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November 15, 2008

Comments

Thanks for this hilzoy.

Your patient, thoughtful, and thorough rebuttal makes it possible for me to say, "Yeah, what she said!", and helps relieve me of the need to go find Wilkinson and punch him in the nose. Or, in his absence, find some furniture to kick.

It may sound like I'm making a joke, but I'm not. There is some humor there, but also truth. I found this post really helpful.

So, thank you.

I thought this was a fantastic post -- far far better than mine. Frankly, my temper got the best of me last night -- and i've wondered today whether I went a bit far. But it really rubbed me the wrong way -- not merely the cavalier disregard for the human suffering from someone whose life couldn't be more removed. But the idea that worrying about these people is the silly uninformed view of people who lack economic literacy.

But anyway, you've nailed the key point which is this -- a *general* defense of market economies does not ipso facto justify doing nothing in *this* particular instance.

as you say, no "serious" liberal pundit, blogger or economist believes in a planned economy. We're all Friedmans now. As such, these general arguments are not only unnecessary, they are irrelevant. There are, as hilzoy notes, market excpetions and other areas where intervention makes sense. *Thats* what we're arguing about -- not whether to seize the means of production.

If our goal over the next few years is a new theoretical and political justification of progressivism, then hilzoy's point should be echoed far and wide. Progressivism isn't about replacing market economies, it's a disagreement about what to do with exceptions and individual failures.

Great post.

When I read Bush's recent statement of defence of free-market capitalism I had the same thought : who is he arguing with? Is it possible that he and a bunch of other conservatives live in such a cocoon that they think socialism is still a real and present danger? Well I guess the anti-Obama campaign answers my question for me.

Now that each of you have praised each other for a thoughtful post; I have but one question for you - why can't you accept these peoples arguments at face value. Don't ascribe feelings that you think they should have. Libertarians believe in unfettered capitalism with no or little rules. Their ideal world was what occurred prior to the great crash in 1929. Everything that has happened since then is what they have been working to undo ever since. They have never supported Social Security, or anyother safety net programs that have been enacted since that time. They almost succeeded in de-regulating everything that matters to them. Their ideal world was the 'gilded age'; when they were the very few super rich and the masses of workers working 14 hours a day, seven days in a week for chump change. There were no safety net programs unless you take into account private charities. The don't care about the laboring masses. They have never cared. They hate Unions. They hate Social Security. They hate all safety net programs.

They are 'social darwinists'. The fittest are the rich; the unfit are the poor. They could care less how the unfit are weaned out of society as a whole.

These people could care less what you think of them.

Here! Here! He's arguing against me! Wilkinson is arguing against me! I'm a cybernetic socialist: every morning I wake up and think to myself *giant computers calculating indifference curves* can do a lot better job of determining for people what they want than their own irrational faculties of volition! Us cybernetic socialists, we're a tiny minority. But we're a big threat. I bide my time. I'm waiting for the next South American dictator with crackpot schemes to snap me up and put me in charge. And then I'm going to wire huge server farms that calculate who gets the bread and who makes the bread. Cities of servers tucked away in mountains, maximizing your utility across thousands of variables you've never considered! Heat blooms you'll be able to see from the moon!

hilzoy,

This is a terrific post.

It's too bad that when Wilkinson studied philosophy he didn't have you as a teacher.

"These people could care less what you think of them."

Who are "these people"? Will Wilkinson is one guy.

"I wake up and think to myself *giant computers calculating indifference curves* can do a lot better job of determining for people what they want than their own irrational faculties of volition!"

I think you should use a difference engine to calculate indifference curves, just because that sounds swell to me.

Oh, and just put it on the moon, and name it "Mike." Everyone's happy!

To be fair, not having to analyze everything is kind of the purpose of principles. If they're good you can expect reasonably good results with a minimum of time wasted on debating the details of each situation. From that point of view, the burden is on bailout proponents to give a really good reason why a) it's worth even debating, and b) why it makes more sense than not doing so.

Not to defend Wilkinson too much. It's a pretty mindless, condescending post. All the more so coming from someone who is essentially a paid entertainer. But if such a person can end up being right with so little effort, then that's worth something.

I assume they don't actually believe this -- e.g., that most of them do not favor abolishing all food safety requirements -- but they sometimes write as though they do. I assume it's just a habit that conservatism got into back when such arguments needed to be made. But it's a bad habit nonetheless.

I'm not sure that they're really that sensible. I think that extremist, dogmatic thinking is a real danger of argument by sound bite. The average follower doesn't realize that the sound bite is just a short stand in for a longer, more nuanced argument, or at least they never bother to learn all of the nuance. The result is that followers are often more radical than their leaders.

Till it gets mad and starts throwing rocks, anyway.

I find the arguments for free markets as ideology odd. For example, the late nineteenth century was supposedly the era of laissez faire, but the protective tariff was an essential element of the political program for the northern metropole.

But really, how can there be pure free markets? Corporations only exist by the grant of a legal right by the state. No state, no corporation. Yet corporations serve to provide centralized control along with the accumulation of capital from many persons placed under that control. Some people benefit from this arrangement more than others. Should we do away with corporations because we have religious faith in "free" markets? I suspect that few of us would agree to do this, and even fewer of the economic right wing.

But even if you allow a corporation to exist, its rights are politically determined. Originally, corporations were limited to narrowly defined purposes. And, they could not purchase shares in other corporations. Later, this changed so that there could be mergers and holding companies. These are dependent on the law, not nature.

If you allow mergers and holding companies, you sanction oligopoly. Sprint merges with Nextel, Cingular with ATT. It leads to fewer major players, and thus lessened competition. Oligopoly is the norm, and it depends on political rules. And it favors some people who are well positioned, and disfavors many others. Oligopoly increases the chances for profits.

Extend this logic far enough, and we can justify a welfare state. After all, fairness is that if some rules favor some people, other rules to compensate for resulting inequality can be justified. The appropriate extent of the welfare state depends on pragmatism.

Markets create wealth. And they create inequality. And their particular shape ALWAYS depends in part on politically-made rules.

The myth of natural markets might work in a purported state of nature when that exchange is between two individuals who know each other. But when there is instead impersonal exchange, such as on stock markets, rules enforced by government become crucial. This even applies in cases where we pay with credit cards. The storekeeper does not know us personally, and does not need to. It is enough that our credit card establishes our bonifides. And that is because of rules regarding fraud that usually serve to protect parties to the trade. And these are also structured by politics.

Having said that, Hilzoy's point about pragmatism in advocating markets where possible, with oversight, is eminently sensible. In academia, few actually believe markets are natural. Now it must be our task to hammer that home to the general public, and to beat this like a hammer over the heads of arrogant non-thinkers like Wilkinson.

This element of education must become part of the the Obama reconstruction of American politics.


Corporations only exist by the grant of a legal right by the state. No state, no corporation.

You just haven't fallen far enough into the realm of crazy. A corporation is just a free association of individuals under their own self-defined rules. The only reason that they need state sanction is because they state is freeing the officers from some legal liability that they'd otherwise be subject to. That legal liability is an invention of the state in the first place- no state means no laws under which the officers can be held liable in the first place- so corporations should be seen as nothing but a crude attempt to return things to the natural free market order. You just have to turn everything on its head and it all makes sense- at least to the sufficiently deranged mind.

From that point of view, the burden is on bailout proponents to give a really good reason why a) it's worth even debating, and b) why it makes more sense than not doing so.

Because if we don't do anything at all and GM goes belly up, with nothing in place to handle the fallout, hundreds of thousands to millions of people may be up the creek without a paddle.

If that doesn't get your attention I'm not sure it's worth discussing.

I find the arguments for free markets as ideology odd.

I'd like to make the modest proposal that the "free market" in the theoretical economic sense does not exist. It's a freaking Wampus cat. It's a will o' the wisp.

More specifically, it's an ideal model of human economic behavior that makes that behavior tractable for purposes of theoretical analysis by assuming a number of conditions that don't actually exist.

Ever hear the one about the mathematician stranded on the desert island with a case of canned beans? His solution to avoid starving: "Assume we have a can opener...".

Ha ha ha!! Get it?

The free market is kind of like that.

American auto manufacturing is going to go belly up unless we intervene in some way. The question is what the best version of "in some way" is.

Cato Institute white papers to the side, I sincerely hope that doing nothing and watching the whole freaking industry sink into the quicksand is not considered to be one of the serious options.

Thanks -

Hilzoy: "we ought to bail them out in some way that causes the people responsible for their predicament sufficient pain to avoid moral hazard."

yeah, firing squads.

for bloated executive salaries and bonuses.

for over-generous stock benefits.

for poorly designed and engineered cars.

for inflated union wages and benefits.

march em out, line em up... ready... aim... fire!!!

so, then what? we pour a couple of hundred billion dollars into another bottomless pit? what will we have to show for that? another generation of undistinguished gas guzzlers belching emissions, and the auto industry drowning in more red ink?

More specifically, it's an ideal model of human economic behavior that makes that behavior tractable for purposes of theoretical analysis by assuming a number of conditions that don't actually exist.

An analogy I rather like is: A free market is like a frictionless bearing; it's often a useful zero order approximation, but if you design a nontrivial engine based on the idea that you have frictionless bearings you will be in for a lot of hurt. (Also, spending all your discretionary budget making the bearings nearly frictionless is not necessarily the way to get the maximum output/longevity out of the engine at constant budget).

he took the invocation of a piece of economic dogma as sufficient to make his case..
But exactly. What Master Logician Farber has taught us to call ‘argument by assertion’. Hey, he’s a blogger; he’s got blogger’s metastisizing ego, in which the sound of his own voice pleases him so much it can only be right.
This is the natural order of things. Practice it frequently myself.
However Wilkinson lacks the reflective capacity to see he is in fact engaged in a purely narcissistic enterprise, and his perception of a natural order is a product of circular reasoning: It’s what I think and like to think; therefore, it must be right (and true, and Natural). Q.E.D.

The boy, judging by his bhtv appearances, has an agile, quick mind. It’s a fair guess it’s led him to an assumption of his own natural rightness: I (WW) think, therefore what I think is.

His blatant (but not to him) flaw is elaborate superficiality. His forces have retreated from difficult, focused thought.

But honestly, he’s looking a little peakéd lately. Maybe he’s hoping if he waves his arms really hard he’ll fly away from whatever it is troubling him. His piece might be taken as evidence if he has to be committed. Our hearts go out to him and his loved ones.


Beyond all that we’re grateful to him for provoking hilzoy’s splendid piece. Second publius’ hope this piece will gain wide currency.
Thanks, hilzoy.

One thing to keep in mind in all of this is FAS 106. That's the accounting change that took effect in 1993 that allowed companies to avoid recognizing underfunded pension plans. If you combine that with the assumptions about returns on plan assets that they used during the 1990s, which were based on the idea that the stock market would go up forever, you see where the huge holes developed. The Big Three paid out dividends that should have gone into the pension plan.

Roger Moore:

To call and idea loopy doesn't make it so.

You are adopting what is known as the partnership theory of the corporation: that the corporation merely reduces to partners. You also assume liability is the only purpose for a corporation.

There are problems with both of these. The first was adopted by the Victor Morawetz, a legal scholar whose treatise first appeared in 1882. His view did not last long. It did not explain the changes in state laws, nor in legal doctrine, that occurred in the years that followed. Morton Horwitz notes, for example, that if the then current theory of liability depended on the state of mind of the actor. But how could state of mind reduce to the shareholders when a corporation was liable (or for that matter, when it made a contract)?
More recently, some economists have portrayed the corporation as reducing to its shareholders. This is called the "nexus of contracts" theory of the corporation. Makes some sense for abstract rational choice economists. It is in effect an economic theory based on free market ideology. It it is elides state laws that allocate property rights.

If state law did not matter, how come there how come corporations could not engage in just any business they wanted to? Until state law changed at the end of the nineteenth century?

I would argue that limited liability is merely one aspect of rules shaping the corporation. Rules regarding purposes, mergers, internal organization, minority shareholder voting rights, etc., changed corporate attributes over time. But even if that were the case, it is still politically determined. Limited liability is not natural. Rather, in the nineteenth century some states had double liability, some had much more. It changed over time.

I agree with Ken Lovell up above. I had the exact same experience. I was listening to Bush launch into a full throated defense of capitalism and "free markets" at the big meeting yesterday and I, too, thought "ok, so what is the market solution, then?"

Its not enough to wordily proclaim that "the market" finds a solution that grinds up the little people but ultimately brings wealth and prosperity to more at some later date. The market is in crisis, even its own cheerleaders say so, so what is their "market" solution? apparently, their market solution is to *force investment* by unwilling investors--i.e. taxpayers--with no transparency, no stakeholding, no return on value. I don't care about assigning good motives, or even intelligence, to these people. They are not arguing in good faith. The market solution doesn't just make christmas a little grim for auto workers. The market solution would have crushed bankers, tom friedman, and really rich people because those people were massively over leveraged and bet our money and theirs on the wrong stuff.

This whole thing reminds me of the old joke--I suppose everything reminds me of that--the one where a man offers a woman a million dollars to sleep with him. After she considers and says yes he offers her one dollar and she says "what do you take me for" and he says "we've already established that...now we are just negotiating price." The "markets" and the "capitalists" and the libertarians have already come, cap in hand, to beg the taxpayers to be new, unwitting, investors in their schemes. Its capitalism for thee and not for me, free markets for the auto-workers who are considered somehow to have made a bad bargain working for benefits and salary all these years and nationalization of risk for bankers.

aimai

Roger Moore,
this:

Corporations only exist by the grant of a legal right by the state. No state, no corporation.

You just haven't fallen far enough into the realm of crazy. A corporation is just a free association of individuals under their own self-defined rules. The only reason that they need state sanction is because they state is freeing the officers from some legal liability that they'd otherwise be subject to. That legal liability is an invention of the state in the first place- no state means no laws under which the officers can be held liable in the first place- so corporations should be seen as nothing but a crude attempt to return things to the natural free market order. You just have to turn everything on its head and it all makes sense- at least to the sufficiently deranged mind.


Is, of course, perfectly and exactly incorrect. A corporation doesn't in any way begin as a free association and its only function is not to protect the owners from full liability. A corporation can enter into all kinds of legal agreements that a mere association of individuals can not and entering into those legal agreements enables the corporation to sue and be sued and to demand protection from the state. Without those rights, tied directly to state recognition, a corporation that was a "free association" of individuals not operating under state law would be...hm...the mafia? a narco-trafficking cartel? Legal recognition of the corporation and its activities is required for the corporation to function. Liability of the owners/members is just part of what make corporations functional.

aimai

what bothers me about Will Wilkinson's argument is not exactly its callousness so much as the sense I have that he is arguing with people who do not exist.

Really? Publius' creed is that "government is good". As long as people like Publius are making such arguments, we need people like Wilkinson to push back.

Furthermore, to me Publius is less humane than Wilkinson because his belief that "government is good" leads him to favor squandering precious resources in support of misguided policies that ultimately lead to greater human suffering.

As long as people like Publius are making such arguments, we need people like Wilkinson to push back.

I would say that your causality is a bit off. Because people have been making arguments about the moral requirements of unfettered markets (and make no mistake, many of the arguments are moral), progressives have to make the argument that government is good. If people like Wilkinson could try to move to some middle ground acknowledging that government is necessary, Publius and others wouldn't have to make that argument. Unfortunately, when you argue with people who seek to define things in black and white terms, nuance is taken as weakness.

Damn you publius for taking seriously the notion that

"government of the people, by the people, for the people, shall not perish from the earth."

Despite delusions to the contrary, fostered by an imprecise grasp of how states and markets work, there is no free market and "preciosu resources" without government and law to guarantee the notion of ownership. And governments and regulation and laws don't exist without some form of taxation. And with taxation comes some obligation on the part of government to respect the interests of citizens in how their taxes are spent. And those interests, despite yelps to the contrary, are not wholly determined by what is good for big business but rather what is good for citizens who, with their citizenship, freely enter into a compact with their own government. The compact is that they will pay taxes and have their interests protected from rapacious enemies abroad and domestic. How hard is that to grasp?

Greater human suffering? We are going to see great human suffering very shortly and there is nothing that the old solutions can offer us to fix it--and nothing that these hybrid solutions, bastard children of ayn rand and teapot dome, can do to stop it. If you treat vast portions of your citizenry as disposable, don't be surprised if they treat their political leaders the same way.

aimai

If people like Wilkinson could try to move to some middle ground acknowledging that government is necessary

Libertarians aren't anarchists. The libertarian position is that government should be as small as possible, not that it isn't necessary.

For instance, there is a market mechanism for dealing with the problem of melamine contamination of milk in China: some kids die, people stop buying milk, eventually, I imagine, someone will come up with a way of letting people distinguish between tainted and untainted milk; in the meantime, creative destruction will sweep up the just and the unjust alike.

Umm, no. Free markets require rules against fraud. (The basic tenant of the free market is that you get what you pay for.) The market solution is the either prospective (inspections) or remedial (prosecutions).

So this is a straw man, and not a reply to Wilkinson's argument.

In Wilkinson's piece, this bad habit shows up as an assumption that people who support the bailout need a lecture on the general virtues of the free market, and on why the fact that some business goes under is not, in general, an argument that the state should have intervened.

There's an equally bad habit in Wilkinson's opponents to not consider what the term "free market" really means, or to ignore the fact that markets require rules.

As I understand it, Publius and your response to Wilkinson is: See Cohn. If Cohn's analysis is correct and his predictions are more likely than not to come to pass, then benefits of a bailout exceeds their considerable costs.

There's nothing wrong with this position. I am an agnostic on whether GM (et al.) should be bailed out. But it makes the rest of your (and Publius') response to Wilkinson irrelevant. It comes down to a debate between Cohn and Wilkinson.

As a non-American, I have had the luxury of looking down on your antiquated auto industry for years while enjoying far superior Japanese and German vehicles. I know that the American industry is going to get a huge bailout as a reward for imposing the shoddy SUV standard on everybody.

My question is, now that you all have discovered socialism and nationalization as a remedy for uncompetitive industries, how are you going to force people to buy the ugly obsolete hulks your new national industries are going to produce?

There's an equally bad habit in Wilkinson's opponents to not consider what the term "free market" really means, or to ignore the fact that markets require rules.

It seems like publius isn't the one confused about the definition here. A market which requires rules is, by definition, not a free market. As soon as the state establishes interference in the form of regulations, taxes, subsidies, ect, it is no longer a free market.

Exactly right. :o)

"Because people have been making arguments about the moral requirements of unfettered markets (and make no mistake, many of the arguments are moral), progressives have to make the argument that government is good."

I think I've said this before, but I'll say it again, but it seems clear to me that government is inherently neither good nor bad. It depends what kind of government one is talking about. Government can be bad: Nazi Germany, Stalinist Soviet Union, Maoist China, to be obvious. Or it can be good: the two Roosevelts, George Washington, say.

Whether a government is good or bad seems clearly, to me, to depend on what it does. It can be either good or bad.

It seems to me that progressives should argue forcefully that government can be used for good, and then should demonstrate it in practice.

Government, ideally, in my view, should represent the better impulses and nature of the people, be transparent, minimally corrupt, and representative, and do what other mechanisms of society cannot do to strengthen the health of the society, provide for a growing economy, provide support for the weak, a fair opportunity for all to succeed, and help for those who need it.

To argue that government is somehow inherently good -- or bad -- no matter what, strikes me as madness, but maybe that's just me.

"The basic tenant of the free market is that you get what you pay for."

Or tenet, even. Though I suppose living there is okay. No rent-seeking, though!

"There's an equally bad habit in Wilkinson's opponents to not consider what the term 'free market' really means, or to ignore the fact that markets require rules."

Just as "judicial activism" generally means "judgifyin' I don't like" (credit to Scott Lemieux), it seems that "free market" now means "economy regulated how I want."

Free markets require rules against fraud. (The basic tenant of the free market is that you get what you pay for.) The market solution is the either prospective (inspections) or remedial (prosecutions).

So this is a straw man, and not a reply to Wilkinson's argument.

Where actual fraud is involved you're right. But there are plenty of other areas where the free-market fundies oppose even the most common-sense regulation. There is no shortage of screeds against safety regulations, or zoning, or environmental rules, or what-have-you, on the Internet.

von: "As I understand it, Publius and your response to Wilkinson is: See Cohn."

Not me. My take on Cohn is in the following terms: "I have no idea whether Cohn's arguments are right, though he's generally very trustworthy. However, he claims (...) If so, the case for intervention is a lot stronger (...)"

I don't actually take a position on the bailout in this post. What I do take a position on is: arguments that purport to show that the bailout is bad simply by noting some very general fact about free markets, e.g. that they have losers as well as winners but are generally better than alternatives overall, rather than considering the specifics of the case.

From Creamy Goodness:

Libertarians aren't anarchists. The libertarian position is that government should be as small as possible, not that it isn't necessary.

Unfortunately for libertarians, "possible" is in the eye of the beholder. If they want to have currency in the political debate, I'd suggest libertarians focus on defining down "possible" in specific, meaningful ways rather than continually spouting this ill-defined platitude.

Creamy Goodness:

"Libertarians aren't anarchists. The libertarian position is that government should be as small as possible, not that it isn't necessary."

I would say that the libertarian position is that government should be smaller than it is at any one time, no matter how small it is. If the government spent two dollars annually, there would still be a libertarian in his cups at the end of the bar arguing that's twice as much as he is willing to spend (hiccup).

Maybe, government IS in fact as small as POSSIBLE right now.

Hilzoy: Fine, fine post, as was Publius'. And I appreciated Publius' anger.

One triviality from my point of view. Hilzoy's asks whether anyone's arguing that the airlines should be regulated, assuming maybe that no one is.

I'll argue that. Actually, I'll assert that point for now, given time limitations.

Except for this: Let me get this straight. The reason I don't have more knee room and need to make do with 12 salty peanuts and a $6.00 beer and baggage carry-on fees is because the market has decided I need to put up with this stuff.

The market can fall out the emergency door sans parachute, for all I care.

That said, I would tolerate the Big Three going out of business, along with the ripple effects (suppliers, dealers ---- one in ten jobs is related to the auto industry) IF we had the government safety net in place (OCSteve, my socialist pal, suggested nationalized health care in the other thread) to absorb those losses for as long as required, including the lifetimes of some of the workers.

But since we have been prevented, for ideological reasons, from doing this over the past 37 years, we need to keep those people in their jobs.

Wilkenson's ideological slip is showing. He wants these people armed to the teeth, comporting with free-market, libertarian, Second Amendment principles, AND he wants them to lose their jobs for the greater ideological good.

What a load of happy talk.

"If they want to have currency in the political debate, I'd suggest libertarians focus on defining down 'possible' in specific, meaningful ways rather than continually spouting this ill-defined platitude."

Most are quite capable of stating their specific opinions when asked. Criticizing people with a generality for allegedly only engaging in generalities may not be the best approach.

One can just as easily, and usefully, claim that any given category of political beings shouldn't just utter platitudes. This would be uncontroversial, but not particularly helpful. No class of political thought lacks for platitudes, after all.

More useful might be criticizing specific people for specific things they say, rather than criticizing platitudes with a platitude.

Me, I don't think many people get many useful lessons from general critiques addressed to "liberals," or "progressives," or "conservaties," or "libertarians," or what have you, what with most people not identifying with the Entire Body Of Generic Thought on a given topic. But that's me.

(Corallary: few statements addressed to "you people" are of much value.)

Corallary: few statements addressed to "you people" are of much value.

I hate it when you people say that.

Oh, and "Corollary". 8p

"I would say that the libertarian position is that government should be smaller than it is at any one time, no matter how small it is. If the government spent two dollars annually, there would still be a libertarian in his cups at the end of the bar arguing that's twice as much as he is willing to spend (hiccup)."

I don't think there's anything more wrong with that than any progressive thinking that at any given time, government should be more fair, more helpful, or more generous. Ideals are ideals. There's always a need for idealists.

"The reason I don't have more knee room and need to make do with 12 salty peanuts and a $6.00 beer and baggage carry-on fees is because the market has decided I need to put up with this stuff."

I'm reasonably sure few, if any, airlines prevent one carrying on whatever food and beverages one likes. You can also pay for better seating and service, if you like, on most airlines. Why should everyone have to pay for more expensive tickets if they don't prefer to fork out for Business/First class, John? I'm unaware there's a right to All First-Class seating.

That airline service is frequently aggravating in many ways these days is another question, but that may be due more to more people wanting to fly than the infrastructure can presently handle. But paying for better options is usually an option. What's clear is that it's not "the market" preventing you in most cases from forking over for the more expensive option, and since when is having to pay more for better service unusual?

Free markets require rules against fraud.

Great. Now you just have to define "fraud" in sufficient detail. If you don't look out, it will start looking a lot like government regulation.

John: I spoke too broadly. I'm sure there's at least one additional safety regulation I'd like to see put on airlines, for instance, and while I know absolutely nothing about it, I'd be interested to find out whether there would be some way of making airlines have more of an incentive to have planes on time, or at least not cancelled entirely.

That said, I'm fine with letting them compete on comfort, snacks, etc. Leg room is, I think, one of the great sacrifices of deregulation: back in the olden days, which I oddly enough remember, all airlines could really compete on was food quality, enticing stewardesses, and comfort. So it was really comfy. Now, they get to compete on price. I have to assume that people who would be willing to pay the old prices, if sufficiently numerous, could alter airline behavior (either that or fly business class, which basically is the old system, as far as price and comfort are concerned.)

Personally, I still choose to fly coach, being cheap. (Though I just figured out, to my absolute delight, that next time I fly to Pakistan, frequent flyer miles will allow an upgrade to business class for the Atlanta-Dubai leg and back. Yay!) I like having the choice.

Surely, Gary, there is a penumbra somewhere in the Constitution and the Bill of Rights giving you a right to "enticing stewardesses", as Hilzoy mentioned.

I always seem to get into trouble when I entice stewardesses.

Just a data point.

Free markets require rules against fraud. (The basic tenant of the free market is that you get what you pay for.) The market solution is the either prospective (inspections) or remedial (prosecutions).

So who does the inspections or the prosecutions? Those sound rather like government functions to me. Of course, you could have a free market on inspections, with companies chosing who among a number of inspectors to hire to check their products and paying them for that. After all, it's not as if inspecting agencies who do that kind of thing, like credit ratings companies, for example, would ever be tempted to say everything's fine just so they keep getting more business, is it? /snark.

As I've frequently pointed out, if you want to look at a libertarian paradise, with minimal regulation, see early Victorian England, where people had the freedom to eat tainted food and die in insanitary slums without medical care or any other interference from wicked governments. There is a reason that governments have gradually got bigger: because they're less prepared to let people starve or lead such miserable lives that they turn to violence than they used to be.

Gary, maybe my sense of irony is too dry for you?

"So who does the inspections or the prosecutions? Those sound rather like government functions to me."

I Am Not A Libertarian, but it doesn't take much reading to be familiar with the most basic concepts. The theory is usually that a private agency, such as Consumer Reports, will be useful to the market, and serve such a function.

It's a shame there aren't some Actual Libertarians around here to step up to such questions.

"Gary, maybe my sense of irony is too dry for you?"

In a given comment, it's more than possible.

"After all, it's not as if inspecting agencies who do that kind of thing, like credit ratings companies, for example, would ever be tempted to say everything's fine just so they keep getting more business, is it? /snark."

Their answer is that such bad businesses would be driven out of business by the market!

"As I've frequently pointed out, if you want to look at a libertarian paradise, with minimal regulation, see early Victorian England, where people had the freedom to eat tainted food and die in insanitary slums without medical care or any other interference from wicked governments."

I'm of somewhat similar mind, but things work ever so much better in the Land of Abstract Theory And Ideals. Much like communism will work if only impure people, and conditions, didn't keep messing it up.

This is why I tend towards boring middle-roadism, with applause for the need for idealists broadening the road, and thinking about new routes, myself.

There is a reason that governments have gradually got bigger: because they're less prepared to let people starve or lead such miserable lives that they turn to violence than they used to be.

I suspect it has much to do with the migration of civilization from agrarian to industrial. Libertarians often quote Jefferson but seem to forget that his pragmatic inclinations were based on an agrarian society to which he remained nostalgically faithful.

Serendipitous reading just brought me this quote by P. J. O'Rourke, as relayed by Joe Queenan, however:

[...] The dark side of flattery, according to P. J. O’Rourke, is attracting a fan base you may not want. Once described as “the funniest writer in America” by Time and The Wall Street Journal, O’Rourke suspects that this raised his profile among libertarians, who for some reason think of themselves as a pack of wild cutups.

“There’s a nutty side to libertarians, starting with the Big Girl, Ayn Rand, and going straight through Alan Greenspan,” O’Rourke told me over the phone. “When I go to Cato Institute functions, there’s always a group of guys who look like they cut their own hair and get their mothers to dress them, with lots of buttons about legalizing heroin and demanding a return to the gold standard. The institute has tried to weed them out over the years, but they still turn up at the bigger events. As soon as I see them coming toward me, my heart sinks.”

"I suspect it has much to do with the migration of civilization from agrarian to industrial."

Also, unsurprisingly, the considerable increase in suffrage. In Britain and the U.S., for example.

It's equally unsurprising that many conservatives range from dubious to hostile over attempts to broaden voting. (Felons or the homeless should vote?! Horrors! Their sort is obviously undeserving!)

Also, unsurprisingly, the considerable increase in suffrage. In Britain and the U.S., for example.

Yes! Which, BTW, was also a direct result of the changing roles of various groups (especially women) in response to industrialization.

Following up on libertarianism and suffrage:

The success of the libertarian bent of the smallest government possible is inversely (though not necessarily linearly) proportional to the inclusiveness of suffrage, precisely because the definition of "possible" grows with each additional voter. As the spectrum of "possible" grows, so grows the government until the "possible" factions splinter into the libertarian this's and the libertarian that's.

Call it GHB's law of libertarian critical mass.

"I think I've said this before, but I'll say it again, but it seems clear to me that government is inherently neither good nor bad."

I'd argue that government IS inherently bad, seeing as the only thing it's got to offer that the private sector doesn't have is coercion, and coercion is, all things being equal, bad. It's just that we are not, as yet, aware of any alternative to government which isn't worse.

But that doesn't free us of the obligation to keep looking for one. That's always been what bothers me about non-libertarians, and liberals in particular: Once you assured yourself, quite early on, that government was justified for something, you stopped looking for other ways to accomplish so many things.

I'd argue that government IS inherently bad, seeing as the only thing it's got to offer that the private sector doesn't have is coercion, and coercion is, all things being equal, bad. It's just that we are not, as yet, aware of any alternative to government which isn't worse.

I'm not sure how you think that governments have a monopoly on coercion, around here. The private sector has plenty of coercion, and I haven't seen much to convince me throughout history that giving the private sector the reigns will lead to a better form of coercion than an elected government.

"I'm not sure how you think that governments have a monopoly on coercion, around here."

Well, I suppose if you define coercion broadly enough to encompass offering to pay somebody to do what you want, as well as threatening to jail them if they don't, then governments don't have a monopoly on it. And by "offer", I meant in the sense of an offer that's regarded as legitimate; I could offer to lock up in my basement anybody who refused ot ante up for some social program, but it wouldn't be quite the same as the government making the offer.

Once you assured yourself, quite early on, that government was justified for something, you stopped looking for other ways to accomplish so many things.

I don't think this is true. I would say of libertarians that once they assured themselves, early on, that government was bad at some things they stopped believing it could also be good at some.

I think most arguments for government action stem from the observation that in its absence some bad things are happening. You may want to argue that, in a specific case, government involvement will not help. In fact, it would be good to have people making serious arguments of this sort. But the generic "government bad" chant doesn't help.

Well, I suppose if you define coercion broadly enough to encompass offering to pay somebody to do what you want, as well as threatening to jail them if they don't, then governments don't have a monopoly on it.

Now, you're tryin' to pull a fast one on ole Coyote, here. I'm not the one playin' around with definitions here. Aside from the fact that the private market was happy to use guns as coercion not too long ago (the Pinkertons), and before that collars and whips, coercion ain't simply the use of force, either.
You seem to want to narrow the definition of coercion down to violence, and that's not the only thing the word means. You can threaten a person in all sorts of ways to do what you want.

Basically, hilzoy's claim is that there is no one to the left of her and Stephen Breyer. That's false, as she could verify by looking at her own comment threads.

Basically, hilzoy's claim is that there is no one to the left of her and Stephen Breyer.

I can't believe no one has notice her claim that before now.

You left out her claim that Japan is going to take over the world with giant robots. Some of you may think I'm foolin', but if you read between the lines its there.

"I'd argue that government IS inherently bad,"

Of course you would.

"seeing as the only thing it's got to offer that the private sector doesn't have is coercion"

The problem here is that this isn't true. I'm unaware that the private sector offers democracy, and a non-political civil service, and services that are unprofitable, but which benefit many needy people.

"Once you assured yourself, quite early on, that government was justified for something, you stopped looking for other ways to accomplish so many things."

That also is not true: most folks are fine and like the idea of privatization where privatization and contracts actually are more efficient and beneficial overall. It's the idea of privatizing mindlessly, and not getting good results, that most people object to.

"Basically, hilzoy's claim is that there is no one to the left of her and Stephen Breyer."

This argument suffers from an over-sufficiency of pith.

As a non-American, I have had the luxury of looking down on your antiquated auto industry for years while enjoying far superior Japanese and German vehicles.

Why exactly do you think our auto industry is antiquated? And why do you think that in 2008, Japanese and German vehicles are far superior to American cars? As I pointed out here, it is not obvious to me that American manufacturers are putting out terrible products compared to non-American manufacturers. My anecdotal experience has been that the quality and longevity of American-made cars has increased dramatically over the past few decades.

I know that the American industry is going to get a huge bailout as a reward for imposing the shoddy SUV standard on everybody.

Huh? Are you aware of the fact that all the big foreign car companies in the US sell SUVs? I hate SUVs more than most people, but I'm not going to pretend that this was something American manufacturers forced down our throats.

My question is, now that you all have discovered socialism and nationalization as a remedy for uncompetitive industries, how are you going to force people to buy the ugly obsolete hulks your new national industries are going to produce?

I dunno, can you give us any tips based on your experience with Airbus? ;-)

In the world that we have now, is it possible for "small government" *not* to mean "unfettered large corporations"?

It seems to me that conservatives and libertarians (two different groups) who say they are for "small government" are implicitly saying that large corporations should be as unrestrained as possible -- or should only be restrained by each other.

I hate SUVs more than most people, but I'm not going to pretend that this was something American manufacturers forced down our throats.

Really? I thought they lobbied for $25,000-100,000 tax breaks on SUVs. Maybe I got told wrong.

Really? I thought they lobbied for $25,000-100,000 tax breaks on SUVs. Maybe I got told wrong.

I'm not sure if they lobbied for it, but I thought it was pretty insignificant. It only applied to SUVs that weighed over 6000 pounds which is a small fraction of SUVs sold and the deduction was a business deduction only. Secondly, SUV sales were extremely high before the deduction was introduced.

There are cannon to left of me!

(Cannon to right of me!
Cannon in front of me
Volley'd and thunder'd...)

" I'm unaware that the private sector offers democracy, and a non-political civil service, and services that are unprofitable, but which benefit many needy people."

There's nothing to stop the private sector from deciding things on the basis of polls, and I note that companies DO this sometimes, as a promotion.

But democracy, people voting on what they'll all have to settle for, despite their having disparate preferences, is a sad step down from what the private sector offers: Individualized choice. I can have Pepsi, and you Coke, we don't have to freaking VOTE on which we'll both have to have.

Democracy is what we settle for, where individual choice isn't available. It's not something to revel in, it's something to regret.

A wide swath of the service sector could be considered a "civil service", by definition non-political.

And, I've always thought that charities were part of the private sector. But perhaps you meant that the private sector doesn't offer services to people who can't afford them, by extracting the cost from people who don't WANT them.

Of course, the only reason the government CAN offer such services is that it coerces people into paying for things they don't think are worth the price.

In a few cases, this is regrettably necessary. Not nearly as many cases as it's done in, though. For instance, you probably wouldn't have a war on drugs if the "beneficiaries" were the ones who had to pay for it, and had a choice in the matter.

I had no idea the university was so dangerous.

I thought they mostly fired canons.

Democracy is what we settle for, where individual choice isn't available. It's not something to revel in, it's something to regret.

You are confusing democracy with the problem it tries to solve.

I haven't read any of the comments, so this may be covered. But part of the problem is that the case FOR a bailout is non-compelling thusfar.

Chapter 11 is just waved away with a vague reference to the more general financial crisis? That's very sketchy. Debtor-in-Possession (DIP) loans are not the only way into Chapter 11, and uncited scholars are the only 'source' for the idea that Chapter 11 would be unavailable. Lets hear from experienced bankruptcy attorneys before we skip right over that rather obvious step. Because with some sort of Chapter 11 bankruptcy available, Cohn's article is pretty much useless.

And if his solution is an enormous bailout, why not go for a rather more modest financing scheme--finance the Chapter 11 bankruptcy? Then you avoid all of the problems of the Chapter 7 bankruptcy without allowing the awful-GM-as-it-is to survive.

Essentially it comes down to what bailouts are for. When they are wise, they are about saving sound businesses from temporary problems. All of the big 3 have been suffering from very long term systemic problems for 30 or more years.

It is very likely that saving GM at this point is only giving it another few years before another bailout is needed. They don't have an operative business plan that looks likely to make money for them in the US at any time in the near future.

Also, he rhetorically relies on this, which is false:

It appears as if President-elect Obama and the Democratic leadership in Congress are thinking along those lines already (although it'll be surprising if they demand concessions from unions that just played such a big role in electing them). But, if the government demands that the Big Three and its workers live up to more obligations, the government--which is to say, the taxpaying public--must live up to some obligations of its own. Companies like Honda operate out of countries that made health and retirement benefits a national responsibility.

In both Japan and Germany, companies pay for health care. That isn't the reason why GM can't be competitive.

Cohn says that they have really really really changed this time. But his evidence is very thin. Until I saw compelling evidence to the contrary, I would much rather spend billions of dollars on Detroit workers directly and transitioning them to other jobs rather than shoveling money to a company which has repeatedly failed.

In the world that we have now, is it possible for "small government" *not* to mean "unfettered large corporations"?

Yes. A government which is "as small as possible" may not be all that small in practice. Some government interference in the market is necessary -- for instance, to break up monopolies.

However, the libertarian position that we should always maximize freedom, including economic freedom, and that therefore we should always be reluctant to have government interfere.

"They don't have an operative business plan that looks likely to make money for them in the US at any time in the near future."

Seems like I keep reading people making claims in different direction on this, and other crucial points, without bothering to give any kinds of cite, which I, for one, would find essential to even begin to develop an opinion on the question.

(Although in point of fact, my response to the question of "bailout or not, and if so, what sort?" is simply that I don't remotely begin to possess enough knowledge, or expertise, to come close to being able to make a competent judgment on the matter, and I don't care to spend what I think would have to be weeks, if not months, devoted to study and learning, before my opinion would be worth much of anything, and so I don't have much of an opinion beyond the basic sort of thing such as "if millions of people will be thrown out of work, it's better to find an alternative that keeps them employed, than not, long enough to find a longer-term solution," and other obvious points. Beyond that sort of thing, I have to trust to people with far more knowledge about the auto business, and economics and business in general, than I possess.)

"However, the libertarian position that we should always maximize freedom,"

And this is why I'm not a libertarian, although, in fact, I'm all for liberty, and up to a point are for for many of the values of libertarianism.

The reason is that I immensely value liberty/freedom as a crucial, essential, human value. But.

I don't, however, value it as the only crucial, essential, human value. In my view, there are several of those, and they have to be balanced against each other.

I also value not letting people starve, or go without medical care, or shelter, or fair opportunity to work, and I value not letting peoplebe discriminated against in certain ways they've historically have been unfairly discriminated against, and so on.

I'm not big on valuing any value as the sole value uber alles, be it freedom, security, equality, or you name it. It seems to me that any single value value system is inherently problematic.

But, naturally, libertarians, communists, and others who think one value should be maximized without regard for any other value, will disagree with me.

"There's nothing to stop the private sector from deciding things on the basis of polls,"

And one of the essential elements of democracy is that the people are in charge; it's not that someone else grants the the right, now and again, at whim, to be allowed to decide things for themselves. It's that people as a whole are in charge, as their sovereign right.

It's the basis of the American system, Brett. Too bad you don't favor democracy.

Instead you apparently value allowing the might of corporate bullies to trample individuals, and only allow what choices they deign to offer at their whim.

And you call that might-makes-right philosophy "freedom."

If a corporation wants to use its property rights to pour poison in a stream upstream from a popular bathing spot, I want democracy to be able to stop them by compelling them not to pour that poison. But it seems like you don't. You feel that's an essential freedom, I take, and I don't, and that's why you're a libertarian, and I'm not. Do please correct me if I'm getting this wrong anywhere.

"But perhaps you meant that the private sector doesn't offer services to people who can't afford them, by extracting the cost from people who don't WANT them."

I'll agree with that. Living in a society means compromising with your fellows. If you don't like it, you're free to leave. That's one of many freedoms I'm all for.

I'm reasonably sure you've read Coventry, too.

In both Japan and Germany, companies pay for health care

You are being incredibly misleading.

"You are being incredibly misleading."

This argument would be muchly improved if you provided an explanation of how, and a link to more information. As it is, either people already agree with you, in which case little value is added, or they don't, and you've given them no reason to come to agree with you, in which case little value is added. Actual information and argument, rather than just assertion, could change that latter.

"You're completely wrong!" isn't much of an argument, no matter how correct it may be.

This argument would be muchly improved if you provided an explanation of how, and a link to more information

Wikipedia, as usual, would work.

As it is, either people already agree with you, in which case little value is added, or they don't, and you've given them no reason to come to agree with you

False dichotomy. A possible third option: they have no knowledge of the subject, but think the assertion sounds fishy, so they go and research it themselves and find out that the original poster was being, intentionally or not, incredibly misleading.

A possible third option

Possible fourth option: they think you're just being incredibly misleading, and decide it's not worth the time.

But I agree that Wikipedia works. Why, once it told me that Juan Ponce de Leon opened the first Carlos' Burrito Stand in San Juan. That there is information you can use.

""However, the libertarian position that we should always maximize freedom,"

And this is why I'm not a libertarian"

Curiously enough, while I'm not sure that I think we should always maximize freedom (even if it takes enslaving one innocent person? etc.), the fact that it is, imho, the value we should most strive to ensure for everyone is why I'm not a libertarian. I think that there are rules that curtail some freedom, but produce much greater freedom for everyone. Traffic laws are a good example: I am happy to give up my freedom to drive on whichever side of the road I please, in exchange for not being trapped in traffic nearly as much. Likewise, there are government programs that plainly enhance freedom, and for which I am willing to pay. Decent education, for one. Health insurance for everyone, for another.

interesting that the person who complains that Publius is advocating 'government is good' (not perfect, not the Solution to All Problems Great and Small, just 'good'), takes a position that we must always 'maximize freedom'.

I remember someone suggesting that if you want to be a true libertarian, you should make drug legalization your litmus test and reject any who claim to be a libertarian and not support drug legalization. Too often, protestations of libertarianism are just disguised attempts at concern trolling.

The trouble with libertarianism, it seems to me, is that it equates power with government. In other words, it begins by correctly surmising that too much power concentrated in the hands of government is a threat to liberty, it incorrectly assumes that only government can have the sort of concentration of power that threatens liberty. But taking power away from government does not make it go away. It simply strengthens alternate power centers, in this case, mostly large corporations.

j michael neal said
//One thing to keep in mind in all of this is FAS 106. That's the accounting change that took effect in 1993 that allowed companies to avoid recognizing underfunded pension plans. If you combine that with the assumptions about returns on plan assets that they used during the 1990s, which were based on the idea that the stock market would go up forever, you see where the huge holes developed. The Big Three paid out dividends that should have gone into the pension plan.//

To inject a little reality. GM pension plans were underfunded by $19.3 billion at the end of 2002. GM has paid cash dividends of about $1.2 billion annually. Those dividends don't even pay the interest on the underfunding! So ... look for something else to blame. These dividends would not have made up the difference.

Possible fourth option: they think you're just being incredibly misleading, and decide it's not worth the time.

Well that's what I decided. The statement by Sebastian is incredibly misleading and it's not worth the time to write a research paper about it. Sometimes you just have to call a misleading statement what it is and get on with your life. Got that?

The big problem is that if you start from the position that government is intrinisically bad but necessary, you have no incentive to make it work properly, because you don't want an effective evil.

If you start from the principle that government is good, that doesn't commit you to saying either that government can't be improved or that more government is necessarily a better thing, any more than saying that chocolate is good commits you to wanting nothing but chocolate.

Brett - so which actual state (either past or present) do you think has/had a more suitable level of government than the current US? After all, there are plenty of examples of smaller government in the world, so why don't you tell us what one you like (just as proponents of big government are prepared to point to current examples they like, such as Sweden)? Or is it that such states with smaller governments don't tend to be the paradise you claim?

"And one of the essential elements of democracy is that the people are in charge;"

The essential character of democracy is that it represents the tyranny of the majority over the minority, which is, I will admit, a step up from the tyranny of the minority over the majority. But I'd prefer to dispense with the tyranny altogether.

In the US, at least in principle, Brett, the "tyranny of the majority" - recently exercised in California - is supposed to be checked/balanced by the judicial arm of government, which protects minority rights.

Of course, when this actually happens, we see conservatives complaining about "activist judges"....

Enlightened Layperson:
taking power away from government does not make it go away. It simply strengthens alternate power centers

Bingo.

But I'd prefer to dispense with the tyranny altogether.

There may still be desert islands where you can live free, Brett.

"But democracy, people voting on what they'll all have to settle for, despite their having disparate preferences, is a sad step down from what the private sector offers: Individualized choice. I can have Pepsi, and you Coke, we don't have to freaking VOTE on which we'll both have to have."

Until I got to the end, I genuinely thought that this was a clever parody, probably by one of the regulars, but utimately just going too over the top, and was about to comment to that effect . . .

What's with all the commenters insisting that libertarians have to meet their arbitrary, maliciously constructed purity tests? I'll say it again: libertarians aren't anarchists. The instant that you accept that government has to exist, you've compromised on maximizing freedom.

Gary Farber:

I don't, however, value [freedom] as the only crucial, essential, human value. In my view, there are several of those, and they have to be balanced against each other.

Obviously.

hilzoy:

Curiously enough, while I'm not sure that I think we should always maximize freedom (even if it takes enslaving one innocent person? etc.),

You've hit on an interesting principle. The libertarian position that there can be no "right" to health care flows from the idea that you can't give someone a "right" to take something from someone else.

Naturally this principle extends to physical freedom and well-being. The maximized freedom of people named "hilzoy" can't include the right to murder people named "Gary Farber" just cuz.

liberal japonicus:

I remember someone suggesting that if you want to be a true libertarian, you should make drug legalization your litmus test and reject any who claim to be a libertarian and not support drug legalization.

Well, I support medical marijuana, I'm against over-the-counter heroin for kids, and I see shades of gray in between. Does that mean I'm not a "true libertarian" in your book, and if so, should I care?

Enlightened Layperson:

... it begins by correctly surmising that too much power concentrated in the hands of government is a threat to liberty, it incorrectly assumes that only government can have the sort of concentration of power that threatens liberty.

Of course there can be other concentrations of power that threaten liberty. Didn't I just list breaking up monopolies as my example of when government interference is necessary?

Well, I support medical marijuana, I'm against over-the-counter heroin for kids, and I see shades of gray in between.

Interesting you chicken out from fleshing out your principles with "shades of gray". Who, precisely, is harmed if someone decides to light up a joint at their house for non-medical reasons? How do you square your position with your ringing 'maximize freedom' rhetoric? Why should we care about such listening to a self proclaimed spokesperson of libertarian principles, except to note the glibertarian ability to adduce strawmen?

To inject a little reality. GM pension plans were underfunded by $19.3 billion at the end of 2002. GM has paid cash dividends of about $1.2 billion annually. Those dividends don't even pay the interest on the underfunding! So ... look for something else to blame. These dividends would not have made up the difference.

I suggest doing the math. GM has distributed about $18 billion in dividends since the passage of FAS 106. Even by your figuring, and assuming that none of that $18 billion would have accumulated any returns, you have almost filled the entire pension shortfall as of 2002. At a minimum, GM's financial position would be a lot less precarious today had they recognized their liabilities rather than assuming they didn't exist.

"In both Japan and Germany, companies pay for health care

You are being incredibly misleading."

That's nice. But I think the problem is that you just don't understand the systems very well. Both Japan and Germany have mixed health care systems. They provide minimum health care for unemployed people or extremely low level workers, and allow for private insurance which is utilized by higher level workers--the kind that are parallel to the UAW workers in the US.

Now Germany and Japan require that such health plans meet minimum requirements. Which is great. And they will cover unemployed people or people who work for companies that don't provide health care. Which is also great. On both those dimensions, Japan and Germany as countries do better than the US does.

But that has precisely nothing to do with the reason GM can't compete with Japanese and German car makers. Because those car makers are covering the health costs of their employees.

"I suggest doing the math. GM has distributed about $18 billion in dividends since the passage of FAS 106. Even by your figuring, and assuming that none of that $18 billion would have accumulated any returns, you have almost filled the entire pension shortfall as of 2002. At a minimum, GM's financial position would be a lot less precarious today had they recognized their liabilities rather than assuming they didn't exist."

Go back further: GM had a system in place which was fully funding it's obligations to retirees as they were incurred. Of course, this built up a huge trust fund. So GM lobbied the government to be permitted to loot said fund, and switch to being self-insured.

No sympathy at all for GM: Break the company up to buy annuities for the retirees, so far as I'm concerned: They brought it on themselves.

Oh, and the UAW was cool with this, retirees can't strike, so the UAW doesn't care about them. Their only interest in fixing the system now is getting all those funds to flow through the UAW's hands, so that some of them can stick.

But that has precisely nothing to do with the reason GM can't compete with Japanese and German car makers. Because those car makers are covering the health costs of their employees.

Actually, there is a difference. This NPR story notes that in 2004, while GM paid $1525 per vehicle on employee health care, Toyota only paid $201. However, I'm not clear if one should dismiss that difference because Japanese health care costs per capita are lower than the US.

Go back further: GM had a system in place which was fully funding it's obligations to retirees as they were incurred. Of course, this built up a huge trust fund. So GM lobbied the government to be permitted to loot said fund, and switch to being self-insured.

But wouldn't libertarians have argued for GM? Why should the government make rules about how GM meets its pension obligations, etc.?

So maybe there is a role for regulation after all. What do you think, Brett?

Most of the supporters of the auto bailout (and other bailouts) claim that the bailout is necessary because otherwise a vast population (of workers in these and ancillary industries) will be adversely affected, as hilzoy says of the order of 1-3 million.

Obviously the argument is that these institutions are too big to fail.

Let me propose some remedies. Let us first suppose that above "N" employees a company becomes too big to fail. The exact value of "N" is not important. There are two possible solutions:

1. No company will be allowed to have more than "N" employees. In which case it will never become too big to fail and thus we will never need bailouts again

or

2. if company has more than "N" employees, confiscate some proportion of the gross company revenue (I say revenue and not profits because profits can be whittled down by generous compensation to management and workers) which will be kept by the government and released to the company when it desperately needs some cash and this release can be decided by Congress.

Any feedback about the two solutions proposed above?

P.S. To be fair, I did not think of solution 1, it was thought of by a friend of mine. Solution 2 is obviously inspired by solution 1.

Wilkinson's response seems to me worth linking to as an addendum to the post.

"But wouldn't libertarians have argued for GM?"

No, we're more likely, actually, to take a "let contracts be enforced, though the heavens fall" attitude, than to be willing to let a company renege on a voluntarily entered into contractual obligation where one of the parties has long since executed their end of the bargain.

GM had a contract with the retirees, the government gave GM permission to BREAK IT. Not something libertarians are noted for approving of.

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