Malthusian Angst

I am convinced that there is something buried deep in the human brain that just plain freaks out- collectively- when quarters get too close. It's the only way to explain the periodic panic (there's no better way to describe it) that grips human societies every so often, which I'm referring to here as Malthusian Angst. (Thomas Malthus, for those of you that may not know, was the classical English economist who famously posited that the earth had a finite capacity for human population http://en.wikipedia.org/wiki/Thomas_malthus, among other things). The latest incarnation of this panic, in my opinion, is Global Warming Angst.

Now, global warming may or may not be a reality. I am no scientist and never even played one on TV, and thus would not venture into such territory (not like me, I know). Opinions are utterly useless in science- mine or anyone else's- which is what the sceptics have been saying all along. I would simply echo the late, great Micheal Crichton's position on the subject ( http://www.michaelcrichton.com/speech-ourenvironmentalfuture.html), which should be required reading for anyone interested. To summarize, there is no scientific certainty of global warming; it is a theory, and anyone who tells you otherwise probably has a political agenda. It may very well turn out to BE a scientific fact- by which point it may be too late to do anything about it- but that's another matter. One thing's for sure, however: the level of anxiety collectively expressed by the educated Western world over the issue far outstrips any reasonable, rational response to the problem (real or imagined) and- in my mind- is simply the latest installment of Malthusian Angst. If you need proof of this theorem, ask yourself why people in dense urban areas are so much more prone to anxiety about this issue than people who live on farms. It's not surprising that most of the concern of this nature is from folks living cheek-to-jowl. Are people in London or New York City simply that much more prescient or intelligent than people in rural or suburban areas? Perhaps- but I doubt it.

There is some merit, I suppose, to the idea of retooling our entire industrial infrastructure to be green just for the Keynesian merit of doing so. Keynes (suddenly very popular again) once suggested that an entire self-sufficient economy could be comprised of people alternately burying and digging up bottles, and if you extend this to the current situation, it may be useful to go to all the trouble just for the churning effect it would have on the wider economy. If you are more of a zero-sum thinker, this won't make any sense to you at all. As far as I am concerned, the main issue is geo-political: I want to see Americans weaned from oil as an energy source simply to deny the almost uniformly distasteful regions that control most of it any more control over us than they already have. That this goal also happily coincides with the goals of those concerned with global warming is, I suppose, a pure coincidence.

Since I originally wrote this in December, the economy has gotten far worse, and in fact Obama has embarked on a number of Keynesian initiatives in regard to alternative energy sources. If nothing else, it will be fascinating to watch and may in fact relieve a great deal of this Malthusian angst.

In the last analysis, the answer is old news: nuclear power. It is the only rational alternative we have anywhere near the horizon, and is entirely practical. Put simply, if the French can do it (and they do, well and safely), we can do it. The old luddite brand of hippie is just going to have to grow up a bit and get over it. Investments in solar and other feel-good forms of alternative energy may get the headlines, but the reality is that nuclear will be the source getting the job done if we are ever going to wean ourselves off dirtier forms of energy.

As it turns out, attitude really IS everything

In 20 years of watching car salesmen operate every day, I have witnessed some fascinating aspects of human nature- the best and the worst. It's a lot like working in a perpetual sitcom. One thing really sticks out, however: life is what you make of it. You happen to it, or it happens to you. You decide.

And while this is probably not a huge revelation to most folks- it's almost a platitude, the sort 0f thing you see plastered on posters and spouted by motivational speakers- it is important to realize that its more than that. This sort of advice is dispensed like Prozac, but that's the problem: I think most people look at it as something you consume on an occasional basis to make you feel better. The insight I'm trying to impart here is that for those who really LIVE it- for whom it has become woven into their personalities- it is utterly transformative. These lucky few people- and I am lucky enough to know and work with some of them- just will not let the bastards get them down (so to speak). Even in this economy, they sell cars- a lot of them. They just keep going, always seeing the glass as half full, even if it's damn near bone dry. And moreover, there is a self-fulfilling prophecy aspect to this: their customers love being around them because they love the energy they radiate and the way it makes them feel (I suppose), and they tell other people about that. I have not read The Secret (and won't, thank you very much)but I believe this is what the author must be talking about.

This probably does not rank up there with the most blinding insights I have ever posted on this blog, but it is probably the most profound, ultimately, because I have come to the conclusion that it is fundamentally THE most important aspect of life one can embrace, and it is not just a platitude or a theory to me. I have witnessed it for enough years and in enough lives to testify to its absolute practical truth. It is the wellspring from which everything else good in life flows. Ignore it at your peril.

The Myth of "The Economy"

If I hear about "the economy" one more time, I'm going to blow a fuse. Referring to "it"as some monolitic, national issue is ridiculous. Talking about "it" this way makes about as much sense as talking about the collective batting average of Major League Baseball, and yet it is the only way we ever seem to talk about "it". "The economy"- in this macro sense- is a complete fiction.

All economies, like all politics, are local. The economy in metro Chattanooga and the economy in Dallas, or Erie, or Wichita, are all completely different animals with completely different rates of growth (or contraction) and completely different metabolisms, savings rates, housing prices, etc., ad nauseum. Of course, all economies are interconnected, and there are rarely huge differences in economic health in adjacent areas. It would be much more useful to think of them like temperatures on a weather map; like those temperatures, you rarely see huge shifts, but rather smooth gradients from one place to the next. I am suggesting here that someone adopt this model, and do it soon: it would do more to correct our thinking about the issue than anything else I can imagine. A monthly economic "temperature map" would be a truly useful and informative tool for policy makers.

The Fed does of course publish its Beige Book, which is a patchwork of reports from the different Federal Reserve branches around the country, in order to gauge just what the hell's actually happening out here. It does this, however, so that it can amalgamate the data and come up with an average that it can use to set one interest rate for "The Economy". As much as I wish there were a way to set different interest rates for different areas of the country, they just don't have that figured out yet, so this is a necessary evil. It is NOT necessary, however- and in fact entirely unhelpful- to carry this rubric forward into general discussion about economics. It's harmless (but facile) in economic circles, but it's downright reckless and stupid in wider reporting, because it almost always (unless you happen to living in the area which happens to fall on the average) entails a disconnect with the reader's reality. Talking about how bad- or how good- "the economy" is only serves to artificially frighten (or embolden) the reader, and thus spend money they probably should not spend, or save it when they should be spending it. In current terms, with consumer confidence at historic low levels, it is a particularly acidic and destructive way of thinking about it. It is very difficult for otherwise reasonably healthy local economies- like mine- to get any sort of economic traction when USA Today is constantly announcing that "the economy" stinks.

So- please- the next time you hear some reporter opining about "the economy" in these general terms, do us all a favor and slap them upside the head if they're within reach. Or write them a letter and ask them to do a feature on the Unicorn while they're at it- they might as well.

The Truth about Detroit

There are some points of emphasis in this debate that I wanted to clarify as we consider the subject. I have spent my entire life in the automobile business, and this has been a very frustrating- and ambivalent- experience. I hope these points will help Americans see the light.

1) To suggest that Detroit has been reckless or irresponsible for building large trucks and SUVs is ridiculous, and merely reflects the Statist mindset of the liberal pundits that frame so many of our national conversations. It’s a lie so often repeated, however, that most believe it. The “Big Three” builds what they feel the American public will buy, which is, of course, how Capitalism works. Foreign manufacturers have always done a better job with fuel efficient vehicles, because their home markets demand them, and it was, therefore, their stock in trade when they entered the US market a few short decades ago. It is worth noting here, however, that for all this hype, hybrid sales amounted to just 2.5% of all light vehicles sales through the peak of gas prices in July of this year, and even highly fuel-efficient internal combustion vehicles amounted to just a small fraction of overall light vehicle sales. Clearly, the journalistic prejudice towards the American automobile manufacturers (which Detroit has managed very poorly, to its discredit) has distorted the debate. No one possessed a crystal ball to foresee the recent spike in gas prices; Toyota’s most recent venture, after all, was to build full-size V8 pickups in San Antonio, so the entire industry- if not the entire world- missed the call on this one. The fact is that the lack of a coherent national energy policy led us here, which Warren Brown eloquently explained in his recent Washington Post opinion piece[1].

2) No one holds the UAW in lower regard than GM dealers, or GM itself. They have been a millstone around our necks for many years, and though they may be beginning to see the light in some respects, there is no question but that the slide to inferior quality that led to Detroit’s decline is blood on their hands. What seems to be missing from the debate, however, is the realization that GM is their virtual prisoner by dint of culture, geography and federal law. This arrangement is not the result of management improvidence as much as one of history and circumstance. It is a crying shame that the only suggestion to solve the dilemma thus far involves a bankruptcy judge, but, as Holman Jenkins of the Wall Street Journal has suggested, it is a Washington problem as much as a Detroit one; the complex arrangements regarding CAFE requirements and labor contracts- mandated by Washington- are at the heart of the problem. I am not sure there is an easy answer to this one, but I for one would like federal support tied to some sort of provision that would permanently alter this parasitic arrangement so that the interests of unions and management are better aligned, permanently. Done correctly, this could also inform the dialogue on card-check legislation- as a cautionary tale- such that the public will understand just what’s at stake.

3) What must emerge from this mess is a sound national energy policy. We can’t have arbitrary state intervention in free markets, but it’s another thing entirely for government to create a framework for markets which establishes predictability and pushes the market towards service of the national interest when it otherwise resists. The Toyota Prius would not exist were it not for the Japanese government’s help, and I am sure you’re aware that public-private cooperation is the rule- not the exception- in Japan, Germany and Korea. As much as I hate the idea of any new taxes, a new federal gas tax- one that progressively declines as gasoline prices rebound and tapers out entirely at the point of real consumer pain- would not only generate critical revenue for this rescue but also allow American automakers to retool and plan with confidence for a market that will actually buy the more fuel-efficient vehicles that new CAFE requirements mandate they produce. We also must have more transparency in crude oil futures trading, so that bubbles like the one we just experienced are mitigated or eliminated. For all we know, the Russian oil oligarchs have just succeeded in a plot to steer us over an economic cliff in order to line their own pockets and strategically damage our economy and tax base. One thing is for sure: there is no way, looking at a 5-year price chart of crude-oil prices, that one can explain this spike with the normal laws of supply and demand. A commodity as critical to national security and economic health as crude oil simply must be traded more responsibly and transparently.

4) It is disingenuous to suggest that the Big 3 have been on a level playing field for all these years. After getting us through WWII (so often forgotten), Detroit took on health care and pension obligations at a time when there was a widespread imbalance of power between labor and management in America. Their foreign competition, coming late to the party, never suffered these costs. Detroit also lacks the cooperation and coordination from Washington that foreign automakers openly receive from their governments. Because this is the freest market in the world, it is also the most competitive market in the world, so vehicles here transact for thousands less in currency-adjusted dollars than they do in European and Asian markets, while foreign makers enjoy better profit margins in their protected home markets. Again, although the conventional wisdom seems to be that it’s always been a level playing field and the home team just stinks, that is just not the case. The home team has weights strapped to its back, playing uphill, and has little fan support. Despite these challenges, some elements in Detroit have made significant progress, and we should recognize and encourage that progress, while helping remove the burdens that have made them uncompetitive.

5) It is absurd to lump GM, Ford, and Chrysler together in this debate. There’s only one of the three that has made no significant progress in quality, safety, or powertrain innovations, and that same company has been to the well for federal help once before. This is easy for me to suggest, as I am not a Chrysler dealer, but my point here is that even though I firmly believe Chrysler should be sold or merged into a larger company (foreign or domestic), even it cannot be permitted to simply fold in this environment. Such a failure would very likely set off a cascade of failures with catastrophic economic consequences, and we cannot afford to take the chance of tipping the economy into a depression. The best solution might involve tying aid to “litmus tests” out on the calendar such that- as was the theory behind the original TARP fund- the troubled assets of these companies can be returned to the market when the market is better able to absorb them. Crandall and Winston of the Brookings Institute recently suggested such a plan, and I think it makes quite a bit of sense.

6) Automobile dealers have a symbiotic relationship with the auto manufacturers, not a parasitic one; we are their customers as much as the consumer is ours. As the saying goes around here, “the factory retails to us and we wholesale to the public,” which, based on margin, is an absolute fact. Unfortunately, we dealers are largely captives of our respective manufacturers, which is why we have such strong state laws to protect us from abuse. The manufacturers compel us to invest tremendous sums of money for their brands in our markets, while relying on us to purchase parts, accessories and collateral materials from them. And even though it is rarely profitable, the sale of new vehicles is critical to making the rest of a dealer’s business- repair, service, and used vehicle sales- function. The disorderly failure of any one of the “Big Three”, therefore, would spell disaster for auto dealers, and for much of Main Street across America. Dealers, in short, are not an obstacle to restoring Detroit to health, but rather a means of doing so.

I want to emphasize that I am not apologizing for Detroit in general or GM in particular. I have been endlessly frustrated and disgusted at their missteps, having served on many dealer councils over the years and witnessed dealers’ great suggestions fall on deaf ears. I have long since arrived at the conclusion that a major problem with Detroit is that it’s in Detroit, which is to say that the plodding, insular culture of the area isolates it from the realities of the larger world in many respects. The “tin ear” they are cursed with is a serious problem. The Big Three’s management has not done enough to counteract this issue and must do more if they are to survive, let alone thrive. It might not be a bad idea to start by testing the water supply around Detroit for lead contamination (that’s a joke).

Finally, whatever happens here must also include a component to shore up consumer confidence in general (re-instituting installment credit deductibility, perhaps) and confidence in American automakers in general. While the latter problem is not the responsibility of the federal government, it is absolutely critical if Detroit is going to return to sustainable health. It is a deep cultural problem, in my opinion- one based in the resentment of an entire generation of all things related to the old military-industrial complex- but it must be addressed if the American auto industry is going to recover. All we ask is that these products get the consideration they deserve, because by any measure, Ford and GM are producing products of equal or greater quality than the imports, and yet they continue to get short shrift. Hiding behind the flag is a cheap and tawdry strategy, but we must find a way for Americans to feel good about American automobiles again, in the same way they do about American technology companies like Apple and Microsoft.

[1] Pundits Peddle Revisionism in Attacking U.S. Automakers, 11/23/2008 http://www.washingtonpost.com/wp-dyn/content/article/2008/11/21/AR2008112101348.html?referrer=emailarticle