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November 22, 2008

Comments

jim henley is on top of this.

"Megan McArdle takes a stab at justifying the proposition that GM workers make $70/hour (contra Cohn and Salmon, who say $28)."

And contra Dean Baker. This is like the fifth time I've posted this link to this blog in a week.

See also Media Matters.

also, i'd just like to point out that if you've got the wisdom of gary father,you don't need no stinkin' crowds.

he is large; he contains linkitudes.

Whenever I read her rail against the auto bailout I remember her post about the financial bailout when it was pointed out that it was against her professed ideology and/or that many prominent economists said it wouldn't work. It was to the effect of, "I'm not willing to risk my job because of a moral stand and maybe it'll possibly work and save me."

So I tend to take her righteous indignation with a pound of salt.

But yes to answer to your question, it's a fixed cost and so the hourly wage is completely a made up attack. She seems to be misunderstanding what "cost to scale" means. If you are talking about increasing the amount of products, etc. then it might make sense to talk about it scaling on the "expenses/hr scale." If you were talking about the number of people on the health insurance plan, then it makes sense to talk about the "cost/person scale." But you can't talk about productivity and fixed benefits as if they are related.

The entire argument is moot from a macroeconomic standpoint anyway. Let's say that GM got rid of the benefits somehow -- so what? Now all the workers are put on Medicare/Medicaid and we still have to pay for them (perversely, the government health programs don't scale that well because they refuse to negotiate enough).

So all the argument goes to show is that the companies that try to treat their employees well are being crushed, while those that don't get to pass it off onto the taxpayers and collect more profit. And somehow the message is that the "right" thing to do is to have policies that put more people on government plans, even though they are poorly constructed for that purpose.

friggin' autocorrect changed "farber" to "father".

other things can do that, too, but not on my keyboard, please.

So from the worker's point of view, it is true, they are not getting $70 an hour worth of value (unless they're very close to retirement)

She's still not being honest.

Here's the deal, GM used to have a lot more workers than it does now. The $70 number comes from spreading the cost of obligations to former workers over a decreasing number of current workers.

To call this an hourly cost is to lie. If the number of hours worked by GM employees doubled, the cost would be the same. If the number of hours worked by GM employees halved, the cost would be the same.

To call this a benefit to current workers is also to lie. It is not to a current worker's benefit that you pay your contractual obligations to a former worker.

GM workers over the last few years have made very close to the same hourly wage as US autoworkers employed by foreign companies. Sometimes a little more, sometimes less depending on bonuses, etc.

But they do not now and have not in the past ever made anything like $70 an hour by any honest calculation.

Megan McCardle has an agenda. If you share her agenda and do not care much for facts, reason, precision, or good writing, you may enjoy reading her posts.

mikkel -- thanks. the cost to scale point wasn't making any sense to me either, but you expressed why more clearly than i could have.

but, yes, it seems to be two completely analytically distinct points

publius: I should confess I partly was disingenuous trying to give her the benefit of the doubt. Per hour isn't a very good measure of anything, as technically it should be per unit or ROI or something. I assume they say "per hour" because that's how people get paid so they think that has a more general audience.

The funny thing is that as now_what points out, the more efficient that GM becomes, the more this "statistic" would suggest that they are doing poorly.

//if retiree health care can be added to the hourly wages, it seems like a lot of other business costs could be added as well, at least under this justification.//

Yes, they could.

Maybe I'm missing the point of the $70 v $28 argument. It seems to me that one side is saying labor costs GM $70 and the other side says labor only receives $28. But the definition of labor varies. The $70 side includes the full overhead burdened cost of all current and past labor (including pension and health costs still being paid to retirees). The $28 crowd says Johnny worked an hour and his paycheck is only $28.

Doesn't it all come down to expressing that GM spends $X more money per year on retirees than the foreign manufacturers no matter how many cars they build?

To me, what it means is that GM did not account for nor fund the full cost of labor benefits in the past. Had they ascribed the cost of that retiree to each car the retiree worked on GM would've been broke years ago. As it is, GM duped investors and creditors into continuing their investing in GM by overstating profits.

It's kind of like what the US govt is doing to us today with their accounting for medicare and social security.

friggin' autocorrect changed "farber" to "father".

other things can do that, too, but not on my keyboard, please.

And only with my permission, I hope.

I'd like this password protected, actually.

McCardle's argument here is as stupid as all her others. The cost of retirement benefits cannot and should not be assessed to current workers, but must be assigned to the former workers as ongoing compensation. This actually decreases the average compensation per worker sense you have to average in all the retirees, who receive considerably less than those still working. Like all Libertarians, she is dumb as a stump and batshit crazy.

Maybe I'm missing the point of the $70 v $28 argument.

Yep.

You're not quoting the main part of her argument, which makes it seem a lot crazier than it actually is:

The reason that it is reasonable to include retirees in GM's labor costs is that the benefits paid to the retirees are still under negotiation by the union. In other words, the price for employing the people who are still working is giving a bunch of stuff to people who used to work for you.

So I guess the thought is that if they didn't employ any (union) workers, they wouldn't have to pay their retirees anything at all. So you can treat the retiree costs as part of the expense of employing the current workers.

What that makes me wonder is: Is this actually how it works? The way I'd imagined companies paying retirement costs is that the pension is part of the original employment deal, so GM are currently paying the costs of employing people between 1970 and 2000 or whatever - and even if they fired all their current employees and replaced them with non-union labor or robots, they'd still have to pay the retirees.

mikkel

//So all the argument goes to show is that the companies that try to treat their employees well are being crushed, while those that don't get to pass it off onto the taxpayers and collect more profit//

Crushed by high costs. What happened is GM promised the workers something they couldn't afford to pay.

The numbers are interesting, but I deal in attitudes.

Americans, as a class of people, spend most of our time telling each other two things:

How full of shit and incompetent everyone else is --- and ---- how everyone else makes more money than they deserve and ought to look into the health prospects of a lentil diet.

Thus we have McArdle getting paid --- WHAT? -- some amount of money -- good for her -- to write about how other people -- who work their asses off -- make too much money.

It's true: liberals engage in class warfare when we whine about $13 million bonuses for folks who just took the economy down the shithole ----

--- conservatives, by and large, the usual suspects excepted -- spend their time worrying that Archie Bunker might get a leg up -----------


----- and then Archie Bunker votes for them.

"To me, what it means is that GM did not account for nor fund the full cost of labor benefits in the past."

To be fair to GM, how exactly do you account for sustained 7-10% health care inflation over nearly two decades? We're all broke under that assumption.

// how exactly do you account for sustained 7-10% health care inflation over nearly two decades?//

I don't know.

The thing to do going forward is to never promise such a thing. Instead, hand cash to the worker each pay period and say "save some of this because you're going to need it later."

You might argue that govt will force cost inflation down with their universal health plan or that govt is in a better positionto keep that promise. But, in my opinion, no one knows the future and any long-term promise like that is a roll of the dice. Suggesting someone should not save for that future cost themselves is irresponsible and unfair to those in the future who will be expected to pay for it.

"McCardle's argument here is as stupid as all her others."

What, all?

Yeah, I know, here's where you respond with some sort of general abuse about how it's not worth sorting about the few and fleeting good arguments, etc.

Call me old-fashioned for wishing people could be just a tad more restrained and accurate in their otherwise enthusiastic and vehement criticism. Isn't it enough to disagree with someone 60%, or 70%, or 80% of the time?

"Like all Libertarians, she is dumb as a stump and batshit crazy."

And, again, thanks for that compliment to Andy Olmsted and Jim Henley, among others.

Excessive generalizations like these are not, in fact, impressively smart and sane. We don't, in fact, make ourselves appear smarter by our excesses of bile and and over-statement.

(Believe me, it's taken me decades to absorb this.)

d'd'd'dave:

"save some of this because you are going to need it later."

I don't disagree.

But, considering two things: the lack of effort put into saving in 401Ks (the government said: "save some of this because you are going to need it later") AND the fact that those who did take advantage of the freebie matches are now watching their 401Ks turn to dust, you haven't a leg to stand on.

What makes you think that people who make promises to themselves to save and do for themselves are not going to be fucked by the very system you shoot you mouth about, Dave stutterer?

"What happened is GM promised the workers something they couldn't afford to pay."

It might help to timeline this argument, which is undoubtedly true at points on the timeline, but also noting how it proceeded over the past fifteen years or so as that was revised, and also note all the other mistakes GM management made. Otherwise, the implication is that somehow the deals with labor were the primary mistake GM management made, which seems to be, well, nonsense.

And, I'm sure we'd all agree that distorting the facts is something we shouldn't do, right?

The $70/hour stat is pretty nonsensical, as are most of McArdles attempts to defend it. She is right in saying the $28/hour figure gives a very incomplete picture of the compensation costs of the Big Three but then she twists this to an indefensible argument.

The fuller figure that factors in health benefits and a present value of expected retirement benefits is one step toward capturing the full costs faced by the companies. (Although the $40-something number can't just be thrown out without clearly identifying the pieces because all full-time workers receive actual compensation above their wage but often don't think about, or even realize, it.)

The next step to accurately explaining the compensation costs of the companies has to be completely separated from any talk about current employees (unless it's demonstrating that the cost of retirees:cost of current workers is almost 1:1, which is fairly striking, and might argue for different types of govt bailouts or interventions).

(Also, note that the present value of the current employees pension benefits is relevant when talking about the true compensation a autoworker receives but is NOT that relevant when considering the current cash expenses the companies are facing - ie, when thinking about the immediate crisis vs the long-term one. And if it is included, it has to be subtracted out of the current pension expenses so as not to be double counted.)

Labor negotiation circa 1970

GM: But I can't pay you any more than $X per hour. I don't make enough on each car I sell to pay more.
UAW: Then don't pay us more cash. Give us future benefits.
GM: Huh?
UAW: If you survive today you'll make more tomorrow right?
GM: Uh, yeah. I hope.
UAW: So, pay us the extra then.
GM: Uh, Ok.
UAW & GM on TV: We are both heroes because we have prevented a work stoppage with a labor contract that promises great benefits for our workers. [Operative word 'promises'].

Labor negotiation circa 1980, 1990, 2000.

Same as above except add:

GM: I still don't make enough profit to pay the extra you're asking for.
UAW: It's okay. Just keep rolling it. We'll still be heroes.

2008 negotiation:

GM/UAW: Oops.
Congress: Oh, oh, please roll it to me so I can be a hero!
GM/UAW: Do you mean you personally?
Congress: Yes, I personally will be a hero. And no, I personally will not pay for it. My schmuck constituents will pay for it.

"save some of this because you are going to need it later."

"But, considering two things: the lack of effort put into saving in 401Ks"

When people actually save so that they have enough for later, it will indeed bring down consumption and the rate of inflation.

Furthermore, it will reduce stock returns and we will rediscover that there is a huge difference between "saving" (which our policies should encourage having compound at around the rate of inflation, not under it) and "investing" (which is to use excess savings to have grow at a higher rate for more risk).

The very idea that 401Ks are savings is the result of a series of policies that has also led to the cost of health care spiraling out of control and real wages to get progressively worse.

So I have to say I do agree with d'd'd'dave in principle and expand it to say that some sort of national health care system should not only be more efficient, but that it would allow for great mobility and decrease social costs when companies do go under. It would have been better if GM hadn't made promises, but there wasn't a system in place that was sufficient to help workers otherwise. There still isn't, and the income gap between jobs with good benefits and those without isn't enough to actually pay for the benefits now...so we still have the same root problem.

"Furthermore, it will reduce stock returns"

*I should have added if people invested at the same rate they do now. Which would actually be impossible if they were saving more. In reality the total compounded growth would go down but the amount invested would also go down, so the return on what was invested would probably be pretty similar.

To quickly debunk the entire argument of privatizing social security: That whole premise is that you could magically invest tons more and have all that grow at the same rate.....but since economic growth wouldn't be affected at all (or at least not go up nearly as much as what was added), it merely would have reduced returns and so people would have taken money out at some point and it would crash; wiping out tons of social security.

Seriously, sometimes it seems like options that make it into political discourse have no connection to even the basics of underlying principles.

"The thing to do going forward is to never promise such a thing. Instead, hand cash to the worker each pay period and say 'save some of this because you're going to need it later.'

This is a fine thing to say with the benefit of hindsight, in the 21st century, but back in the 20th, particularly in the 1950s, 1960s, and 1970s, things looked vastly more stable, the society and economy were vastly different, and you're imposing a lot of retroactive condemnation on people who lacked an ability to see what things looked like thirty or forty or fifty years in the future.

And it was management that agreed to these, among many other deals. Why always blame the workers? Is there a lack of equally or more dumb deals with suppliers, importers, exporters, dealers, internal management, etc?

The focus on the blaming of labor seems kinda, well, ideological.

John
//What makes you think that people who make promises to themselves to save and do for themselves are not going to be fucked by the very system you shoot your mouth about, Dave stutterer?//

There is something that has been true since the beginning of time. Work. Spend less than you earn. Invest in tangible things (buy a house, pay off the mortgage). Plant a garden. The rain comes down, the sun comes up...you've got food. Come on. You know these things. Give the "fucked by the system" a rest. You're only "fucked" by your denial of age old truths.

The next thing you'll be "fucked" by is 'Hope. Change you can believe in. A new promise for America".

Dear Eric Martin. The "F" word is not mine. I am just quoting John.

mikkel:

I think I just said that.

We agree.

401Ks were sold to Americans as savings.

401Ks were investments -- those who invested in their own company's stocks were engaged in undiversified speculation.

Americans -- as a class -- are too dumb to get it.

We're dreamers.

Fleeced dreamers.

"// how exactly do you account for sustained 7-10% health care inflation over nearly two decades?//

I don't know.

The thing to do going forward is to never promise such a thing. Instead, hand cash to the worker each pay period and say "save some of this because you're going to need it later." "

This is not nearly an "obvious" point or something that can be stated as clearly correct. The fact is workers don't know either and the real question is who bears the risk of the uncertainty. If I were a "rational" worker, I would demand higher 401K benefits than pension benefits because I would be bearing the risk in the former case and my employer would be bearing it in the latter. What my economic position is will determine which one I would prefer (whether I can afford to take on the risk or am risk-averse). This is triply true for health care and it seems like we shouldn't be shifting to a system that we require people who can least afford it to take on all this risk.

Unfortunately, we're also seeing what happens when that responsibility is borne asymmetrically across the economy, by some industries or companies but not by others. so maybe that's where governments come in...

Basically, d'd'd' dave, you seem eager to condemn labor for not foreseeing that in fifty or forty or thirty years, things would be different and much worse, but you have not a word -- maybe I've missed it, in which case pardon me -- to condemn management -- the folks who are supposed to be in charge, with the long and full view.

That seems a touch one-sided. Why always blame the mere working stiff, and their bargainers? Did they run the companies?

Isn't it management that effed up? Is it wrong of working people to ask to be compensated fairly, and wrong of them to not be able to predict that management would drive the company into the ground? If so, why?

Mr. Farber
// the implication is that somehow the deals with labor were the primary mistake GM management made, which seems to be, well, nonsense.//

I'm sorry but I didn't realize I need a disclaimer in every paragraph that said "this is not everything that could be said on the subject". Of course GM made more mistakes. I'm not making a labor v management argument. If anything I'm making an argument for accurate cost accounting where all costs, even future ones, are matched with the unit that is produced by that labor.

ddddave:

Again, I agree, pretty much.

Thing is, so much of the "work" you find so, what, virtuous, is three Americans convincing every one American to spend their seed corn, or use it as collatoral, or package into debt instruments and sell it to quant majors from Harvard, who thought they knew the meaning of risk.

American don't work.

They sell.

By the way, nothing personal.

Also, the "f" word is the least of our worries.

I would like to hear Obama, in the Inauguration Address, bring us together, and for those who don't want it, I'd like him to
point to those people and tell them "F" you.

The problem is that they believe their own accounting. They made deals in the distant past to provide for retiree health care at a time when they didn't have to book it as a liability. It was essentially free to the company at the time they made the promise. Now they are actually bearing the cost that they *incurred* in the accounting sense many years ago but never recognized.

Basically, they want to blame todays workers for the contracts they negotiated decades ago but never accounted for properly.

If anything I'm making an argument for accurate cost accounting where all costs, even future ones, are matched with the unit that is produced by that labor.

Economists can't even predict the near past. Now you're asking them to predict the future.

Silly thing to ask.

Geez, kid, I thought the "gary father" thing was on purpose and kind of funny. Then again, I am in need of a laugh.

mikkel
//To quickly debunk the entire argument of privatizing social security...sometimes it seems like options that make it into political discourse have no connection to even the basics of underlying principles.//

Yes exactly. But I would expand it. The fundamental error being made is that the public has come to believe that it has a right to a big number in it's pension check. The govt has fed them this lie from the beginning. It's a ponzi. So to say that the public has a false expectation of privatized social security is true. But it ignores that they also have a false expectation about social security.

Mr. Farber
//And it was management that agreed to these, among many other deals. Why always blame the workers? Is there a lack of equally or more dumb deals with suppliers, importers, exporters, dealers, internal management, etc?

The focus on the blaming of labor seems kinda, well, ideological.//

I haven't once blamed the workers. I don't care how much the workers earn. I don't care if they extract all of GM's money and it sends GM to the grave. What I do care about is if the workers (and GM investors and management) turn from gorging on GM's carcass and now get the taxpayers to feed them more. (Let's face it. The only constituency that is influential enough in congress to pull this off is the labor constituency).

"----- and then Archie Bunker votes for them."

Did I say I needed a laugh?

"I would like to hear Obama, in the Inauguration Address, bring us together, and for those who don't want it, I'd like him to
point to those people and tell them 'F' you."

Still lol.

P.S. "All in the Family" -- my favorite sitcom ever.


"The fundamental error being made is that the public has come to believe that it has a right to a big number in it's pension life check."

Fixed. At the present time it is obvious that our growth estimates were wildly off.

That said: SS and medicare isn't supposed to get really bad until around 2050 or so, and if we redo our transportation and energy infrastructure, the growth rates *might* just be high enough that everything fixes itself.

Also I have to say that this thread wins the Most Argumentative Agreeing award...and it's obvious that McCardle and most other economic "thinkers" could be fired and replaced by Obsidian Wing comment threads.

When did $13,000 annualy become a "big number"?

If it is, then let's just eat the old.

"It's s Ponzi"

Look, either everything is a Ponzi, or just Ponzi schemes are a Ponzi.

Where's your money, Dave? UBS? Bank Of Scotland? Citigroup? Treasuries? Vanguard?
Your illiquid house? Longleaf? Tweedy Browne?

It's all turned to shit.


mikkel: I like your postings on this thread.

If you haven't seen it, I've said pretty much everything I have to say on the need for a GM bailout in the recent "Something's Better than Nothing" thread. (I guess Sebastian missed it because while he took the anti-GM position to my "pro" I was unable to stimulate a response.)

John Thullen, as always, thanks.

Wish I could stay for what is a lively late-night thread but I'm tired.

bedtime: "Then again, I am in need of a laugh."

Why did the elephant sit on the marshmallow?

So he wouldn't fall into the hot chocolate.

Now comes the funny part: this is one of three jokes my mother finds funny. Why is a mystery.

Mr. Farber

//Basically, d'd'd' dave, you seem eager to condemn labor for not foreseeing...things would be different and...you have not a word ... to condemn management...That seems a touch one-sided. Why always blame the mere working stiff, and their bargainers? Did they run the companies?

Isn't it management that effed up? Is it wrong of working people to ask to be compensated fairly//

I think you're hearing blame that I am not meaning to put.

It is rational for a worker to bargain for all he can. He should get all the cash he can now and try to extract promises of more later. But he should be careful about BELIEVING the promises. A promises, even one given in good faith, is not a certainty. Management, in my view failed to have self-discipline because they promised things they couldn't deliver. Were they good faith promises? They probably started that way. But it's hard to believe they weren't aware at some point it wasn't going to work.

But it is all water under the bridge. I have consistently pointed my finger of blame at the current choices being made; namely congress and the administration promising future benefits to citizens to be paid for by others. Another ponzi. And a redistribution. And it bothers me some that we're probably going to bailout lots of industries because reality didn't pan out according to their dreams - - and i'm going to be asked to pay for it.

mikkel

I gently point at this >//That said: SS and medicare isn't supposed to get really bad until around 2050 or so, and if we redo our transportation and energy infrastructure, the growth rates *might* just be high enough that everything fixes itself.//

and say...jeez, another promise....another excuse to get them to not spend less than they make...

Why make a promise? It's always another promise. "Dear mr. taxpayer, Give me your money now and i'll build you a road and spending it that way will magically make me able to pay for your care for the rest of your life. So don't worry that i'm taking your savings to build my road."

btb,
To underline your position, here is Reich's TPMcafe post entitled "Why We're Rescuing Wall Street and Not the Auto Industry: Citigroup Versus General Motors"

//Where's your money, Dave?//

Well. I carefully spent less than I earned and used the excess to buy modest tangible properties which provide me a decent income. (Now, whether I work or not). I lost a little in the market but I only had a little in the market - I thought it was too risky. Yes, the nominal value of my tangible property has declined but that is only because cap rates have changed. The rental income is still the same. In fact it has been rising since fewer homes are being built.

Thrash about all you want about broken promises and the vile system. The same system has worked since the beginning of time. It's just that most people opt for the fancier home, or car, or big tv, or boat instead of planning for the future. And then they thrash around and blame the system.

The elephant joke. I think it's funny. The funny thing, to me, is that the elephant does a rational thing in an absurd situation.

How many people here remember the big 1980s mergermania when corporate raiders stalked the earth? Remember how they often paid for their acquisitions by taking money out of "overfunded" pension plans?

Let's not try and blame this on the unions tricking management, either. We could make up a similar story by stating that management sold the unions on an underfunded plan, too. Go do a search on removing capital from overfunded pension plans and putting it to use within the corporation before selecting folks to blame.

Bottom line: the folks who stole America's pension funds and used the money to put themselves on "Lifestyles of the Rich and Famous" have long since retired, and many have gone on to that great bull market in the sky (or, in a just afterlife, are face down in a pit of burning sulfur.)

bedtime: I looked in that thread and didn't see any comments from you.

d'd'd'dave: most people will have to pay for it either way, as I think we're to the point where we are paying for past excess. On top of that, any improvements we are going to make will require such vast investment that we are going to see a poor economy for quite a while. The question is whether *how* we pay for it enables us to have a shot at a brighter future or not. The hard part is convincing people to take a guaranteed massive hardship now to avoid a possible (although highly probable) cataclysmic hardship later. This is pretty hard to do considering that most people either a) won't be around when it gets really bad or b) have kids to worry about now and are understandably upset. Oh and that the government and society in general hasn't yet talked about how to navigate through.

As for your part about another promise. Well that is the foundation of pro-growth economics. This thread might be interesting to you.

In general our economic system is completely built on promises of future growth, and when the projections are wrong Bad Things Happen. There are other theoretical economic systems that don't have this feature, technically communism wouldn't, but also so called resource oriented economies (e.g. thermoeconomics). Regardless of your view on whether that is a viable system, it would require extensive changes to political, economic and developmental theory and implementation. Interestingly enough that was primarily developed by scientific thinkers (including Hubbert of Hubbert's Peak) during the last Great Depression...as they recognized that the reasons for the depression are the same problems we are discussing on this very thread.

But until we move more to that point, promises are all we got.

"And then they thrash around and blame the system."

Haha it's funny that you wrote that post while I was making mine. Actually the exact same boom/bust/collapse cycle has always existed since the beginning of time and is one of the direct causes for countless wars.

I too was planning on doing exactly what you apparently have with your rentals, except then I did more research and discovered that there is an all time rental supply excess and rates are plunging. I live in an established neighborhood near a good university and even there the vacancy rate is amazing this year. I might still consider it but considering the housing glut I'm not sure that it will be a worthwhile long term investment....and just like the stock market, if everyone tried to do what you did then there would be no profit in it for anyone.

If you are responsible and smart you can make money by specializing in many things...but in the larger context everything is constrained by overall growth and you can only make money because other people are being irresponsible or stupid.

It's all well and good to make money like that, but it really isn't an argument that the system works. In fact the system is explicitly designed to not work for everyone, Marx was right on that. The bigger critique is whether the whole is better off over long periods of time in the current system, and I think there is a strong argument...it's just that some generations get stuck with the bill for screwups. We got unlucky.

Anyway I'm off to sleep.

Abundance economic system is the opposite of what I described about the nature of profit based (or in Communism it would be allocation of resources) on scarcity of resources . It is also an attempt to address what you do when it is more efficient to use machines to do many things and thus have a labor glut. The labor glut is a small problem now but is getting increasingly worse -- it was temporarily sidetracked by how cheap outsourced human labor is, but eventually even that will be replaced.

mikkel

//all time rental supply excess and rates are plunging.// This is true in a general sense since renters were migrating to ownership until just before the bust. But, the prices of houses have collapsed so that you can now buy them at foreclosure auctions for less than the cost to build them. Meanwhile, no one is building anything new. It is just a matter of time until the glut is absorbed. When there is no more inventory the prices will pop up to at least the cost to build a new one.

I have been fortunate enough to be doing this for many years so my relatively low cost structure has insulated me fairly well from this cycle. But I can vouch that the concept works.

In the first paragraph I said 'in a general sense' because the real estate business is truly a local business. The best thing is to know your neighborhood - and it seems you do. It's really just a matter of recognizing that the rents are X and you could buy it and maintain it for Y.

The good thing about it is when the promise starts to go bad you can see it. The paint peels, the weeds grow, the neighborhood gets shoddy, and then the rents drop. It's tangible. You can see it coming and you have time to fix it or adjust your personal cost structure to compensate.

Technocracy Inc.
I'll check it out.
...but do they have cool uniforms?

d'd'd'dave: Yeah it's a tough call. Part of the problem is that I don't plan on having an very sedentary life, and so what do you do, hire someone else to keep track of things? That really cuts into margins and makes you less aware of the on the ground changes you mentioned.

I really don't know much about Technocracy Inc itself.......I just recently stumbled upon the concepts on Wikipedia and was amazed to find something that lined up perfectly with all the concerns I've long had. I also am amused by the concept of thousands of ordinary people packing a stadium and talking about growth projections, like apparently happened during the depression.

I just looked at their website and it was surprisingly unprofessional. For some reason all these futurists aren't very good at present-ing their ideas. Haha I crack myself up.

But yeah I'd assume the uniforms suck.

"Call me old-fashioned for wishing people could be just a tad more restrained and accurate in their otherwise enthusiastic and vehement criticism. Isn't it enough to disagree with someone 60%, or 70%, or 80% of the time? "

Call me new-wave but I don't see the point in arguing or dignifying people who are either idiots or who argue in bad faith, especially when their raison d'etre is economic royalism. Megan MacCardle is neither interesting nor thoughtful, and her arguments consistently advance the interest of evil. I have no idea how people still link to her blog as if its worth reading.

"Call me new-wave but I don't see the point in arguing or dignifying people who are either idiots or who argue in bad faith,"

I, for one, don't have an objective measure of either.

"...I have no idea how people still link to her blog as if its worth reading."

Do you have many folks with whom you've disagreed aftr knowing for seven years or so? If not, it might come with age.

I'm coming up on my seventh blogiversary in a few weeks. I suppose lots of folks find that incomprehensible, and can't imagine what it was like seven years ago.

That's because they're young, I'm older, and so it goes. Age and cleverness still wins.

d'd'd'dave:

I have consistently pointed my finger of blame at the current choices being made; namely congress and the administration promising future benefits to citizens to be paid for by others. Another ponzi. And a redistribution.

Like, "I'll fund all kinds of research and acquisition for this cool military hardware that'll totally protect you from threats 10 or 20 years from now that might or might not still exist, and your grandkids can pay for it!!!4!!!", or suchlike?

Or does deferred spending for deferred benefits of that sort not meet your criteria for a ponzi scheme?

Just trying to get a feel for where you stand regarding the size of bathtub we should be working to get for "dealing with" the government...

publius: How would that fact alone [that health insurance costs exhibit economies of scale] transform a fixed cost into something else?

It wouldn't.

The more interesting question is why you are working so hard to give Megan McArdle the benefit of the doubt, as if she were arguing in good faith. She's just engaging in fakery with numbers so as to bash the union, like GM itself and everyone else who cites this completely bogus "statistic".

I'm a CPA who has been doing tax returns for twenty years. I've done auto workers returns over the years. They aren't making any $70 plus per hour, and people who say they are are just flat out lying. Straight salary at 20 per hour is $40,000.The highest I've seen is about $55,000. That includes a lot of overtime. My guess is they aren't getting much more than $21 straight-time, which goes into time-and-half or double-time with overtime. If you add in health-care etc, you'd be hard-pressed to double their salary. So I can't believe that people making twenty, plus fringes per hour and overtime, are suddenly costing more than forty per hour. I keep hearing/reading seventy per hour, but no one has shown me numbers that come close to that amount.

The $70 number comes from spreading the cost of obligations to former workers over a decreasing number of current workers.

Kind of sounds like social security…

Look – the union demanded and got those retirement benefits. The union is responsible for those costs, not some kind of labor unicorn. And management made plenty of mistakes on their side. But folks trying to absolve the UAW of, well, anything, are stretching it IMO.

The focus on the blaming of labor seems kinda, well, ideological.

Aha! The heart of the matter appears.

I would like to hear Obama, in the Inauguration Address, bring us together, and for those who don't want it, I'd like him to
point to those people and tell them "F" you.

Start with Mitch McConnell.

Work. Spend less than you earn. Invest in tangible things (buy a house, pay off the mortgage). Plant a garden.

I think this is actually good, sound advice. No doubt quite a few folks have already started taking it.

Add in some kind of provision for helping folks who draw the short straw and you could sell me on it. Because someone always does draw the short straw. Even you, triple d, with your prudent and modest ways, could wake up one day and find that you'd been royally buggered by fate.

It happens.

The only thing I'd like to point out is that if we all lived this way, this country would be a very, very different place. One I might, in fact, find quite congenial. But very, very different.

"Economic growth, compounding, compounding", as our pal Wilkinson would have it? Not so much in the triple-d world.

Thanks -

But folks trying to absolve the UAW of, well, anything, are stretching it IMO.

Absolve the UAW of *what*? Squeezing the best deal they could freaking get out of the closed fist of management?

That's what they are supposed to do.

The reason they have to do that is because, in our organization of corporate and industrial culture, labor is a cost center, made up of fungible warm bodies.

The people who actually, you know, MAKE THE F'ING CARS are basically a necessary evil.

So, they are going to carve out as much turf as they possible can, and guard it jealously. They would be insane to do otherwise.

The only way that labor gets a seat at the table is by holding a gun to everyone else's head.

Change that and unions will go away.

Thanks -

...how exactly do you account for sustained 7-10% health care inflation over nearly two decades? We're all broke under that assumption.

If by "account" you mean "explain": formerly incurable cancers can now be treated with drugs that cost $100,000 or more for the course of treatment; an increasing percentage of medical students going into specialties, where they have a median annual income of $450,000; trauma and intensive care units that can save accident victims that formerly died, but rack up $1,000,000 in expenses in the process.

If by "account" you mean "calculate the future expense": require the accountants to be honest. Medical inflation has been running at 7-10% over the last 25 years, and if you can't explain why it will revert to something more like inflation for other things, then calculate based on 7-10%. As you say, we're all broke under that assumption.

I have always found it interesting that there are a group of conservatives that look at the projections that say government spending on health care will reach 20% of GDP, and scream that that's a disaster. But implicit in those projections is an assumption that as a country, we will be spending 50% or more of GDP on health care in total, which they seem to think is both possible and not a disaster.

OCSteve:But folks trying to absolve the UAW of, well, anything, are stretching it IMO.

Russell: Absolve the UAW of *what*? Squeezing the best deal they could freaking get out of the closed fist of management?

There's no problem with the UAW trying to get the best deal for their members. I do think they bear some blame for not insisting, when these contracts were being negotiated, that retiree costs be funded. The error made by both sides was assuming that the car companies would be able to pay the benefits out of current earnings forever.

That looks like major shortsightedness. I have read, though can't say for certain, that one reason there was no insistence on funding benefits was that the companies were willing to be more generous with wages that way.

nv

//Or does deferred spending for deferred benefits of that sort not meet your criteria for a ponzi scheme?//

Huh? I'm not promoting military spending. Obviously some defense is needed. But it don't see why we have to have military all over the world. Let them defend themselves.

So sure. It's a ponzi too.

" Plant a garden."

- with species and varieties that are a) high-yielding, b) high-calorie, c) relatively low-care (adapted for your climate is a good start), and d) not also available commercially at low enough prices to not really make sense. Look into preservation methods, from canning to root cellars.

Megan McArdle did have some pretty good posts on immigration and nativism (which had most of her commenters calling for her head). Interestingly, in that case she was, as a person of Irish extraction, calling on her own group's history and ethnic memory. One could suggest, rightly or wrongly, that the crap being hurled at today's immigrants were more real to her - and more clearly a problem - because she was able to make an actual connection; not to her own life, but to that of her recent ancestors, at least. Which would echo a certain pattern where folks do finally take up a political cause, often breaking from established ideology - once it affects them personally. There've been some cases of this with stem cell research, for example. To get a bit more bipartisan, apparently legislators with daughters are more supportive of measures to help women, iirc.

lj: Thanks for the TMP link. I should try to go there more often. (Also, I like comment sections with posters photos or symbols: Seems like the Ben Franklin guy posts a lot.)

Reich reminds me of Newsweek's Samuelson, who I linked in the "Something is Better than Nothing" in that he breaks down economic issues in an easy-to-read fashion. Philisophically, Reich is a lefty and, I believe, Samuelson is more of a conservative -- which, to me, really doesn't matter because both are giving fair-minded, reasoned analysis.

My favorite line from the Reich link: "But GM? GM is just . . . jobs and communities."

That was the heart of my argument responding to Sebastian's anti-GM stance. Since he thinks, GM is making useless things, he contends that they are useless job. That still doesn't address what happens to the communities where those jobs are important.

Seems to me Reich is saying Wall Street vs. Detroit -- now a more direct battle of Citigroup vs. GM -- is developing into class warfare.

It certainly smacks of it.

Which is all very ironic and funny and sad because the mantra among Democrats and Republicans during the election season was that Main Street was every bit as important, if not more, than Wall Street.

Well, aren't the automakers part of Main Street?

Two other good points former Secretary of Labor Reich makes in lj's TPM Cafe link:

"But the current panic on Wall Street is not a 'run' in this sense. It has almost nothing to do with banks' roles as financial intermediaries. It's a run on the shares of Wall Street banks, not a run on the pool of savings they oversee. The mutual funds, pension funds, and deposits they hold are perfectly safe."

And his conclusion:

"Because the public doesn't understand the intricacies of finance, it's easily persuaded that this is definition of 'soundness' is the same as keeping savings flowing to the banks so that the banks can lend to them to Main Street. That's why the public and its representatives have committed $700 billion of taxpayer money to Wall Street and another $500 to $600 billion of subsidized loans to the Street from the Fed -- bailing out the investors and creditors of every major bank, including , any moment, Citi -- only to discover, at the end of this frantic and unbelievably expensive exercise, that American jobs and communities are more endangered than they were at the start."

I, too, enjoyed hilzoy's mother's joke, although I didn't see it until this morning (and still needed a good laugh).

It's good humor; as d'd'd'dave noted: "The funny thing, to me, is that the elephant does a rational thing in an absurd situation.

Needed a good laugh because the housewarming thing we went to after work last night turned out to be a downer, forgetting the fact that my son and I wanted to stay home.

I didn't put up much of a fuss, figuring that would leave today free for football. But when we pulled up to this couple's house -- a Russian wife and an American husband, like us -- we were quite shocked.

We had played some fun card game with them a couple months back at their two-bedroom apartment. Not knowing their financial situation, it was an eye-opener when we navigated the directions and pulled into the lengthy driveway of their new impressive home -- not quite a mansion, but a huge home in a well-off development.

(Opportunity knocks for anyone looking and with the means to buy a home in this market: What was listed originally at $555,000 and would have gotten it a year or two ago was sold for $399,000.)

My pride took a hit. But, hey, good for these nice people and I was ready to share in their happiness. That was before pulling up into the driveway and my wife saying in the car, "Their house makes ours look like a garage -- and we can't even afford that."

Now, I love my wife and I know she loves me and probably said this out of frustration more than anything -- we are both under a lot of stress right now. Heck, I was thinking the same thing. It's just not the kind of thing you want to hear your spouse say out loud.

Funny thing, when we got home to our "little" ranch house worth half of what these people paid I felt more at home in an instant.

But there wasn't much talking between us, some of which was my penalty for not pretending to be happy once we got out of the car at the housewarming -- I ain't into pretending.

Things were still frosty this morning when she drug me down to the computer to help her with some immigration stuff (the paperwork never ends, thanks Homeland Security). And naturally I muttered something stupid about, "If we ever get out of this bankruptcy sh!t, I don't care what you say -- I'm getting another dog."

Someone once told me you should never go to bad mad at your spouse. Good advice. But that requires too much resolution to make it work as easily as it sounds.

My wife loves our home. I know that. In a private email with russell recently, I mentioned to him how if we lost our home seeing her devastated would crush me more than actually losing the house itself. And so, her words hit home.

I imagine marriages all over America tied to the auto indrusty -- or who are facing hard times due to the recession in general -- are facing this kind of tension, so I'll use that as my excuse for tying this into a GM thread.

Thanks for the laughs, hilzoy and john.

P.S. d'd'd'dave: Don't agree with most of what you wrote. But thanks for being a good sport and taking the heat while engaging in a lively thread last night.

I imagine marriages all over America tied to the auto indrusty -- or who are facing hard times due to the recession in general -- are facing this kind of tension, so I'll use that as my excuse for tying this into a GM thread.

"Hard times" ain't just about money.

Hang in, bedtime. Things won't suck forever.

Thanks -

Nell: I agree that GM itself uses McArdle's same wrong-headed argument about their workers making $70/hour.

In crying poor, General Motors should not go down that path. (Another reason new leadership is needed: Anyone who saw the Congressional hearings last week could clearly see there is not an Iaccoca in the bunch).

That said -- saying this as someone who was raised in a union household who believes our country is better with them than without -- the U.S. automakers face labor challenges that the Japanese and Korean makers do not. And if the UAW wants a reason to exist -- in other words, wants there to be jobs for their workers -- it must agree to concessions and show more flexibility.

Frankly, the UAW should have been represented at the hearings last week.

P.S. mikkel: I double-checked. My GM bailout comments -- there are many -- are all on the second page of the "Somethin' Better than Nothin'" thread.

//"Hard times" ain't just about money.

Hang in, bedtime. Things won't suck forever.//

Thanks, russell.

I wonder if the folks in Washington and Wall Street -- the Detroit executives who flew into town on their private jets, for that matter -- understand your point about hard times.

Is civilization a Ponzi scheme?

Is civilization a Ponzi scheme?

Well if you take ancient Egypt as an exemplar, it certainly looks like a Pyramid scheme now, doesn't it?

/ducks and runs...

Bedtime:

I always forget about the next page thing. I went back and read them all.

I have say that I really can't disagree about anything really that either you or Sebastian said. That what makes our current predicament so bad.

I'll be blunt about my view: we have/are consuming too much and we have to stop one way or another. All the hocus pocus that economists argue about really matters little in the scheme of things. There is no way to "save" our economy, our only two options are to take it all at once or try to spread it across time. The latter option if we're lucky will end up like Japan where there is relatively little disruption, but on the other hand they are going to end up going 30 years without any growth and their system is cracking under the aging populace.

There are also some differences that make it so I think we're more likely to still have a collapse going that route. The thing is that trying to inflate our way out is going to cause even more wealth concentration amongst the rich. The overlooked thing about the Great Depression is that ultimately it did more to spread wealth more evenly across the population and really that's what led to the powerful rise of the middle class.

The other route is to embrace a reduction in consumption and all the evil that entails. If we do that, we are going to have widespread misery but those that have saved and are lucky not to lose their jobs will be in a better position and lay the groundwork for a new middle class. It also makes it more likely that truly visionary programs that will define the 21st century will be accomplished as the old status quo crumbles and we band together to redefine our country.

So on one hand I kind of support Sebastian's view about consumption, but on the other I can't in good faith be against the auto bailout while the rest of our policies are so awful. Instead of picking a path to go towards and providing leadership and explanation, our government has adopted some policies that are going to try to reinflate and some that won't, leaving us with just giving a bunch of money to entrenched interests and leaving out the worker. It is the absolute worst of both worlds.

So when taking into account the overall context of what the political and economic "experts" are pushing us towards, letting the auto makers fail would be very stupid. But then again, I was against TARP and think that we should severely cut back on the military and other expenses and use hundreds of billions to set up a *real* social net that is structured to expect 20% unemployment as a possibility and a reworking of the financial system to provide targeted credit to healthy companies/individuals while simultaneously accepting asset values are going to fall precipitously.

"Someone once told me you should never go to bad mad at your spouse. Good advice."

Words to live by, in my view. I'd go an awfully long way to make that happen. I believe in it strongly. It's a problem, though, if the other person doesn't care at all. :-(

When arguing that the UAW has to give up more, it is a lot easier to say "GM pays $70/hour on average" than to say "GM pay averages $28/hour, but there are legacy costs that push the total a lot higher"

It is not only easier, it is likely to reinforce the notion that UAW workers make gobs of money. There is a word for this; misleading.

"I also am amused by the concept of thousands of ordinary people packing a stadium and talking about growth projections, like apparently happened during the depression."

The depression was a time of all sorts of odd social movements, of varying degrees of worth, from Father Coughlin to America First to the many communist and socialist factions to the League for Industrial Democracy to Upton Sinclair's EPIC ("production for use!," a phrase perhaps best remembered now by viewers of His Girl Friday, to whom it probably seems rather like incomprehensible mumbo-jumbo) to the Townsend Plan to technocracy. All of these ideas had millions of supporters at one time.

But a lot of it was fairly kooky stuff, or just one idea with a lot of crap added on.

Although I think EPIC looks pretty good in retrospect, and it would have been a fascinating alternative history of America if the movement could have overcome the massive effort of business and the forces of the status quo to win.

The heart of technocracy, though, is the idea that scientists and engineers are best suited to making political decisions for everyone else; does anyone still have the naive glow of the 1930s that makes that sound like a plausible idea?

Something I wrote in email correspondence with OCSteve, which he didn't respond to, so I'll repeat it here for general consumption, and also hope that maybe Steve will answer this time:
Back on the whole card check thing, I'd be willing to go with secret ballots if management were legally prevented from calling all the workers into meetings to warn them against joining unions, threatening them with closing their working place, and otherwise threatening and intimidating workers against joining unions in all ways. That's the point of having card check. If the problem is eliminated, the solution would become unnecessary. How would you be with that? I'd like to hope that given all your (unjustified with much current reality) concern about largely mythological (in contemporary times) "union intimidation" that you'd be equally concerned with corporate/management intimidation: yes? No?

On a non-email point, I'd also point out that attributing the costs of past worker benefits to each new worker is wackily arbitrary accounting, so far as I know, and done solely as a way of somehow blaming contemporary union workers and unions for the bad management decisions of the auto workers. I fail to see how it's honest to use it to claim that auto workers aren't making only around $28/hour or less.

The other route is to embrace a reduction in consumption and all the evil that entails.

mikkel,

Excellent summary, very similar to how it all looks to me.

The consolation that I take is that we are a wealthier country today than we were in the 1930s, so I think we can absorb a substantial decline in consumption (I'm expecting it to be something like 20-30%) without producing wide spread destitution, if that decline is concentrated in the top of the socioeconomic pyramid. Whether that actually happens or not is a function of politics, and while I sort of doubt it will go down that way, I suppose it could be worse from a political standpoint.

The thing which strikes me is that upper middle class families today (or at least the ones that I know well enough to get invited to their homes and social functions) spend a fairly sizeable fraction of their income on intangibles, especially information and entertainment. If everybody in the upper middle cancels their cable TV and home internet access and stops spending money on cell phones and video games and GPS navigation systems, etc., that is a lot of money saved which can go towards paying down debt, without anyone going hungry or going without shoes or a place to sleep at night.

Maybe we might even rediscover how to talk to one another face-to-face.

The downside of doing that is that those information intensive goods and services are pretty much what's remaining in the way of high value-add manufacturing in the US (that and military hardware), so it could rip the guts out of what is left of the economy apart from agriculture and govt.

So I'm really not sure what the answer is.

"The heart of technocracy, though, is the idea that scientists and engineers are best suited to making political decisions for everyone else; does anyone still have the naive glow of the 1930s that makes that sound like a plausible idea?"

Actually I'd go one step further and say that their particular proposed system envisions a civilization where everyone thinks and acts like an engineer/scientist. So on that level it is probably as unrealistic as the kumbayah in communism. It would also be highly entertaining to watch disagreements.

That said I think their criticisms are right on and need to be grappled with. Even some of the proposed solutions are interesting. Of course I also think a lot of Communist criticisms are pretty accurate, but for some reason you can't mention this without being accused of supporting the professed solution, which sucks.

"The consolation that I take is that we are a wealthier country today than we were in the 1930s, so I think we can absorb a substantial decline in consumption (I'm expecting it to be something like 20-30%) without producing wide spread destitution, if that decline is concentrated in the top of the socioeconomic pyramid. Whether that actually happens or not is a function of politics, and while I sort of doubt it will go down that way, I suppose it could be worse from a political standpoint."

I'm not sure, "wealth" is a hard concept to measure. I believe you can't talk about wealth without talking about debt, and from that perspective there is an argument we are far less wealthy than we were back then.

But undeniably we have more excess necessities due to technological progress. We feed an insane amount of food to animals to eat and everyone eats way more these days. We even waste a ton to keep prices up. Also we do have millions of houses just kind of lying around.

So I agree 100% with your conclusion that even if we undergo a massive deflationary scenario, our suffering will be dictated primarily by political response.

That what has me so sad and infuriated. If we were actually honest and prepared for the worst case scenario instead of throwing away money on a dream, then we would be able to provide some minimal standard of living and hopefully avoid tent cities and starvation. But instead we are flailing.

They are rumoring another $100 billion to Citi which should last about another 3 or 4 months. One hundred billion is a lot if used for firming up food distribution and public transportation.

We're already approaching levels of spending in the last three months that could have tremendously increased energy efficiency and renewable production, but alas.

Gary: Something I wrote in email correspondence with OCSteve, which he didn't respond to, so I'll repeat it here for general consumption, and also hope that maybe Steve will answer this time:

I replied to you at 6:39AM this morning dude. My entire reply:

The $73 figure includes what it costs to pay benefits for retired workers.
The union is responsible for that, not the big 3. So I'll repeat: That
doesn't change the fact that $73 is their cost per worker hour, and it
doesn't change the fact that the union is responsible for that. Do you
dispute that $70 something is their cost/hr/worker?

Unions were a good and necessary thing at one time. Now they are not IMO.

The heart of technocracy, though, is the idea that scientists and engineers are best suited to making political decisions for everyone else; does anyone still have the naive glow of the 1930s that makes that sound like a plausible idea?

By itself, it doesn't sound like a very plausible idea at all. On the other hand, it sounds pretty damn good compared to a system where all political decisions are made by a bunch of lawyers and businessmen, which is roughly what we have today. The current system seems to have some defects. I for one look forward to the brilliant regulatory decisions that our first MBA President will impose in the coming weeks!

"I replied to you at 6:39AM this morning dude. My entire reply"

Yes. There's not a word in there about what I wrote about card-check, and to be clear, yes, of course I dispute that "Do you dispute that $70 something is their cost/hr/worker" because it isn't. Attributing the costs of past workers just isn't a cost of a current worker. It just isn't, any more than any of GM's other costs are. I could just as well say that it's a cost of the collective salaries of the vice-presidents; it would be equally unconnected and arbitrary.

Moreover, you started out claiming that the workers were making $70/hr, and that I simply was ignoring cites that you felt it unnecessary to give that proved it. Do you at least admit that that was completely incorrect? If so, do you notice how much you're going out of your way to find data to support your prejudices, rather than just looking at data?

So what about what I wrote about card-check? Don't you see any problem with management being free to massively intimidate and threaten workers over unions? Why -- and I've asked you this repeatedly, and you always ignore it, so please don't are you considered about largely mythical contemporary union intimidate, intimidation that pretty much doesn't exist, in reality, but utterly unconcerned by the huge and overwhelming amount of actual intimidation by management/corporations?

Thanks in advance for your response!

The other route is to embrace a reduction in consumption and all the evil that entails.

I have no particular objection to lowering consumption, but I would add a third option to your two: reorient our economy to build sectors that create (or add) value.

For example, make stuff.

Thanks -

"I have no particular objection to lowering consumption, but I would add a third option to your two: reorient our economy to build sectors that create (or add) value."

Exactly. And that's what we should be spending all our money on, not trying to prop up stuff that requires buying stuff and then throwing it away as fast as possible (talking more the consumption economy in general not autos in particular). The problem is that that third option takes years if not a decade or two to develop, so in the meantime we'll be hurting.

Gary: Email is kind of personal to me. I don’t give it out to many people. You are among a select few. You came on a public forum common to both of us and claimed that I failed to respond to a point you raised. (“which he didn't respond to”). That is pure BS, as I did. And furthermore, it totally pisses me off that you would even mention a personal email here. That was between you and I. Period. God Damned period.

"For example, make stuff."

Back to production for use.

A probably TMI link.

"And furthermore, it totally pisses me off that you would even mention a personal email here."

I certainly would never quote something someone else, including you, wrote in email, but I didn't see anything wrong with simply saying something I already wrote. I mean, it's what I think, whether yesterday or today. But since it upsets you, I apologize. And the same for mentioning that we'd exchanged email, which I also didn't think would be problematic, but again, apologies, since you feel otherwise.

The problem is that that third option takes years if not a decade or two to develop, so in the meantime we'll be hurting.

We're gonna be hurting in the meantime anyway.

Want to know a funny thing? A decade goes by pretty damned quick. We've been living in a short-term world long enough. Time to take a long view.

I really do think the next few years are going to be an inflection point for this country. We're either going to sober up, face reality, and deal, or we're going to become a second-rate nation.

There are some perfectly good second-rate nations in the world, and frankly it's no skin off anyone else's nose if we opt for that route.

But it would be one hell of a wasted opportunity.

I'd be happy to accept a reduced standard of living for ten years or more if it meant that we were on a solid footing going forward.

For most (not all -- but most) people in this country, a "reduced standard of living" would probably still mean a standard of living that is somewhere near the top 1/100th of 1% of that enjoyed by the entire human race over the course of its history.

My old man shot squirrel to put meat on the table. He carried eggs to the local market to trade for coffee, salt, and sugar. That sounds like the stone age to folks nowadays. It wasn't that long ago, and it wasn't all that unusual when he did it.

A little perspective goes a long way.

We could make it one of those "man on the moon in ten years" things. Americans love stuff like that.

Short term sacrifice, build for the long term. Imagine liberals taking ownership of those American values. Revolutionary.

Thanks -

reorient our economy to build sectors that create (or add) value.

What does that mean in practice? I mean, we encouraged an asset bubble in the housing market which lead to lots of construction and that didn't turn out so well, now did it? I'm really unclear on what you mean by "create value". Is that a call to foster manufacturing by raising trade barriers? To foster R&D companies with special R&D tax breaks? What?

Gary – it’s not the fact that we exchanged emails. I valued our email correspondence. But you claimed that we had exchanged emails and that I had not responded to your point, which is BS. I replied, you may not like my response, but you came on here, a community we are both part of, and claimed that I did not respond to you. That is bullshit dude. Once again, you, at 5:15PM today:

Something I wrote in email correspondence with OCSteve, which he didn't respond to, so I'll repeat it here for general consumption, and also hope that maybe Steve will answer this time

I replied at 6:39AM this morning and you don’t dispute that (and if you do I’ll post the entire damned em chain at Tio.) I fricken’ responded to you. You came here on OW and claimed I did not. That is not cool. At all.

"But you claimed that we had exchanged emails and that I had not responded to your point, which is BS."

Steve, I apologize if I wasn't clear. My point was that you had not responded to my point about card check. That's what I repeated here. You still haven't responded to it. That's all I meant. Apologies if I was unclear about that. That's the "some I wrote," and why I quoted it, and again asked for your response.

I'd also still be appreciative if you'd respond to the point I've made countless times to you as to whether or not you see a problem with management/corporate massive intimidation of their workforce to not unionize, and why you never write about that, but instead go on about alleged union intimidation, which is pretty darn rare in 21st century America.

Again, apologies for my error in etiquette, as you see it. You're certainly entitled to your feelings on that, and I again express my regrets and apologies for not having done right by you in that regard.

"That's the 'some I wrote,'"

Er, "something I wrote."

// I for one look forward to the brilliant regulatory decisions that our first MBA President will impose in the coming weeks!//

I'm pretty sure W has an mba.

"I'm pretty sure W has an mba."

That was his point. That's who is President. That's who has been the first MBA President.

If you think Obama has an MBA, or is President, you're confused.

What does that mean in practice?

I'll take a stab at an answer. My apologies if it's lame.

Manufacturing creates value. There isn't a steel I-beam, then there is, and steel I-beams are really useful things.

Not saying that we should institute wonderful new tariffs to backstop manufacturing, it's just an example of a sector of the economy that, as I understand it, generates "value" for a meaningful definition of value.

Computer software is, I think, also a value-generating sector. There isn't a word processor, or router firmware, or an operating system, and then there is. You can now get a machine to do useful things for you that you couldn't do before.

IMO a lot of the financial sector as it's currently set up does not generate meaningful value. Securitizing mortgages such that the risk profile of the underlying loans is obscured has, IMO, a negative effect on value, because you can't determine what they are actually worth. Trading CDS's on the health of other companies doesn't attract any useful working capital to those companies -- you're not "investing" in anything. You are, essentially, just placing a bet.

Health care, which is on track to being 20% of our GDP, is, to my eye, a mixed bag. It helps keep everyone healthy (I hope), which is a really good thing. But it consumes wealth, rather than (net/net) generates it. (I think).

I'm trying to extrapolate from these examples to some kind of general definition of what makes a sector value-generating or not, but I don't really have the economic chops to do so. Hopefully the examples will give you some idea of the distinction that I'm (ineffectively) trying to draw.

Thanks -

mikkel: I agree with TLTiA that you gave a good summary of our current economic dilemma. There are no easy answers, which I think is why we will be in this for a while -- Washington hasn't been very good at tackling tough economic issues for some time.

Re: "So when taking into account the overall context of what the political and economic 'experts' are pushing us towards, letting the auto makers fail would be very stupid. But then again, I was against TARP and think that we should severely cut back on the military and other expenses and use hundreds of billions to set up a *real* social net that is structured to expect 20% unemployment as a possibility and a reworking of the financial system to provide targeted credit to healthy companies/individuals while simultaneously accepting asset values are going to fall precipitously."

On MSNBC's "Morning Joe" today, CNBC's Dylan Ratigan -- one of the few broadcast anchors who serves up unvarnished hard truths -- explained that the government has been conflating the economy for so long that it can no longer handle anymore. We have to let the economy contract so the air comes down to where it should be in the balloon. That means cutting, not stimulating, not bailing out. That means a lot of pain.

Wall Street is certainly in no mood to go that route. Is Main Street?

So far, we are throwing good money after bad and appear to still think that's the only way to go.

Ratigan also said what the Wall Street banks like Citigroup were doing with leveraging and other stuff that I simply don't understand was unethical but made legal by Uncle Sam. So, obvioulsy, new legislation/regulation is needed.

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tomtom posted: "When arguing that the UAW has to give up more, it is a lot easier to say 'GM pays $70/hour on average' than to say 'GM pay averages $28/hour, but there are legacy costs that push the total a lot higher.'"

Agree.

GM is doing a disservice to itself and the UAW using this falsehood.

That said, for the autos to get out of the current mess, the UAW must do its part and make concessions -- it, too, will be painful.

"IMO a lot of the financial sector as it's currently set up does not generate meaningful value. Securitizing mortgages such that the risk profile of the underlying loans is obscured has, IMO, a negative effect on value, because you can't determine what they are actually worth."

A house of cards . . .

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