Not allowing GM to fail is supposed to save the universe from the calamity of a lot of lost jobs.
Okay. I understand that. It's wrong about so many things, but I understand it.
First and foremost it's wrong because Capitalism is primarily useful for being the best system yet devised to find the most efficient home for resources. It isn't the levelest system, it doesn't provide the highest floor for the poorest amongst us, it is not supposed to create the highest quality of goods or any of a number of laudable goals. What it is, the reason it works, is that it allows the resources of an economy to flow toward those areas that are most efficient (or *more* efficient). It does this better than other systems because it recognizes that humans and their proxies can not find those areas as efficiently from a centralized location as can the system functioning at each individual decision point in that system.
Saving GM takes the only virtue that Capitalism has and renders it irrelevant. However many dollars we spend on GM are dollars inefficiently spent. Those dollars are not benefiting from being put to their capitalistically efficient use. All of those dollars have better places to be, in terms of creating real wealth for the economy. Capitalism provides no short term or local benefits. An individual can always find a way to tweak a bit, or goose a sector to make it appear that things are better than they are.., but there is always a price to pay for doing that, and it's in efficiency. There's a loss associated to making each of those tweaks like an increasingly complex machine loses efficiency in the form of heat. When you subsidize goods you make them attractive, but messing with it makes the economy less efficient and the entire system loses wealth. When you prop up a small business that efficiency loss is small. When you prop up GM (or AIG, for God's sake)...
GM is not too big to fail, it's too big to save.
6 comments:
GM is not too big to fail, it's too big to save.
I think you argue your point well.
He does, and that's because he's largely right.
The only question I have is the path-dependency of industry, and whether an intervention to modify that path can in the long run improve the efficiency of blind market forces.
For example, consider Airbus. It's pretty clear that it would not exist were it not for the governments of Britain and France and the subsidies they were provided. But the end-consequence (so much as 2009 can be considered an "end") is that they are bigger and better than Boeing and they are kicking Boeing's ass in airplane sales. The response from Boeing was to build the 787, which is a way better plane than the A380 and this may well tilt the competitive balance from Toulouse back to Seattle. We'll see. But the subsidies provided to Airbus forced Boeing to get better and now there is an aircraft industry in Europe which would not have existed otherwise.
Similarly, we don't know how the auto industry is going to play out. It may yet end badly. But it is clear that GM might and Chrysler would certainly have liquidated if not for government intervention. Maybe all we've done is prolong the inevitable. Maybe the sale of Chrysler and the radical changes coming at GM will tilt the balance back to the point that the US will continue to have a competitive auto industry, which would be a good thing. So, will GM be America's Airbus?
John Cougar says you have to believe in something or you will fall for anything. Matt, it is good to remember from time to time that you believe is something. Your absolute unshakable faith in the Pure Form of Capitalism would put snake handlers to shame.
I hope my faith is not badly placed. You will note that I did not say that capitalism does the most good for the largest number, and I did not say that it was the most merciful or the most moral system. What I very carefully said was that it was the most efficient system for finding a home for a dollar spent.
Capitalism is the most efficient form, which appears to be the best system so far at raising the median level of wealth and the aggregate size of an economy. I think that is often the best way of doing the most good for the greatest number, but I am not arguing that it's always the case.
In fact, and this is perhaps the piece you were missing in my analysis--by saying that GM is too big to save, I'm advocating for a return to actually stopping companies from becoming monopolies, which is an interference in the pure market. Stopping monopolies is much better in the long term than saving companies because they are too big. All companies will fail eventually, and it is a key virtue to let them die. When they are so big that it can be plausibly argued that you need to save them with public money, you've failed to get what you can out of capitalism.
Chris may lose his job because functional Ford is having to now compete with dysfunctional but propped-up GM. That is not just unfair, it's enormously damaging. In the medium term because it puts at jeopardy a much more efficient engine of wealth, and in the long term because it removes the penalty for failure for companies. I hope it's clear how bad a situation that is.
Capitalism in the US has succeeded because it has been treated as a system. For a complex system to be managed, it can not be tweaked or guided at the individual decision level. Research indicates a distributed optimization model works best for managing complex systems. The original research I've read was about managing the design of complex engineering systems (go figure), but I've read work which extends this to economic systems, which of course are even more complex.
I'd suggest this paper, which is pretty informative. I took a class from the author.
Matt, I think bringing and engineering/complex systems viewpoint to the economy is valuable. That viewpoint suggests you are right on the money when you advocate regulations that limit the size of a company (tweaking parameters) rather than trying to manage the individual pieces (rescuing GM).
This perspective also reinforces my belief that it is the role of the government to provide a safety net. Like you say, Capitalism doesn't do lots of things we'd like, but trying to manipulate it so that it does ends is a net loss. Therefor the idea of the government taxing so it can then help take care of those who don't fare well, is appropriate. That should be its focus in this crisis, rather than keeping individual companies afloat.
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