The Wall Street Journal documents Japan’s endless series of profligate pump-priming “stimuli” in the 1990s.
The experiment, predictably, failed.
Here’s Dan Mitchell with a critique that goes beyond Japan:
Technology: 2008 vs. 1992
See my comparison of the state of technology in 2008 versus 1992, when the last Democratic presidential transition took place.
Today, an average consumer can buy a terabyte hard drive (1 million megabytes), on which she might store her family photos, videos and other digital documents for as little as $109.99. In 1992, a terabyte drive, if such a thing had existed, would have cost $5 million.
Go to Forbes.com for the full article: “How Techno-creativity Will Save Us.”
Money Map
See Slate’s interactive guide to the bailout(s) (plural) (ad infinitum). Total committed so far: $5.596 trillion.
“Panhandlers!”
My old college roommate Jared Polis, soon to be a Democratic Congressman from Colorado, pens a terrific op-ed in today’s Wall Street Journal offering a unique non-bail-out solution to the automobile meltdown.
By waiving the future capital-gains tax on all investments in the automobile industry, we enhance the projected return models and therefore the likely occurrence of a privately funded “bailout.” There are turnaround firms and funds, and they are experts at what needs to be done. Tax exemption for gains would certainly get their attention. It also wouldn’t cost taxpayers anything because it only forgoes future government revenues that wouldn’t exist absent this incentive.
Quote of the Day
“Does the government really know whether a company should be saved?”
— Oliver Hart & Luigi Zingales, December 3, 2008
The Anti-Innovation Bailout
Tom Hazlett tells it like it is:
The real problem entailed by the auto-maker subsidies will never be discussed because it can never be seen. The opportunity cost of shovelling capital to companies such as GM is that companies such as Boeing or United Technologies or Disney or start-ups unknown will be unable to use it to fund their projects. Propping up today’s US car manufacturers means beating down tomorrow’s economic star. In an era of technological leaps, those emergent stars tend to be leapers. The bail-out puts the public’s chips on the former, pulling stakes from innovative rivals.
New Venture Firm: Potomac Capital
Thank goodness Nancy Pelosi and Harry Reid are reviewing the Big Three’s business plans before “investing” a couple hundred bil’ of taxpayer money. I’m so relieved. Silicon Valley could learn a few things from these bleeding edge venture capitalists…and the CEOs groveling for our money.
Bailing on Free Trade
Matthew Slaughter of Dartmouth’s Tuck School, one of today’s best thinkers on trade and globalization, says the consequences of any Big Three Auto bailout go far beyond the initial price tag.
First, it would hurt foreign direct investment in the U.S. and thus the insourcing of U.S. jobs:
In 2006 these foreign auto makers (multinational auto or auto-parts companies that are headquartered outside of the U.S.) employed 402,800 Americans. The average annual compensation for these employees was $63,538.
At the head of the line of sustainable auto companies stands Toyota. In its 2008 fiscal year, it earned a remarkable $17.1 billion world-wide and assembled 1.66 million motor vehicles in North America. Toyota has production facilities in seven states and R&D facilities in three others. Honda, another sustainable auto company, operates in five states and earned $6 billion in net income in 2008. In contrast, General Motors lost $38.7 billion last year.
Across all industries in 2006, insourcing companies registered $2.8 trillion in U.S. sales while employing 5.3 million Americans and paying them $364 billion in compensation.
Second, Slaughter says, a Big Three bailout could hurt U.S.-headquartered multinationals:
these companies employ more than 22 million Americans and account for a remarkable 75.8% of all private-sector R&D in the U.S. Their success depends on their ability to access foreign customers. . . .
This access to foreign markets has been good for America. But it won’t necessarily continue. The policy environment abroad is growing more protectionist. . . .
Will a U.S.-government bailout go ignored by policy makers abroad?
No. A bailout will likely entrench and expand protectionist practices across the globe, and thus erode the foreign sales and competitiveness of U.S. multinationals. And that would reduce these companies’ U.S. employment, R&D and related activities. That would be bad for America.
Rising trade barriers would also hurt the Big Three, all of which are multinational corporations that depend on foreign markets. In 2007, GM produced more motor vehicles outside North America than in — 5.02 million, or 54% of its world-wide total.
Finally, a bail-out further endangers the dollar:
Will a federal bailout that politicizes American markets bolster foreign-investor demand for U.S. assets?
Not likely. Instead, America runs the risk of creating the kind of “political-risk premium” that investors have long placed on other countries — and that would reduce demand for U.S. assets and thereby the value of the U.S. dollar.
Read the whole thing.
Bailing out Detroit means bailing on free trade and American innovation.
We Know Exactly What We’re Doing
With the government doing so many things so quickly to relieve problems it really doesn’t understand very well, what will be the results? Do we know? Do they? Not really. Not really at all. Just one unintended consequence among many cited today by Brian Wesbury:
Take, for example, the extension of unemployment benefits enacted in June. Normally, jobless benefits are available for 26 weeks. The extension, which will last temporarily through early next year, added another 13 weeks. Following this, between June and October – in only four months – the unemployment rate has risen from 5.5% to 6.5%, a full percentage point.What’s odd about the jump in the jobless rate is that it has been accompanied by an unusual increase in the number of people who say they are looking for work. Normally, when the unemployment rate leaps upward we see a decline in the share of the population either working or looking for work (what economists call the participation rate). Not this time.In order to receive unemployment benefits, a person must be looking for work, so the extension of benefits is artificially coaxing many people who would no longer be in the workforce at all to say they are still looking for work, just so they can continue to collect benefits. The unintended consequence is that the unemployment rate is boosted faster and further than normal in a recession, making it more likely that policymakers further extend benefits, boosting the deficit and pushing up future tax payments.
