Things are only in a death spiral when the economy is shrinking over time. I expect the secret is finding the correct amount of growth and unemployment. If the government only attempted to correct the economy when unemployment get's over 10% it's going to have a lot more tools on the table than if it's tying to keep unemployment at 5%. What's really hard about economics is people quickly assume the way things where last year is the average even if the economy has been unusually good over the last 5 years.
The average auto worker is not producing 100k worth of value and the average banker is not producing 500k of value on wall street. But don't try and tell them that.
The average auto worker doesn't make 100k. Including health care costs and future pension benefits, they make 42k. That 100k number was thrown about and included pensions being paid to retired workers, but distributed that cost only to current workers. It made no sense. If the company evenly pays out $100 to 10 current workers and 5 retirees, you can't say the current workers each made $10. They made $6.67.
Looking back including heath care and pension and adjusting for inflation, many autoworkers made over 100k/year in 2008 money. Benefits, and pensions are not "free" they cost the company money. A major problem at GM is they ignored the long term cost of these "benefits" and agreed to insane levels of compensation for their senior Union workers. When the times where good the company agreed to things assuming that times would always be good.
EX: The jobs bank program is not a big deal if you run the numbers assuming constant growth forever.
Looking back? GM made a bad bet in the 70's/80's. Many annuity companies made the same mistake. That doesn't mean that current workers are making 100K. All of these articles about paying current workers 100K are totally disingenuous.
They also all focus on how American workers at Japanese owned plants make so much less. They never mention that American-auto company executives make orders of magnitude more than their Japanese counterparts.
The problem is the "gate keepers" who let short term thinking infect their decision making process. I don't think it's the fault of the Auto Worker that they learned how to bargain. I don't think the banker messed up by making 500k. I think the people taking a negative amortization zero down payment loan on a house they can't afford could have made a good decision. Live in a house for 3 years at less than the cost of renting what's not to like?
PS: The Japanese Yen just increased 25% so a lot of these US vs Japan comparisons are not as unbalanced as you might think.
Those same racketeering statutes also do things like say prevent unions from making secondary-strikes, which is why unions in americahave been all but completely neutered for the last 100+ years.
> They never mention that American-auto company executives make orders of magnitude more than their Japanese counterparts.
That's because the total amount of money for executive compensation at US auto manufacturers is in the noise.
BTW - GM could probably handle the wages and pension if it got Toyota's work rules AND could concentrate on building the cars that it can sell at a profit and stop selling the ones on which it barely makes any money. The UAW won't accept Toyota's work rules at "American" auto makers and Congress insists on CAFE.
The folks who want an economy car prefer Toyota, Honda, etc. They'll only buy GM at a significantly lower price, which means that GM has to make money elsewhere. (And, thanks to the rule that says that GM's imports don't count toward CAFE, it gets to make them under UAW's GM rules.)
Or, alternatively, the unions made some bad decisions and forced management to accept them. It's not the wages, it's the work rules. [1] The US car companies are "paying people to sit home and watch Oprah".
Completely agree on the executive compensation. Maybe the union should be abolished and management and employees should be given enough dividend producing equity to care about the actual profitability of the company. If management and the union drive these companies out of business, I'm paying their stupid pension.
Also, US health care costs are approximately twice those of any other industrialized nation. Auto workers are not getting benefits that are disproportionate to workers elsewhere. Rather, auto companies are paying inflated rates for ordinary benefits. The entities which really benefit are the various health care monopolies (drug companies and so-forth).
> I expect the secret is finding the correct amount of growth and unemployment.
It's not clear that there is "the correct amount". There's probably a correct amount in a given line of work at any moment in time, but that's not actionable.
The problem with trying to guide the economy is that the guiders always have an agenda.
I don't think these things need to be extremely accurate. If there is a lot of work for plumbers and little for physicists then some of them will make the jump. If the average person is unemployed for 3 months every 3 years that's 8.3% unemployment. But, while 2 weeks every 6 months is not that bad 1 year every 12 is a killer.
My point is simply that a light hand is probably better, but avoiding acting when things are getting really bad is a horrible idea.
> My point is simply that a light hand is probably better, but avoiding acting when things are getting really bad is a horrible idea.
Govt doesn't do "light hand". Moreover, doing the wrong thing is worse than doing nothing. The US govt is still trying to protect textile jobs in the Carolinas. (It would be mean to point out the mess that is govt efforts wrt the auto industry.)
When proposing/supporting regulation, it's poor form to assume that it will be done "correctly" by "the right people". Instead, you should assume what we actually observe - that it will be done badly, if not maliciously, by incompetents.
If you want to assume "correctly by the right people", make an existing govt system IN THE US work that way.
You're assuming (1) "a light hand" is a stable situation and (2) that the folks doing the acting will do
I am suggesting a light hand is a better approach than what we have been doing. IMO, it is much harder to try and get the government to do nothing about the economy than to get the government to take it easy.
Example of the government using a "light hand" the borders. Food safety inspections. Most pollution controls.
There are plenty of areas where the government's approach is to wait for problems and then step in. The millions of illegal immigrants in the US is not really a hard problem to stop from an enforcement standpoint, but in this case the government seems to focus on the appearance of doing stuff vs actually doing stuff.
The average auto worker is not producing 100k worth of value and the average banker is not producing 500k of value on wall street. But don't try and tell them that.