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Saturday, November 15, 2008

Economic Mess

So the economic news continues to be frustrating, to say the least. Stock markets are erratic and the losss are sobering. People are defaulting on home mortgages, personal loans, auto loans and credit cards in record numbers. Unemployment is hitting a frightening level and even stable companies are slashing their workforces. It seems every day we read about the federal government spending an obscene amount of money on something else that we don't understand. Our states are also turning in frightening news about their budgets and finances. It just seems the mess goes on and on. Is there an end to this mess?

I am not the smartest man in the world. I'm sure I don't even rank among the smartest men (or women) in the world. But there are things which I believe I do have a pretty good understanding of. I think the economic mess we are in can probably be traced to some fundamental choices we have made. They seemed like good choices at the time. But of course time has proven them to be rather poor choices. Let's examine one of those choices. We'll start today with the auto industry.

The American auto industry has been a model for the world. Heck, the U.S. pretty well created the auto industry and drove it with our consumption. Our government invested in highway infrastructure like no other place on earth and the world wanted to sell cars here. Though the numbers of declined, most analysts agree that the U.S. automakers are directly or indirectly responsible for a large portion of employment in America. Many Americans are employed making auto parts, steel for autos, shipping parts, manufacturing cars, designing cars, and of course selling and repairing cars. (And those are just the domestic brands.)

But many years ago, labor unions got involved. We as a country decided that the American worker needed protection from his employer, and we deployed the labor unions to do so. They negotiated good pay and benefits packages for their members - and everyone celebrated. Unfortunatley, that they wrested from the automakers wasn't sustainable over time. The foreign brands that are manufactured here now have a competitive advantage over the domestic brands because they aren't saddled with the pay and benefits costs that the domestic makers are. And so we strangle our auto industry.

I'm aware that some Americans think the domestic brands (e.g. GM, Ford and Chrysler) somehow "deserve" to go out of business. They figure they've manufactured junk and haven't been competitive in design or quality. Of course those people are entitled to their opinion. It's even possible that they are right. However --- and this is a big however --- choices have consequences.

Did we really believe that we could buy Toyotas and Hondas ... and expect General Motors to be able to continue taking care of our citizens?

Did we really believe we could drive a Suzuki or a Mercedes ... and expect Ford to provide employment for our children?

Were we so sure that Detroit could die as a city .... without consequences to our country?

I have to confess, I was one of those people who maybe didn't think about such things. I got fed up with the quality of two Ford products in a row - and got a Volvo. It turned out not to be such a great car (the air conditioning was crap). So I drove it for the six-year lease and then returned to the domestic brands. I bought a Chevy. It was a great car. Then my company gave me a car, so I ordered a new Buick. It too was a great car. But then was tempted back into foreign land, when my company offered me a Lexus LS400. An amazing car --- the sticker was twice the price of the Buick I had --- but I ignored that fact and just extolled the fact that it was a much better car. (In retrospect, it was not twice the car though.)

Eventually I returned to the domestic brands, and have been driving Chevy's now for years. A few years ago, my wife and I got new vehicles both at the same time. I got a Chevy and she got a Hyundai. It's several years later and we're still driving both. In all honesty, we can tell virtually no difference whatsoever between the quality of these vehicles. Both are SUV's. Both get decent mileage (for their size). Both have run like tops for years. There is no evidence to suggest that one is better than the other. They are both quality vehicles.

So what does this suggest? It suggests to me that the quality argument that may have held up at one time isn't really valid any longer. The domestic manufacturers are turning out just as good a product as the foreign makers. And they do so with a great handicap. So I think I can choose one car over the other.

But perhaps the considerations aren't just about the car. Perhaps I need to think about the impact to my country if I buy one car over another. I can empower the Korean economy - where American manufacturers aren't allowed to sell very many cars at all. Or I can empower the American economy, which is flooded with Korean cars. The thing I need to remember is that all choices have consequences.

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