Bear Sterns, Lehman Brothers, Fannie Mae, Freddie Mac--the financial crisis keeps deepening. The stock market is taking a hit. But keep your eye on the real economy--where people go to work and earn their money.
We've had nine straight months of job losses. The plunge in industrial output in August was far worse than expected, led by a staggering 11.9 percent drop in production of motor vehicles and parts. Ford and General Motors are laying off workers across the country. Detroit is a basket case--but it isn't just Detroit that's in trouble.
So General Motors chief executive G. Richard Wagoner Jr. is looking for help from Washington. Not a bailout, but low-interest loans that can help the auto industry retool its assembly lines to build the cars of the future.
Needless to say, the timing couldn't be worse. The Federal Reserve has just bailed out Bear Sterns, and opened lines of credit to the unregulated shadow banking system. The Treasury just absorbed Fannie Mae and Freddie Mac, essentially adding another $5 trillion directly to U.S. debt, and putting at risk some $200 billion directly.
The deficit will soar to over $400 billion this year. And, of course, a slowing economy will drive down tax receipts and drive up spending.
Moreover, the auto companies don't exactly evoke sympathy. For years, they arrogantly focused on building trucks and SUVs, low-mileage vehicles that generate higher profit margins than smaller, more efficient cars. They used their lobbying clout to block higher mileage standards at the federal level for years. They spent more energy on suppressing electric cars and battery technology than on developing it. For them, global warming was an image problem, not a national imperative.
So why even think about providing help to these mastodons? I think there are two big reasons why Congress should act.
First, this is the heart of America's industrial system. If the auto industry goes into decline, the U.S. economy is in trouble. The automakers, along with their suppliers and dealership networks, are responsible for nearly 3 million jobs, according to government figures for June. Cuts on assembly lines lead to even more layoffs at auto-parts makers and other suppliers to the industry, such as steel, aluminum and chemical manufacturers. And dealerships--who employ more people than the manufacturers--are starting to shed people as sales decline. Combined, these layoffs will devastate the retail and service sectors in towns where the jobs are lost. It will be difficult to avoid a deep recession if the auto industry remains in decline.
Second, the auto industry should be at the center of America's economic future. This economy is in trouble. Short term stimulus isn't enough. We need a new economic strategy in the global economy. At the center of this must be energy independence--a concerted drive to develop renewable energy, capture the gains of conservation, and reduce this country's addiction to foreign oil. Done well, this can make America a leader in the green technologies and alternative energies that will be the growth markets of the future. Regaining a lead in building the green cars of the future should be at the center of that effort.
A loan is not a bailout. These loans aren't simply for the auto industry, but for the country itself. Labor and management are on the same side of the table; their interest in saving the industry is the same, as is their interest in protecting it from unfair competition abroad, where a combination of heavy subsidies for local industry and high tariffs to keep out foreign competition put American companies at a serious disadvantage.
The globalization of capital and the globalization of workers' rights--of human rights--must go hand in hand. We can either rebuild manufacturing in this country or get ready to survive as a cheap place to visit for the European and Asian tourists from manufacturing nations.