I asked Megan McArdle, and here she responds.
The administration isn't kowtowing to the unions; it's trying to prevent massive job loss. Chrysler employs about 60,000 people. This is a rounding error in the number of jobs that have been lost since this recession began.
To put it another way, we could have taken the $8 billion or so we gave to Chrysler and given every one of the company's employees $133,000 to start their own War on Poverty, while still providing much of their pensions through the PBGC. Of cours, the new Chrysler is going to cut many of those jobs, so the cost of actual jobs saved will probably top $200K per. For as long as the company lasts. Which most analysts do not expect to be long, given that their super secret surprise scheme for turning everything around is to have Chrysler sell retooled Fiats to a country with one-seventh the population density and almost twice the birthrate of Italy.
They're bailing out Chrysler because the company is systemically important. Really? When Lehman failed, huge other portions of the financial system quite unexpectedly quit working. Yet when I look out on the streets, I see no noticeable dimunition of the number of cars there. When I turn the ignition key in my car, it still starts.
My best sense of the administration's argument is that of a very sick patient who needs, among other things, his gall bladder removed. Better to let that patient recover before the surgery, as it's never a good thing to operate on a guy whose immune system is challenged. Translated: Chrysler's probably gonna fail at some point. But if it were to fail during a perfect storm of adverse economic conditions, it could take the entire economy down with it. Better to prop up the company for a few years until the economic recovers... let it fail when the economy can sustain a blow like that.
Whose argument do you believe? Megan's? Or the White House's?
Megan forgets the multiplier effect, for every Chrysler job lost many others go down the tubes as well. Suppliers, waitresses, etc. Even Posner (hardly a liberal) agrees that you can't afford to take the risks involved of a Chrysler/GM collapse when we are on the brink of god knows what. Megan - Can you spell "tipping point?" Do you think you know where it is? As Cousin Vinny once asked - Are you SURE? Ever been in a canoe (a la Irving Fisher)? So the white house is putting off the inevitable until things are more stable. What is imprudent about that?
Well, one story about the imprudence of the administration's actions is that there is a tipping point in the erosion of the rule of law, too. Do you know where it is? Are you SURE? Don't you think we should avoid endangering it until things are more stable?
To Joshua Lyle =
How has the rule of law been harmed. Saying mean things about people who are worth more than the GDP of Denmark? How does that impair the rule of law please? What law makes it illegal for the president or anyone else to criticize someone? What about the Chrysler situation is illegal? And no, there is no tipping point as to the rule of law. Something is on one side or the other. So cite me to the portion of the U.S. Code that the Chrysler situation violated. I won't stay up tonight waiting.
There's this notion that we should have a rule of law and not of men. So, when the most powerful man in the world throws his weight around on a matter that should be a process of going through standard legal resolution, it doesn't really matter whether he broke the law per se, but whether he contributed to a situation in which people should now rationally expect the enforceability contracts to depend more upon his whim than on the process of law. So, on the contrary, I think there is a "tipping point" in the rule of law in the sense that at some point you start to worry more about the former than the later.
The rule of law is in no way being trampled or eroded and to suggest otherwise is needlessly inflammatory. The facts are simple: the administration worked to negotiate with Chrysler's creditors to avoid a bankruptcy because that would allow for more chance of success and would not harm the brand of the company as a bankruptcy would; they got that with 95% of it's creditors but hedge funds and investment banks wanted to liquidate figuring they could get more.
They miscalculated.
A court has upheld the plan that the majority of stakeholders want to push through; by a judge.
Where has the law been eroded?
Rule of law? Did you say anything about that the prior eight years?
And instead of responding to the substance of the post about the policy goal as to the Chrysler situation or my response Joshua tries to change the subject without answering my points. Also, I don't get Megan's point about Lehman. It seems to me that something happened in the first week of November and mid-January 2009 after Lehman went down. What does the collapse of Lehman have to do with the timing of when Chrysler should be allowed to expire? And why is Obama to blame for Lehman?
(Replying to Denver @8:56 here as comments only nest finitely)
You introduced the subject "what is imprudent about the the actions of the White House". I spoke on it. How is that changing the subject?
Lehman is relevant in the sense that it was allowed to fail in the conventional way, and the world did not end. Of course, by the framing of the debate that you've established, we can't be sure that any given firm being allowed to fail won't cause the world to end (because we finally crossed the tipping point), but we can talk, Molinari-style, about what is seen and what is unseen in discussing the potential risky consequences of actions.
Why, yes, actually. I think I might be slightly insulted by your implication.
In any case, the constant erosion of the rule of law and expansion of executive power under the previous administration sort of lends itself to a Denver-style point on the matter, to wit, how would one be SURE (the former said in the manner of Cousin Vinny) that any given addition move in that direction would not be the one that finally breaks the camel's back?
Very thorough history of Chrysler's booms and busts at BusinessWeek:
Why Chrysler Failed
"The company had been falling short for many decades, interrupted by moments of sheer brilliance that the company never managed to carry into the next era...Today the U.S. may have reached the point where Americans will never again cheer on an automotive underdog. That's always been Chrysler's best "hold" card. We'll soon see if Fiat understands how to play it."
This is a company that should have been put out of our misery long ago.
Chrysler failing now would retard the recovery the administration is pushing for right now; a good analogy is how the state budge cuts are off setting the stimulus bill that passed. Chrysler and GM going down would have I think greater second order effects that are greater than what we are now considering given the fears in the market and the specter of Lehman's failure.
Well, I don't really know what kind of recovery the administration is pushing for, but I'm pretty sure that what needs to happen is a sectoral shift in the economy, and the sooner Chrysler dumps it's hampering legacies and everyone proceeds with the reallocation of capital to other endeavors the sooner that will happen. Recovery is a misnomer. What we can hope for is new growth, not restoration of what has been revealed as failure.
First, you might be giving too much credit to someone who simply is not much for indepth economic analysis, and who is tainted by some pretty obvious libertarian biases that don't match modern economic reality too well. Second, the analysis she offers is pretty poorly argued, relies on analogies of questionable value, and ignores the multiplier effect of so many jobs being lost when we already have a depression on our hands. Nor, for that matter, is the idea of handing out cash the equivalent of trying to make the company functional in economic terms, whether at the local or national economic level. Sorry, but the crudity of McArdle's analysis is embarrassing and should not be taken seriously for even two minutes.
Well, since the administration has actual economists instead of smug glibertarians with M.B.A.'s pretending to be experts, I'm gonna go with them.
I think if glib person with a J.D. (who a number of professional economists more-or-less agree with) differs in position from a glib person with an M.B.A. (who a number of professional economists more-or-less agree with) we should at least give the proper Bayesian due to each (perhaps shifting our expected value while reducing our certainty), or, you know, actually rely on the quality of their arguments rather than their credentials.
Megan's response is predictably libertarian. In the ideal libertarian state -- use Somalia as an example (minimal government, low taxes, no nasty fiat currency and no nasty Fiat production) -- one doesn't need to buy a car. When you want to use a car you just take someone else's....
Against All Flags
But of course, it's those damn libertarians who are at fault for the sorry state of Somalia. Of course.
There is a third argument that may be more plausible. According to this argument, the Chrysler deal is not about Chrysler at all; it is about General Motors which _is_ a systemically important company. The Chrysler reorganization is nothing more than a shake-down run for the GM reorganization which the government cannot afford to screw up and drag out. It will also help adjust GM's bondholders' expectations in advance if the government can successfully administer a haircut to Chrysler's bondholders.