OK, but other export industries would suffer as trading partners retaliated.

by Genghis 12/7/2008 - 3:56 pm

I am sick and tired of people defending unacceptably low gas prices by invoking the poor who would be disproportionately harmed by a consumption tax.  This is one area where a sales tax is appropriate, no essential, because the consumption of gasoline is destroying our planet regardless of who is doing the consuming.  To the extent and it is great that higher gas prices will harm the poor and working classes, they will be equally helped by universal health coverage paid for by the state.

If you want to further alleviate burdens on the poor, let's make all education free and subsidize local agriculture.

But, we cannot afford cheap gas for anybody another day.

by KRXA Hal 12/7/2008 - 4:46 pm (re: Genghis)

I'm for a higher gas tax. I just say that it's got to be done gradually for humanitarian and economic reasons. Many working class people have health care benefits and so would not see a lot of cost savings from universal health care (not saying that we shouldn't do it, just that it wouldn't represent much cost saving to many people). Another thing to consider is that the cost of food would go up because of increased transportation costs.

It is critical that we act as quickly as possible to stop global warming; it's just not our only obligation.

by Genghis 12/7/2008 - 5:37 pm (re: KRXA Hal)

I'd rather support the construction of new efficient vehicles by tax credits, as Obama proposes, than to slap a heavy tax on gas.  One of several problems with the large gas tax is that it's incredibly regressive.  Maybe cities and towns should get federal support for creating mass transit infrastructure that decreases energy consumption.  I like the fact that your post takes the approach of connecting things not conventionally directly connected with this policy discussion to it, the question is simply which ancillary policy changes work and which don't.  I think it's a great discussion to have.

by Articleman 12/7/2008 - 4:24 pm

The imposition of a gax tax is the sole economically efficient way of dealing with the enormous external costs that burning gasoline imposes on our environment and will certainly stimulate the manufacture of fuel efficient vehicles. If you want to use the tax collections to build mass transit, I won't argue. But, the better solution is to incentivize, through high gas prices, the movement of people to cities where they can walk or bike to work. We should also subsidize the construction and maintenance of low-cost rental housing. See also my response to Genghis where I address his concern about the effects of a high gas tax on the rural poor and working class.

by KRXA Hal 12/7/2008 - 4:50 pm (re: Articleman)

You're suggesting that the gas tax be so high that people will migrate to the cities because they will only be able to afford to get to work by using public transportation? First, that's not an incentive to get people to move; that's a penalty to force them to do so. Second, the cities can't support a migration large enough to make a significant reduction in carbon emissions. Third, if it actually happened, the cities would become gigantic, overcrowded slums with the wealthy, who could afford the cost of gas, still living on the outside and driving in. That's not a workable plan.

by Orlando 12/9/2008 - 9:22 pm (re: KRXA Hal)

1. Agree.

2. Only impose a surcharge if that country is doing it to US cars.

3. The Big three have plenty of competition already. I don't think many individual components of any of them exist anymore, but they could sell off Hummer or Cadillac. If anything, all three should stop pointless rebadging. C/P/D is a joke of rebadging the same vehicle, and most Mercurys have become the women's version of Ford models.

4. While it is attractive to follow Europe's lead on fuel tax, you can't strand working class suburbanites after five decades of happy motoring without some alternatives. We should have raised the tax to keep fuel at $3/gallon, and slowly risen to European levels over the next decade.

by Donal 12/7/2008 - 4:31 pm

2.    I don't get the "we'll do it to them if they do it to us" argument. It is irrelevant whether Malaysia is imposing tariffs on American goods. The cost of manufacturing in Malaysia is so much cheaper, due to $1 an hour salaries, no effective environmental or OSHA standards,no unions, and government provided healthcare, that American producers cannot compete effectively in Malaysia regardless of how efficient we are. To protect American jobs, we must raise the cost of goods produced in other countries and reduce the cost of manufacturing in America - where doing so will not harm workers.

3.   Exactly why we need to bust 'em up.  There isn't real competition.

4.   Don't you people get it?  Our planet is rapidly dying because of cheap gasoline.  Do you want to save our mother or do you want to whine and moan about the poor suburbanites?

by KRXA Hal 12/7/2008 - 4:56 pm (re: Donal)

Drop the attitude if you want a serious discussion.

by Donal 12/7/2008 - 5:35 pm (re: KRXA Hal)

Donal - I hear you.  I acknowledge that I get a little worked up on environmental issues - well all issues - and I will strive to adopt a more respectful tone.  But . . . I stand by my apocalyptic language.  I am completely convinced that we are embarked on a course that is rendering the earth incapable of sustaining complex organisms by at the latest mid-century if we do not immediately and drastically cut back on the consumption of carbon- based fuels.

by KRXA Hal 12/7/2008 - 6:02 pm (re: Donal)

Further to Donal's point, as someone who views green issues as incredibly important, I do think there's plenty of room to discuss the amount and gradation and mechanisms for implementing of gas taxes -- why not a mileage tax collected annually on odometers as prima facie evidence of gas used, with a multiplier reflecting the vehicle's fuel efficiency? 

I disagree that you're going to get people moving into mass transit driven cities by massive gas taxes.  You'll just anger enough people to elect Drill Baby Drill next time out. 

I do think it's weird that gas is $1.60 around here right now.  I do think it would be better if the price drop were being recycled into infrastructure and conservation spending.  Because of the wide open spaces of the West, your tax would hit people between Chicago and the West Coast most heavily, suburbanites more in general, yes, but Westerners a ton.  Not sure why taxing the intermountain West to death is preferable to a progressive mileage tax on all Americans.  It wouldn't be that hard to implement and avoids the easiest criticisms. 

The point in part is to marginally burden "excess" consumption, so why not rate the states, and cars, to create personalized taxes based on annual reporting of one's miles driven?  While subsidizing hybrids, and yes, I drive one.

by Articleman 12/7/2008 - 6:14 pm (re: KRXA Hal)

A - For me the point is not to "marginally burden "excess" consumption[.] It is to incorporate into the price of a gallon of gas the "true" cost of that gallon - not just the costs that the producer-refiner-distributer can't externalize. Burning gas, coal, diesel fuel, jet fuel, wood, and all carbon-based fuels imposes massive costs on all of us. Those costs should be reflected in the price of the fuel paid by the consumer. If the consumer whether an individual, a company, or a government is willing to pay a price = to the true marginal cost of the fuel then it is in society's interest for them to do so.

One of the problems with a progressive mileage tax is that - unless you add layers of complexity - it doesn't reward users of fuel-efficient vehicles.

by KRXA Hal 12/7/2008 - 6:38 pm (re: Articleman)

These approaches aren't mutually exclusive. We could raise gas taxes, tax mileage, subsidize fuel efficient cars, and tax inefficient cars. In reality, I think that taxing mileage would be difficult to implement reliably--a new whole bureaucracy for reporting would have to be set up, and odometers and people could be be manipulated--but we're playing in the land of fiat in any case.

But the impact of such changes still needs to be taken into account. You could outlaw cars entirely and save the planet but destroy the lives of millions. The question is how much interference is acceptable. Leaving aside political considerations, I think that it's OK for changes to make people uncomfortable but not to force them into poverty. Therefore, changes would need to be implemented in such a way that the economy and individuals could absorb the shock but still pressure people to change their driving habits and automobile purchases.

by Genghis 12/7/2008 - 7:11 pm (re: KRXA Hal)

Well, we may have gone pretty far with this but I'll go a little further.  I agree with Genghis that we must alleviate the negative effects of very high new taxes on fuel.  I would do this based on each individual's needs not on how much fuel they consume.  We should make food stamps available to all Americans who fall below a certain income level.  We should provide housing assistance based on a needs test to all Americans.  There should be universal health coverage.  The goals are both to ensure that nobody goes hungry, homeless, or without medical treatment while taking extreme action to reduce drastically the use of all carbon-based fuels.

by KRXA Hal 12/7/2008 - 7:20 pm (re: Genghis)

while i appreciate the creativity of the ideas, i'm not a fan of any of these suggestions, except for no. 1. the benefits of universal health care would certainly help make U.S. carmakers' cost structure more competitive. and the benefits would extend far beyond the Rust Belt. There's plenty of complexity with such a plan and a lot of costs, but i think a country as wealthy as ours should make universal health a priority, and if it helps the automakers, then great.

2 is way too protectionist for my tastes. if we can't compete in manufacturing automobiles because the labor cost structure is too high here, then that is the price of globalization (from which we derive MANY benefits), and we should focus on industries where we can add value. beggar thy neighbors NEVER work. not saying we shouldnt insist on fair trade and reasonable labor and environmental protections from our trade partners, but we can't go back in time and pretend that the low-cost Asian labor markets don't exist.

3. this makes very little sense to me. needs to be MORE consolidation in the U.S. auto industry, not the other way around.

4. you're getting into some very gray areas when you suggest that the costs of our energy consumption far outweigh the current price of the commodity and need to be factored in our energy tax policies.  i agree with you that ideally gas consumption would be taxed more like liquor or cigarettes, given the comparable negative effects and long-term costs on society, but there are plenty of smart, rational people who do not see it the same way.

not to mention, a big gas tax increase is totally infeasible for reasons genghis has already stated. It'd be political suicide, plain and simple. I'd much rather see a worldwide carbon cap and trade program implemented, which could generate some serious tax revenues and do more to help the environment than a punishing gas tax in this country would do.

by Deadman 12/7/2008 - 9:17 pm

Here are my responses to Deadman's points:

 

2)   The cost of globalization is way too f'ing high.  We should give up on globalization since a disproportionate amount of its benefits flow to a few and its costs are spread among the many.  Think globally baby, but act locally.  BTW - our neighbors are beggared.  Life sucks in the third world for most people.  What studies have shown is that some places and some people have benefited greatly from globalization while others have seen their incomes stagnate or ebb.  Quite simply, why can't we reach back in time to sensible trade policies that meant a higher standard of living for most Americans.

3)   Small is beautiful.  Small companies are more nimble and more able to specialize and thereby take advantage of niche markets - like hyper economy vehicles.  The Big Three succeeded in squeezing everybody else out through aggressive marketing, buying out rivals, predatory pricing, and exclusive contracts with suppliers - not by producing the best cars.

4)   There can be no legitimate dispute that the true cost of a gallon of gas is many times greater than the under $2 that we currently pay at the pump in most of the country.  Those who disagree are neither smart nor rational.  The best way to reduce the consumption of any good is to raise its price.  I am a capitalist and I believe and love the elegance of the supply and demand curves.   If you raise the price of a  good - through a tax, the demand at any given price - set by the producer - will drop.  Moreover, by raising the price of gasoline through taxes, we will be providing a huge boost to green energy entrepeneurs who will have a far higher price ceiling.

by KRXA Hal 12/7/2008 - 11:33 pm (re: Deadman)

tell the millions of people in taiwan and s. korea and china who have seen their incomes and standards of living increase immensely because of world trade and globalization that the costs are way too high. obviously, there are winners and losers and clearly blue collar/factory laborers probably have been slight negative losers (but America likely has been an aggregate winner - i'd much rather deploy our resources as efficiently as possible and THEN try to correct any resulting wealth imbalances then to erect aribitrary barriers to sustain dying industries)

small is beautiful in some things for sure but in car manufacturing?? seems to me like scale is much more valuable that flexibility.  there's a reason you haven't seen upstart companies challenge the incumbeents like you have in the airline industry - the cost of entry to play is just too high.

your gas tax proposal is the farthest thing from capitalistic. you're advocating government intervention to pursue non-market-based goals, which is fine as far as it goes since it's done everyday in a million different ways, but rarely as dramatically as you suggest.

you assume you can somehow figure out the true cost of a gallon of gas - if you truly believe our current consumption is going to result in the destruction of the planet and that that impact should be included in the price at the pump, then you could probably justify unlimited taxes. obviously, everyone in this country would stop driving and oil consumption would plummet. So would a large portion of the nation's economic activity (at least until an alternative green solution could be brought to market). Yet not much would change with oil consumption throughout the rest of the world and from a practical standpoint you probably wouldn't have accomplished much.

Again, a much better solution would be to incentivize alternative energy investments through direct funding and subsidies. still can run into problems with misdirected investments such as our disastrous corn-based ethanol subsidies, but even poorly allocated investments would have a much smaller economic impact than a huge increase in gas taxes.

 

by Deadman 12/8/2008 - 12:57 am (re: KRXA Hal)

btw, i love that we have two Hamlet-inspired posts this week!

by Deadman 12/7/2008 - 9:18 pm

Deadman - I believe I owe you a debt for the Hamlet reference. Before I started this thread, I read your earlier blog entry which obviously subliminally put into my mind the "To bail or not to bail" line.

by KRXA Hal 12/7/2008 - 11:15 pm (re: Deadman)

Hey Hal, buddy.... two out of four ain't bad.   Your timing stinks on #4.

by Billy Sunshine (not verified) 12/8/2008 - 12:56 am

the $5 a gallon tax will never happen it is political suicide the more you harp on it the more insane you sound and it turns reasonable people off to other solutions.

 

Mar3ie

by mar3ie 12/9/2008 - 8:46 pm

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