TT's Lost in Tokyo — by TokyoTom

Henry Payne (cartoonist at the Detroit News and commentator at NRO) has a interesting post up on Feb. 18 at NRO’s enviro-bashing “Planet Gore” website: “Obama’s Washington Is the Enemy of Auto-Industry Reform“.  In it, Payne does a remarkable job of side-stepping the long history of the auto mess (poor governance, intransigent labor, counterproductive Washington meddling and competition from foreign automakers) and focussing on the blame that the Obama administration and “Washington Democrats” are likely to earn from further counterproductive policy.  In particular, he seems exercised that Dems are unlikely to eliminate the inefficient and costly CAFE standards.

Well, this seemed a little more myopic than I could stand, so I sent Mr. Payne the following note:

Henry, what did you expect to happen?  You can blame Dems for the mistakes that they will make, but Republicans are no better at governing, and it’s the car cos and the unions that are responsible for their current predicaments and unwillingness to budge.

“there will be no elimination of costly CAFE laws. It is shocking, in fact, that Washington Democrats are unwilling to even consider this fundamental, multi-billion-dollar reform. “

As for this, you are probably right – not the least because the Bush administration failed to act on climate change so enviro won the Supreme Court case that Jon Adler says essentially forces the EPA to do more of the same – but is anyone actually making a proposal that would include eliminating CAFE? 

But in this vein, back in the Bush heyday when Republicans had both houses of Congress, I’m sure Dems/enviros would have loved to trade away CAFE for rebated carbon taxes, or for improving power competition/smart grid a la Paul Joskow/Lynne Kiesling.  They might have even given up corporate income taxes entirely for such alternate revenues.  It is shocking, in fact, that Washington Republicans were unwilling to even consider this fundamental, multi-billion-dollar reform, that would have eliminated CAFE and avoided C&T pork and subsidies of the type that Obama and guys like Pickens wants.

But instead of even-handedness and looking for win-win deals, you can keep bashing Dems.  Good luck with that now, after Bush strong-armed Greenspan into creating this bubble, did a bunch of other nonsense and thus empowered Dems to finish off the job wrecking the economy – in order to “save” it.

While thinking creatively might not be easy, it’s a start at actually succeeding.

Best,

Tom

New York Times columnist Nicholas Kristof argues on Sunday that an auto industry bailout is needed given the importance of the industry to the US economy, and bases his conclusion on how economic mismanagement by Japan resulted in the “lost decade” there; his blog summary is a good precis of his column:

My Sunday column argues for bailing out the auto companies. It’s not that I think the arguments against a bailout are wrong — in general, businesses should have to have the freedom to fail — but conditions are so precarious right now that we just can’t afford another huge blow to employment and consumer demand. It may well be cheaper for taxpayers to sustain General Motors than to pay for the clean-up and burial if it expires.

I should add that my view on this is deeply shaped by my years living in Japan during the “lost decade” there. Anyone who watched the torment of Japan, and the failure of government to address it sufficiently aggressively, believes that we should err on the side of action.

It seems to me that, from my vantage point (in Japan in the 80s and since 2000, and observation of the US S&L liquidations), Nick Kristof has got the lessons from the Japan “lost decade” all wrong.  I said as much on his blog, and copy below the comments I left him:

Anyone who watched the torment of Japan, and the failure of government to address it sufficiently aggressively, believes that we should err on the side of action.

Nick, I think you fail to understand Japan’s lost decade, which certainly involved the government acting to provide massive capital support to prop up banks, thereby allowing zombie companies to survive, while further wasting public funds on roads and bridges make-work projects.

The Japanese would have been much better off either with (1) aggressive bank takeovers, liquidations and asset workouts – a la the US method in dealing with failed S&Ls, or (2) with doing absolutely nothing, which would have resulted in bank failures and the death of zombie companies.

Why are these better than direct bank bailouts or industry bailouts?  Because they stop wasting public and private capital on failed businesses, put idle assets in the hands of people who can do something positive with them, and contribute to growing economies.

Public intervention in the form of bailouts is pernicious because it not only lets politicians pose as doing something, but further takes wealth from private hands (either in the form of taxes, or borrowed capital that raises borrowing costs for others) and instead of letting private markets determine what are the most profitable areas for investment.  At their core, bailouts are actually a tax on future recoveries.