Detroit Medley

So, the fate of GM and the other Detroit automakers has to be item #1 on McCain’s very lengthy list of things that make him glad he didn’t win the election. The issue of a big-three bailout is actually a nexus of a whole bunch of economic issues, and for that reason will tell us a great deal about where the country is going next, how much of the “change” Obama was selling will actually come to pass.

My observations:

Any bailout package had better demand fuel efficiency to the Nth degree, like 80 mpg in three years. I’m being serious. We should subsidize innovation only. The only thing worse than the federal government allowing gas guzzlers to be produced by American car companies would be the federal government subsidizing that production.

If GM hadn’t put so much health care into each vehicle, prices could have come down, or better yet stayed the same but made room for new fuel efficiency technologies. A huge chunk of the input cost of a Detroit vehicle today is in health care for employees, to say nothing of the 600,000 pensions being funded. Decoupling health care coverage from the employer-employee relationship is a global competitiveness imperative. In the end, national health care will not come because we think it delivers a better system of health management (and I think there is the potential for that to happen) but because we were forced by economic reality to compete with countries that provide health care for their citizens separate and apart from the employment relationship.

Good for the GOP sticking to their small-government guns on this one. Sen. Jim Shelby (R-AL) showed up on Meet the Press this morning to make the case for letting the patient die. This is a tough call for conservatives. If they stick to this position it will cost them in the industrial Midwest, in places like MI, OH, PA, IN, places they already had a tough time with in 2008. Their economic philosophy will be a ticket to them being a regional (South, interior West) party for the short term. But the only way you can really believe someone about their philosophy is when they stick to it in the face of crushing electoral failure.

I am really struggling with the economics of this one myself. We are supposed to be a free market country. So much of what went wrong in the Bush era was related to the favorable treatment of specific companies or industry sectors at the expense of the overall economy. I would hate to see the Obama administration start off on the same foot. I know we need cars. Is the “big three” model still a relevant answer? What if we let them fall apart and then a thousand little “Tuckers” were to rise in their place? Guys in their garages coming up with the next exciting thing in automotive, advertising it on the web, selling them via custom order and locating financing to get larger as the demand grew? That would be free market innovation and I’ll bet it would produce lighter, more fuel efficient, longer lasting cars.

Somewhere Dick Gephardt is shaking his head slowly and saying “I told them so.”