Bell Curve The Law Talking Guy Raised by Republicans U.S. West
Well, he's kind of had it in for me ever since I accidentally ran over his dog. Actually, replace "accidentally" with "repeatedly," and replace "dog" with "son."

Monday, January 14, 2008

What's Hurting Michigan

I just saw a CNN interview with Michigan's Governor Granholm. She was making a heartfelt appeal for greater influence in the primaries for her state. Leaving aside the usefulness of the Iowa and New Hampshire head starts for the moment, I'll focus in this post on her assessment of he causes of Michigan's problems.

Michigan's economy is in terrible shape. Jobs are fleeing the state even faster than its population. This despite a weak dollar which should benefit export oriented manufacturing sectors like the auto industry. Granholm blamed this decline on "unfair trade agreements." The gyst of her argument was that failure by the Bush administration to enforce trade agreements has hurt Michigan's auto industry. The implied solution is that the way to help Michigan is to put restrictions on trade and shield the Michigan auto-industry from "unfair" competition.

I would like to put forward an alternative explanation and solution. I suggest that the problem with the auto industry isn't their competition. The problem is the ossified conservatism of the auto executives. I've talked to friends of mine who have worked closely with the auto industry. They all agree that there is nothing more unwilling to change than a US auto executive. They said that the mood in Detroit's halls of power (such as they are these days) is one in which fuel economy is a passing fad. That SUVs are still a good design to bet on for the future. That hybrid and electric car technology is not worth exploring etc etc etc. And why? Because they have always been bailed out and protected by past governments - which is exactly what Granholm is proposing we do now. The US auto industry won't recover so long as they are stuck in the 1970s. Another bail out (either through a cash payment like Carter did for Chrysler, or a protectionist trade bill like Granholm wants) won't solve the problem. Granholm would do better to diversify Michigan's economy (much as Ohio did in the 1980s and 1990s).

This brings me to another alternative explanation other than "we're being beaten down by trade." Oil is currently selling for about $100 a barrel - largely because of the aforementioned weak dollar. With gas costing so much, the gas guzzling cars coming out of Detroit aren't selling as well either here or abroad. And why is oil so costly? Two related reasons come to mind. First, the dollar is really weak against other currencies and oil transactions take place in dollars. When the dollar is weak, oil costs more. Second, Bush's policy of destabilization in the Middle East and South/Central Asia encourages speculation and uncertainty about the future availability of oil. That makes the price go up too. And of course, a big reason the dollar is weak is because of the war and the debt that Bush has imposed on the country to pay for it.

So Granholm is right to blame Bush for much of Michigan's woes. But she is dead wrong about it being Bush's trade policies that are cause. Rather it is the war and the slavish devotion to big business and corporate welfare that are causing the problem.


Anonymous said...

Agreed RbR. Didn't Bush also lead a consumer-based solution to the ailing economy? Spend for your country to... increase debt.

Don't forget the world basically ignoring what is happening in Africa which also affects the price of oil. In OPEC you have Algeria, Angola, Libya, and Nigeria, along with the Gulf countries (Indonesia -- which can't produce enough oil for it's own consumption -- Venezuela and Ecuador are the others).

Spotted Handfish

PS Citizens with bandwidth might enjoy

The Law Talking Guy said...

To use the shopworn phrase... Granholm may be dumb, but she ain't stupid. A bailout would be great for Michigan. So would protectionism for the auto industry, at least for a while. Part of democracy is dealing with the fact that the losers in globalism have their say too.

I agree 100% that US automakers have only themselves to blame for their failures. They blame it on expensive unions. True, the unions are expensive, but I think it's fair to say that German auto workers are also unionized and well-paid, but their companies thrive. The problem is not unionism, pensions, or any of that, but the refusal to take the super-high productivity of the US worker and put it to decent use, preferring instead (like Hollywood moguls) to produce sequels and supposed sure things like SUVs.

Raised By Republicans said...

Spotted Handfish,

Yes, Bush came out right after 9/11 to encourage people to go out and spend money for their country. That is part of what is causing the weak dollar too. And it continued the stupid fad for buying SUVs (along with some tax breaks for buying them).

Of course the US isn't the only country basing its economy on consumerism and deficit spending (indeed, as a percentage of GDP the US probably has less of a debt problem than most democracies - I'd have to check the data but that would be my guess based on the past few decades).

LTG is right that Granholm is probably serving the short term interests of her constituents and of course in a Democracy the losers from trade are entitled to a voice.

That does NOT mean that protectionism is the only way to mitigate the harm done to them. Look at what small countries in Europe do (see Small States in World Markets by Katzenstein). They are open to trade but use investment friendly tax schemes to fund generous education, health care, and unemployement insurance programs. That's the best solution in my opinion. That way you can mitigate the negatives of trade to the minority that is hurt by it without killing the goose that lays the golden eggs.

The only major American politicians I've heard that seem to grasp this are Bill Clinton and Barack Obama. The Republcians all want trade with no mitigation. Edwards wants protectionism with a huge welfare state (a recipe for a global economic disaster). I have no idea what Hillary wants but I assume that since she generally runs on her husband's record she has his generally positive attitude towards trade.

USWest said...

Another angle on this is to look at South Carolina. It has lost textile plants, but has had numerous car plants- many of them German- open up. In fact, on NPR yesterday, a woman from S.C. was saying that they were practically begging for an auto plant to open up in her area.

So the successful auto companies are looking elsewhere to put plants, not Michigan. Michigan is stuck with the big American three. I can't speak for the rest of the country, but in all over California, the Prius or Civic hybrid is the car of choice- except in rural areas where an SUV is probably necessary. And for a while, there were tax incentives to buy those!

The Big three apparently learned nothing from its past tangles with foreign car makers who beat them out. Automotive innovation is no longer at Ford or GM and it hasn't been for ages. So yes, people will loose their jobs . . . that is how the market works.

Raised By Republicans said...

Honda has a plant in Central Ohio so there are a few new plants opening up in the old auto industry country. But US West is right that Michigan in particular remains unhealthily dependent on the "Big Three."