I was shocked to find myself agreeing with Republican Senator Bob Corker as he questioned the Detroit automakers last week -- at least with his assessment of the problem, if not his conclusions. Corker put it in stark terms -- we wouldn't be in this particular mess if it weren't for General Motors, which is likely to go bankrupt by the end of the month without a federal bailout. Ford, on the other hand, borrowed billions of dollars last year at low rates and, if not exactly sitting pretty, is at least like to survive into next year. And Chrysler, the third leg of this dysfunctional troika, is owned by a private holding company, which is loaded with cash but reluctant to put another nickel into what is clearly the weakest link in a failing industry. The real shock is that the automakers, and other members of the Senate committee, pretty much agreed with the picture Corker painted.
The question, of course, is what can be done about this mess? Everybody in the auto industry is staring into the abyss -- the automakers, the unions, the suppliers, the dealers -- not to mention the government and the taxpayers. There's plenty of blame to go around -- including Hank Paulson and the Treasury Department for refusing to release a few billion in TARP funds to the auto industry while the banks are taking hundreds of billions in public money to pay dividends and make acquisitions. And Ron Gettelfinger brought up the excellent point that American trade policies which permitted countries like South Korea to export tens of thousands of cars to the U.S. while at the same time severely restricting imports of American vehicles. Unfortunately, issues of free trade and industrial policy get tabled while the government deals with the potential bankruptcy of our entire auto industry.
Dr. Mark Zandi, the chief economist for Moody's Economy.com, presented what is likely to be the shape of the eventual compromise. Zandi argued for an immediate $17 billion to go to GM and Chrysler (with nothing to Ford) and a strict set of benchmarks to be revisited by the end of March, when he predicted that the automakers would be coming back for more money. The eventual price tag for saving Detroit, Zandi estimated, could reach $75-$125 billion. Although he didn't say so, it sounded like Zandi was implicitly agreeing with Corker's assessment of the predicament, but wasn't willing to let the automakers fail in the midst of this crisis, since it could launch the economy into an even more serious meltdown. Zandi's compromise proposal, of course, raises the question whether this kind of halfway measure will ever work, or whether it is the beginning of a slippery slope, pouring good money after bad. In effect, that is the crux of Corker's argument.
What this latest iteration of the economic meltdown suggests is that we ought to be looking at the larger issues raised by the crisis in the American economy - indeed in global capitalism itself. Do we need big changes in our economic structure, or would that be overreacting to the present crisis? If we need big changes, do we need to make those changes immediately, or can the fundamental change be more incremental? Ultimately, how much control do we have over the fast-moving crisis? This last may not be a rhetorical question, since we may have more control than we think, once we figure out more clearly what the challenges are that we face.
Which brings me back to my shock at agreeing with Republican Senator Bob Corker's observations, if not his conclusions. Although Corker undeniably comes from a very different political and ideological perspective than I do, and his conclusions about what actions should be taken are also very different from mine, there is no denying that his assessment of the problem is dead on. This is the kind of honest, concrete discussion that has been missing for the past eight years of a Republican administration. It also bodes well for a forthright dialogue on our economic woes. I would expect that President-elect Obama will be equally blunt in his assessment of the scope and nature of the challenges, and will engage the American people and Congress in a refreshingly honest dialogue on the way forward. In the midst a very dire crisis, that is one hopeful sign.