Sunday, 29 November 2015 03:02

Hendrickson's View

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Hendrickson's View

Mark W. Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are republished from V & V, a website of the Center for Vision & Values.

The Big Three: Assigning Blame and an Alternative to a Bailout

I've already explained the problematical economics and ethics of a federal bailout for the Big Three (see "A Bailout for Detroit" in the December issue of the St. Croix Review). The demise of the pillar of metro Detroit's economy saddens me -- I'm from there; in fact, I was once a janitor for Chrysler. If there can be any profit from this pending tragedy, it will be if we learn what caused it and avoid repeating those fatal mistakes in the future. With that objective, I'll present my two cents worth on where the responsibility lies, and then I'll offer an outside-the-box alternative to a taxpayer-funded bailout.

The Big Three are terminal because their labor costs are too high. Toyota, Honda, or Volkswagen can manufacture automobiles profitably in the United States because their labor costs are lower. The difference is 100 percent due to the United Auto Workers and the above-market compensation packages that its monopoly bargaining power has extracted from the Big Three for years.

I don't buy the endlessly repeated refrain of condescending know-it-alls that the Big Three's troubles were caused by stupid and irresponsible management choosing to produce high-priced gas guzzlers instead of low-priced, fuel-efficient vehicles. If management is "stupid," then why have GM and Ford consistently earned profits in their foreign operations? In "green" theology, SUVs are a cardinal sin, but from an economic standpoint, if you want to know why the Big Three has produced them, put yourself in management's shoes for a moment. First, a lot of Americans preferred to buy gas guzzlers when the economy was booming and gas prices were low, and it has never been considered poor management to provide what customers want. Second, confronted with a $2,000 per-unit disadvantage against their competitors -- due to labor and legacy costs imposed on them by UAW -- the Big Three have been noncompetitive in low-price, low-markup cars, and their only hope of earning a profit domestically has been to build larger, high-markup vehicles. UAW is the culprit here, having painted the Big Three into a dangerous corner that has turned lethal.

Let me emphasize that my gripe is not with the rank-and-file laborer, but with the union brass. When I worked at Chrysler, I developed a great fondness for many of my co-workers. They were decent, upright, salt-of-the-earth, true-blue Americans. Sadly, the rank-and-file autoworkers have been betrayed by their own union bosses. In recent decades, the union has destroyed hundreds of thousands of UAW jobs by pricing them out of the market. Aren't unions supposed to help workers? How are they helping their members if they kill off their jobs? Such cannibalism puts the lie to hollow rhetoric about the "solidarity of labor" and reveals the stone-cold heart of unionism, its utter selfishness and destructiveness.

We see that same ruthless selfishness now in UAW's refusal to make any concessions, even as they warn that "millions" of jobs that depend on the Big Three will be lost if the companies aren't saved. This smells of blackmail. UAW is playing a giant game of chicken with Uncle Sam -- "We (UAW) refuse to accept less compensation, so if you (Uncle Sam) don't bail us out, you will cause an economic disaster in Michigan." Huh? If UAW really cared about its home communities, it has long had it in its power to preserve the economic viability of the Big Three by accepting wages comparable to those paid to Americans who make Hondas and Toyotas in the States. Instead, it refuses to help save its own communities. This is the bitter reality of unionism.

That having been said, it's time for a "hail Mary" pass in a last-ditch effort to rescue the Detroit auto industry, and here I'm going to flip-flop and sound pro-union. I propose that ownership of the Big Three be transferred to UAW. The current shareholders are already largely wiped out. Compensate them by giving them warrants that they can cash in if the Big Three return to profitability under UAW ownership.

It's time for UAW to do the heavy lifting. Let it decide what is a "fair" wage for its members. If the union members set their own wages, that would end the poisonous adversarial relationship that currently exists between management and labor, and that has culminated in UAW throttling the Big Three -- the geese that have laid the autoworkers' golden eggs. The union can quit wasting energy hating management for denying them "what they deserve," and could pay themselves whatever they want. Let them run the show.

That would be most illuminating and educational for other workers, unionized or not. Maybe, just maybe, a crash course in economic reality would impart the lesson that a worker is better off working 40 hours per week at $40 per hour compensation than zero hours per week at $70 per hour.

If the Big Three want to be saved, let them save themselves instead of asking us (the taxpayers) to subsidize their current compensation structure. If they try to save themselves, I truly hope they succeed.

Dancing with Fred or Frankenstein: Free Markets, Socialism, and the Bailout

[Written December, 2008.]

Washington's $700 billion bailout plan is making a lot of people unhappy. The Troubled Asset Relief Program (TARP), as the implementation of the Emergency Economic Stabilization Act of 2008 has come to be known, seems to be morphing unpredictably.

Originally, TARP was supposed to help stabilize financial institutions by buying from them what are euphemistically termed "impaired assets" -- that is, gobs of unmarketable, even worthless, financial junk. This plan was abandoned within days. Shortly after TARP was unveiled in September, $250 billion of capital was "injected" into banks, sometimes by purchasing shares of stock, other times via loans. On November 12, Secretary of the Treasury Hank Paulson, who was placed in charge of TARP, announced that the focus of the program was shifting to an attempt to facilitate consumer loans. What Paulson will do tomorrow is anybody's guess.

Meanwhile, as Paulson and associates tinker with TARP, the stock market has sunk to new lows and the economy continues to deteriorate. In fairness, we can't say that we weren't warned that this might happen. President Bush plainly stated on television that things would get worse before turning around. Secretary Paulson told us that the $700 billion rescue bailout plan might not work.

Now the critics are calling for Paulson's head. Among other things, they say he's incompetent. This is both true and untrue. As top banana in a hugely successful investment bank, Paulson showed himself to be highly competent. He is not an incompetent person or financier. That said, he has proven incompetent to find a way to use $700 billion to stabilize the American economy. Well, surprise, surprise. Yes, Paulson is "incompetent" in this regard, but vilifying Paulson for not being able to save the economy makes no more sense than condemning him because he can't flap his arms and fly. Nobody -- from the eminently wise Paul Volcker, to Nobel Prize-winning economists, to the world's greatest genius -- could fix this economy, even if they were given ten times the money placed at Paulson's disposal.

Last week, I asked my Economics 101 class why they thought Paulson was having such a hard time pulling us out of our economic tailspin. A hand went up and a young man said something like: "Because he doesn't have enough knowledge to know how everything should fit together." Bingo! That's it in a nutshell.

Any economy, but especially one as large as ours, involves millions of people, billions of daily decisions, and countless individual assets, contracts, obligations, abilities to pay, etc. What is the "right" price for each asset? Which contracts and obligations take precedence; what is everything worth, and what companies are most worth saving? Answer: Nobody knows, and nobody can know. This is the fatal flaw in socialism. Socialism doesn't work -- it can't work -- for the fundamental reason that only a market pricing mechanism can bring supply into balance with demand and rationally coordinate the economic activities of millions of persons.

To use an analogy, the difference between central planning and a market-based economy is comparable to the difference between the Frankenstein monster and Fred Astaire. Nobody planned or built Fred Astaire -- his grace, coordination, and fluid motions came naturally. That's the way a market economy works, with prices continually adjusting so as to coordinate the actions of millions of people. By contrast, when Dr. Frankenstein tried to artificially construct a man, assembling the different parts and patching them together, he produced something hideous. It resembled a man (two arms, two legs) but the creature's movements were slow, clumsy, pathetic, and ultimately destructive. Such is the nature of a socialist economy, where necessary adjustments are slow, supply and demand are uncoordinated, production is herky-jerky, and economic progress is pathetic.

Socialists don't understand that you can't make economic activity be coordinated; you have to let it coordinate itself through market prices. This is Socialism 101, and it is why Paulson and any eventual successors will not be able to put the fallen Humpty Dumpty of the American economy back together with top-down planning. Only markets developing themselves from the ground up can accomplish this.

TARP is doomed to fail. There is a sliver lining in this wretched political experiment, however: As Americans see TARP degenerate into a spectacle of corporate lobbyists trying to grab what they can from the government pinata, resistance to future bailouts will grow. And as they see that government planning solves nothing, producing nothing but political inequities, maybe, just maybe, they'll be willing to support market-based solutions.

The Threat Within

Human nature has a blind spot. We often detect external flaws faster than internal ones -- seeing the speck in our neighbor's eye sooner than the beam in our own, to use the biblical metaphor.

This same tendency exists at the national level. Such blindness can be fatal, as Ralph Waldo Emerson warned when he wrote, "A nation never fails but by suicide." In America today, we readily perceive the dangers posed by international terrorism, hostile foreign regimes, uncontrolled immigration, the global narco-gangsters, etc. It is the threat within that seems to be off the radar screen.

The fall of Rome and other dominant civilizations manifest similar pathologies -- imperial overreach, runaway spending, erosion of money's purchasing power, personal debauchery. At the most fundamental level, national suicide follows moral decay. Hard work, thrift, deferring self-gratification, self-reliance, the individual virtues that enable people to prosper and civilizations to thrive -- fade away. They are supplanted by self-indulgence, borrowing from the future to live it up today, refusal to accept personal responsibility, and wanting something for nothing, even at the expense of innocent others.

Sad to say, there are signs of such rot, such weakness of character, all around us today. Our nation is drowning in debt. Our culture is increasingly ignoble and hedonistic -- people would rather read about Brittany Spears and Paris Hilton than Michael Monsoor and Ross McGinnis (two Congressional Medal of Honor winners who gave their lives in Iraq). Many Americans are afflicted with a sense of entitlement, believing that "society" owes them a living and that they shouldn't have to work to improve themselves. Millions want to feed at the government trough rather than put forth the necessary years of effort to succeed on their own. They demand ever-larger handouts from Washington -- that is, from their fellow citizens who pay taxes.

So widespread is the insidious belief that individuals have an inherent "right" to government support that politicians are locked into a permanent search for ways to confiscate more wealth from more people. Private property -- the basis for so many other human rights, and the indispensable prerequisite for social prosperity, indeed, the very key to our country's economic success -- is under siege and our future at risk.

Anecdotes illustrating this moral rot abound. The most memorable I ever heard was during the Whitewater scandal, when the possibility was raised that Bill Clinton had defrauded the American taxpayer. At a public presidential appearance, a woman called out from a crowd "Don't you worry about Whitewater, Bill, just keep our welfare checks coming." Translation: "Steal if you want, Mr. President; just give me my own little piece of something-for-nothing."

Recently (on October 17, to be exact) radio talk-show host Sean Hannity asked callers to say why they favored Obama for president. What followed was a depressing succession of people saying that Obama would give them more money, free health care, and other goodies. Totally forgotten was Democratic President Kennedy's appeal, "Ask not what your country can do for you . . ." In its place was the piggish attitude, "I want it. Promise to give it to me and my vote is yours."

As pathetic and demoralized as such me-first attitudes may be, individuals like those aren't the crux of the problem. The real culprits are their enablers: Educators who fill their minds with the notion that political taking, rather than economic service to one's fellow man, is a legitimate way to profit; "intellectuals" who scorn property rights and define "justice" as government redistribution of wealth, clergymen who confuse socialism with Christianity; and especially the demagogic politicians who pander to them. The pied pipers of this ethical plague, not the mice they mislead, bear the primary responsibility for the culture of thievery that is corroding the fabric of our republic.

Indeed, our outrage should not be directed at the poor dupes, but toward the rich and powerful, and their congressional allies, who use government to enrich themselves. Congressmen pontificate about helping the little guy, and then give subsidies to millionaire farmers. They publicly commiserate with the middle-class family who can't afford mortgage rates adjusted up to 8 or 9 percent, and then approve when the Fed and Treasury Department arrange 2.5 percent lines of credit for wealthy Wall Street firms. They lament Joe Lunchbucket's economic challenges, then dole out billions of dollars of earmarks and corporate welfare to their country club buddies. Who can blame the small fries for wanting relatively modest handouts when they see all this?

Congress is leading the assault on private property, and reaping a windfall from it. The gold-plated health insurance and retirement plans, the all-expenses-paid vacations, the millions in cash that pass through campaign accounts and PACs . . . "public service" pays well these days. Since they oversee a trillion-dollar political market for stolen goods, it shouldn't surprise us that members of Congress skim a relatively modest commission of a few million for themselves.

The U.S. Congress is becoming as corrupt as the Roman senate, which kept transferring property from the productive sector of society to the unproductive sector, until finally the productive sector collapsed and Rome herself fell. We aren't at that stage yet, but there isn't much time left to wake up and confront the moral rot that threatens to sink us.

The Problem with Monotheism

When an author argues that there is no God, that's his personal business, something between him and the Creator. But when an author, in addition to denying God, asserts that monotheism is a net negative for the human race, rebuttal is in order.

In recent years, atheistic authors have claimed that monotheism is a blight, because such faith engenders war. While it is true that the histories of Judaism, Christianity, and Islam include many episodes of intrafaith and interfaith violence, only someone with an unbalanced knowledge of history could fall prey to the error that monotheism has made the world a meaner, more violent place.

War has been part of human history, both before and after the emergence of monotheism, and both where monotheism prevails and where it does not. Wars are generally fought over territory and wealth, even where differing religious beliefs are involved.

Is religion a major cause of war? Not for the United States. Not one American war -- Revolutionary, 1812, Mexican, Civil, Spanish, World Wars I and II, Korea, Vietnam, Iraq -- was fought over religion. Furthermore, blaming monotheism for the world's violence at this juncture in history is willful blindness. In the 20th century, brutal, tyrannical regimes inflicted more than six times as many fatalities as did wars. (Google "R. J. Rummel democide" and click on the "20th century democide" link.) 20th century aggressors and tyrants -- the three most murderous being Mao, Stalin, and Hitler -- were predominantly atheistic.

Authors who condemn monotheism seem oblivious to how much their own comfortable, free lives owe to the historical impact of monotheism. The pre-monotheistic worldview was pagan. Paganism exalted nature above all, and taught human subjection to nature. Paganism was fatalistic; it inculcated resignation to a static social order. To the pagans, individual lives were unimportant, cheap. The welfare of the collective, which in practice was the welfare of the ruling elite, was supreme. There was no theory of individual rights opposed to this arrangement. If you were born a drone, you lived the life of a drone, and if the rulers decided that your life should be forfeited to the sun god or in some military campaign to obtain booty for the rulers, then your fate was sealed.

The Judeo-Christian tradition's greatest contribution to the human race has been to liberate the human race from the stifling and deadly paganism that preceded it -- and that is trying to defeat it today. Monotheism impelled the search for scientific knowledge to tame the natural world. Judeo-Christian teachings gradually imbued human thought with ethical values that spawned the doctrines that all men are created equal, that they have inalienable rights, and that rulers are not above the law. The free market -- based on that premise of God-given rights -- has lifted masses of people out of poverty for the first time in human history. All three monotheistic faiths teach their followers to be charitable to those in need. In fact, the widespread calls we hear today about helping the less fortunate, even when made by unbelievers, are cultural echoes of our monotheistic traditions. It is hard to imagine how much poorer and less free we would be today if not for the leavening influence of monotheistic teachings.

That having been said, there is a problem with monotheism: monotheists. We who profess monotheism and know that we shouldn't sin, sometimes give in to sin and do things to our fellow man that our faith teaches us are wrong. In the case of a minority of fanatics, the sin of self-righteousness drives them to aggression against those who don't share their religious sense. This is because the limited human mind is incapable of fully comprehending the Deity. We each grasp small portions of this one infinite Supreme Being, and then make the mistake of concluding that we are qualified to impose that imperfect view on others.

It is worth noting, however, that the antidote for such self-righteous aggression is found in the very Bible that atheists find so unbelievable. The Lord Jesus directs us to get the beam out of our own eyes. The apostle Paul tells us to work out our own (not the other guy's) salvation.

Those who bash monotheism are justified in exhorting monotheists to do a better job of practicing what we preach. In turn, I urge them, too, to practice what we preach (again, not in terms of how to relate to the Deity because that is each person's private business -- but in terms of how we relate to each other, since that is public business). After all, wouldn't everybody prefer to live under rules like, "Thou shalt not kill," "Thou shalt not steal," etc., than help to protect individual lives? Can atheists think of a better formula for peace than the Lord's Golden Rule given in the Bible: "Do to others what you would have them do to you" (Matthew 7:12)?

If these guidelines for social interaction hadn't been given to us by divine commandment, human beings would need to invent them. But which approach would be more likely to instill obedience -- obey these rules because you are accountable to God, Who will judge you, or do these things because Andy Atheist says that is what nice people do? Personally, I'd rather trust the peace and prosperity of future generations to monotheists, who recognize a higher authority than human will, than to atheists, who do not. *

"If an American is to amount to anything he must rely upon himself, and not upon the State; he must take pride in his own work, instead of sitting idle to envy the luck of others. He must face life with resolute courage, win victory if he can, and accept defeat if he must, without seeking to place on his fellow man a responsibility which is not theirs." --Theodore Roosevelt

Read 3731 times Last modified on Sunday, 29 November 2015 09:02
Mark Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Value, and

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