Available Now! (click cover)

America's Counter-Revolution
The Constitution Revisited

From the back cover:

This book challenges the assumption that the Constitution was a landmark in the struggle for liberty. Instead, Sheldon Richman argues, it was the product of a counter-revolution, a setback for the radicalism represented by America’s break with the British empire. Drawing on careful, credible historical scholarship and contemporary political analysis, Richman suggests that this counter-revolution was the work of conservatives who sought a nation of “power, consequence, and grandeur.” America’s Counter-Revolution makes a persuasive case that the Constitution was a victory not for liberty but for the agendas and interests of a militaristic, aristocratic, privilege-seeking ruling class.

Saturday, December 13, 2008

Republican Betrayal on the Auto Bailout

The Senate Republicans who killed the auto bailout betrayed the free-market principles they claim to embrace. (I know what you're saying: Is this really news? No, it's not.)

Why betrayal? The Republicans did not say they opposed a bailout on principle under all circumstances, which is what free-market advocates would be expected to say. Rather they said they oppose the House version of the bailout. In its place they favor one in which the United Auto Workers makes bigger concessions.

The Wall Street Journal editorial page said:
Senate Republicans ... asked the auto workers to show they were serious about making Detroit competitive again. In exchange for a lifeline from Washington, [Sen. Bob] Corker wanted the union to set a "date certain" in 2009 for lowering the Detroit Three's hourly labor costs to the average of foreign-owned auto makers in the U.S....

The union's counteroffer was that it would bring down labor costs in 2011, when its current contracts run out.
What's wrong with the Republican demand? What's wrong is that government has no business trying to abolish the wage differential between domestic and foreign-owned companies, which by the way is smaller than usually reported. (For the lowdown on the wage differential see David Leonhardt's article.)

It should offend any market advocate to see the government meddling in business-labor relations like this. By all means (well, not all means), work to deregulate and desubsidize business and labor, but do not encourage the state to determine the details of companies' labor relations.

It is hypocritical for Republicans to claim to favor the free market and then to use a bailout as a crowbar to break the union. If you favor the free market, say you favor the free market and oppose all bailouts on principle. If you favor government's breaking unions, say that. But don't sully the free-market position, as the Senate Republicans have done, by conflating the two. Are we to think it would have been some kind of libertarian triumph had the Senate GOP alternative passed?

Cross-posted at Anything Peaceful.

1 comment:

Kevin Carson said...

Oddly enough, I don't recall seeing any Republican demands that the Big Three reduce senior management salaries to the same level as Toyota's. And I don't think I saw any demands that GM abandon the GAAP accounting system that is at the heart of everything pathological in their business model (producing in large batches to "sell to inventory," without regard to whether there's an order for the product or even whether it works properly).

Must have been an oversight.

I read a columnist the other day who claimed that if you eliminate the wage-and-benefits differential between UAW workers at the Big Three and those at the Japanese transplants, it would reduce new car cost by about $800 (only about 5% of even the cheapest cars). As the columnist said, that's not enough of a difference to get him to choose the best new Chevy over the crappiest used Toyota.

I also recall reading, in a book on the recuperated enterprises of Argentina, that the new worker-owners quickly discovered the received wisdom about labor being the main source of unit cost was utter horseshit. GAAP principles treat wages as the main direct cost, so that conventional management focuses entirely on downsizing to "cut costs." But in fact, the Argentinian workers found that management salaries (which under GAAP principles are treated as fixed cost and absorbed into general overhead cost rather than addressed separately) were the main source of high unit costs. Simply eliminating all the bloated management salaries and rotating workers into management jobs resulted in enormous cost savings. And considering the number of CEOs who get $100 million severance packages for running their companies into the ground (e.g. Home Depot's Bob Nardelli, currently at Chrysler), it was probably a pretty rational savings. As Matt Yglesias said, the "cult of the CEO" ignores everything Hayek had to say about markets vs. planning.