GM Recovery Plan Presents Obama with Paradox

http://www.freep.com/article/20090505/BUSINESS01/90505076/?imw=Y

The linked article reports on the UAW’s opposition to General Motors’ restructuring plan, which relies heavily on shutting down U.S. plants and outsourcing production to countries like Japan, China, Korea and Mexico.  (In case you’re not aware, Chevy Aveo and Pontiac G3 are already imported from Korea.  GM plans to do much more of this.) 

This presents the Obama administration with quite a paradox.  As the major stakeholder in GM, the government is now responsible for approving or disapproving GM’s plan.  However, given the current climate of extreme trade policy and tax regulations that favor foreign production, no recovery is possible for GM that doesn’t involve outsourcing production, which will dramatically worsen the trade deficit.  But, at the same time, no plan by the government to restore the economy and our nation’s fiscal health is possible if a balance of trade isn’t restored.  So what’s Obama to do? 

My prediction is that he will approve GM’s plan and hope that changes in the trade climate and in tax regulation in the meantime will make their plans to outsource production moot before it ever comes time to implement them.  He’d better hope that’s the way things unfold because, as unemployment rises beyond 10% and climbs into the teens, there’s going to be a real groundswell of anger if people see more jobs being exported. 

As this recession wears on, Obama will find that bank bail-outs, optimism and happy talk of economic “green shoots” won’t restore prosperity.  He’ll eventually have to confront the collision of economic forces that underlies the  ruination of our economy.

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14 Responses to GM Recovery Plan Presents Obama with Paradox

  1. Randy says:

    RE: …confront the collision of economic forces that underlies the ruination of our economy

    Thats why Homeland Security was created.

    I still don’t understand why you believe the *private* banking cartel giving orders to Obama gives a hoot about America in the large. They’re filled with one-worlders. The “nation” exists in Washington and NYC. The rest can eat dirt or allows itself to be exploited and thoroughly looted.

    Why should I blindly buy an American car? For the fantastic slave jobs that would otherwise be lost? Rather bring the class war to its final conclusion.

    • Pete Murphy says:

      You should buy an American car because it whittles down the trade deficit and supports a LOT of American jobs. You may not think much of those jobs, but take them away and those workers will soon be competing with you for YOUR job. That won’t help your prospects one bit.

  2. mtnmike says:

    Pete,

    For the most part, you and I agree on most things and that is obviously why I continue to read and comment. I appreciate your intelligence, your articles and the passion that you display.

    Perhaps our greatest point of disagreement is my contention that the U.S. is a failed growth economy.

    In my long studied opinion, it is that simple. Our ability to compete with the remainder of the world from a price standpoint has long passed. Our ability to provide the necessary domestic growth to survive in balance was eclipsed in 1970.

    The demise of our industry resulted from a failed economic model that was predicated on exponential growth. The continual off-shoring of our important industries are far more symptoms of a failed growth economy than that of unfair competition. Anything that can’t go on forever; doesn’t.

  3. ClydeB says:

    Mike
    Would you consider it “fair” competetion if you pay 35% income tax and I pay 12.5% while performing the same job, with the same dependents and deductions while earning the same wage?
    This is the situation for a US corporation competing with a German corporation when their factories are in Ireland. The German corp. pays the Ireland tax only. The US corp. pays the Ireland tax and gets credit for it against the US tax if they bring the profit home. The only way to avoid this is to leave all the profits in Ireland. Guess what? Te profit goes to grow their presence in Ireland. The result is more offshore jobs.
    This problem is at the core of our corporate problem. The 16th. amendment must be repealed to stop this nonsense.

  4. mtnmike says:

    Clyde,

    As far as the “Celtic Tiger,” Ireland has proven true my grandpa’s statement that a fast horse doesn’t run long. http://www.thestar.com/Business/article/628122

    The U.S. originally grew our economy primarily through domestic expansion made possible in a sparely populated land of plenty. The plan was that we would always be sparsely populated in a land of plenty and at the same time grow population and harvest resources in ever increasing yearly strides. The total separation of the social and exact sciences was firmly in control.

    At the point that we reached peak oil, we also reached the juncture where we could no longer absorb our own production in a fiscally balanced manner (around 1970),

    We also found at that time that our American lifestyle came with a price and from a cost-to-produce standpoint, prohibited mass sales of most American goods to the majority of densely populated low income foreign nations. Our economic model had effectively stalled. In 1971, we were forced to abandon the gold standard and proceed with debt growth to replace economic growth.

    Should we return ALL lost industry to the U.S., the original basis of our past demise would once again return to plague us. I’m only stating the macroeconomics of the issue and certainly not my personal desires which run very much to the contrary.

    As far as abolishing the IRS and the FED, count me in.

  5. ClydeB says:

    Mike,
    This is your statement,
    “In my long studied opinion, it is that simple. Our ability to compete with the remainder of the world from a price standpoint has long passed.”,
    to which I addressed my reply.

    Price competetion is low on the list of reasons we don’t have the business. Our tax structure, and others, is far more determinate than is price.

    • Pete Murphy says:

      Mike, we’re in agreement that exponential economic growth is a failed model. I’m not saying that ending the trade deficit can revive that model. But, it can go a long way toward reviving our economy and that, coupled with stabilization or, ideally, some shrinkage of our population, will put it on sound footing permanently.

  6. Black Saint says:

    We are now seeing that the Illegal Aliens can not only impact this Nation but the global economy as well. The majority of the Sub-Prime loans & initial defaults were to Illegal Aliens that started the unraveling of the Global Economy! Just like our Declining standard of living, Bankrupt Hospitals, Failing Schools, Welfare costs, Identity fraud, Welfare fraud, Voter fraud, Gangs, Crime, Crowded prisons, Destroyed communities, Exploding population, Congested roads, Pollution, Insurance costs, Balance of payments, (Imported oil etc. to support the illegal alien population) Trashed Constitution and the Rule of Law, they have now spread their negative impact & misery across the Globe.

    The Democrats infrastructure and construction bailout jobs program is more of the same old scam!

    The tax payers that have obeyed the laws, paid the taxes and fought the wars and built this Nation are getting screwed by Corrupt/Stupid/Pandering Politicians and Greedy crooks at every level!

    This is the same old scam, reward the Rich Bankers with billions in tax payers money and the invading horde of illegals Aliens with Jobs, Free medical, Free education, Welfare, Prison cells and make American Citizens pay for every Crook, Criminal, Peon, Welfare Leech and Marxist or Racist organization like ACORN or La Raza in the world!

    The infrastructure and construction jobs without E-verify will put the millions of Illegal Aliens back to work, so they can send money home to support Mexico & South American at the expense of American workers and our economy! The contractors can charge the tax payers union scale, hire Illegals at slave wages, pocket the profits and American citizens pay both the wages and the billions in cost to educate the illegals many children, provide medical, welfare and prison cells.

    You would think the Politicians would be content with just outsourcing all the jobs that can be done offshore but No they want to bring in Slave labor & Welfare votes ( while ignoring Article IV Section IV of our Constitution against invasion, the rule of Law, and their Oath of office) to take the jobs that cannot be outsourced! To add insult to injury they make the American citizens still working pay billions in extra taxes for schooling, provide medical, welfare and jail cells for the invading horde that are taking our jobs and driving down our standard of living! While keeping busy Robbing, Raping and Killing American citizens at an rate that Bin Laden can only dream about!

    The Democrats love the millions of Welfare votes to further their Socialist agenda & the Republicans love the slave labor for their Pay Masters in the Chamber of Commerce and business.

    If we are realistic and look at the havoc caused by the millions of invading Hispanics on our communities, culture, crime, economy, welfare, taxes, environment, schooling and standard of living the only conclusion possible is that no Nation can withstand or assimilate an tidal wave of Uneducated Third world citizens that come here illegally from another culture, for the jobs and welfare, while keeping loyally to their home countries!

    This Nation is changing to the very same type of culture and society the invading millions have created, built and sustained for 100,s of years and are now fleeing in their own Countries!

    One has to only look at Calif. which is basically an Bankrupt state that cannot afford to provide Welfare, Schooling, Medical, Prison cells etc. for millions of MS-13 Gang bangers, Drug dealers, Rapist and other assorted Criminals and uneducated third world rejects from Mexico!

    In a very few years it will be impossible to see where Mexico ends and California begins without reading the signs as both will be an third world cesspool!

    Failure to secure our borders and reward the Invading horde for their invasion and their relatives in an never ending chain with American Citizenship is nothing less then committing National Suicide & will assure our future is an over populated Spanish speaking third world Nation that is an Cesspool of Corruption, Crime, Poverty and Misery just like Mexico!

  7. mtnmike says:

    Pete,

    Agreed, as we both wrote in our books, trading with overpopulated and equally poor nations and expecting a positive results was delusional.

    We would need to both stabilize our population, balance trade, and adopt a very different economic model. Throw in a new monetary policy and we would be getting somewhere.

    I spoke at length with a new Colorado candidate for a Fed Senate seat and asked him how he would put 13 million people back to work and at the same time create productive jobs for the 150K average per month who enter the job market. He had no answer and quite honestly no real ideas.

    Later, in private, he asked me how I would create those jobs. I answered, population control, zero immigration, immediate trade balance, bring jobs back to the U.S., adopt a limited growth steady state economy, and create a new monetary system.

    He said that the public would never stand still for that. In other words, he would never be elected by telling the truth.

  8. ClydeB says:

    Black Saint,
    What would you have happen to turn things around? As Mike relates, if a politician seeking election were to campaign on the true situation, he or she would fail.

  9. Pete Murphy says:

    Black Saint, we’re in agreement. The question now is, like Clyde asks, what do we do about it? I see all of the same problems you see, but tend to see it less as some sort of conspiracy by our politicians to drive our country into the ground, and more of a case of the blind leading the blind – politicians making policy based on the failed theories of economists. This site is all about a new economic theory that blows away all of the old theories about population growth and free trade.

    Mike, we’re in agreement too. But I’ll keep hammering on trade and population growth aspects and leave the monetary reform to you. You understand it way better than I ever will. Have you ever visited the blog site of Elaine Meinel Supkis at http://emsnews.wordpress.com/? Her major theme is monetary reform and she seems to have quite a large and loyal following on her blog.

    Also, thanks for sharing that story about your meeting with the senate candidate. I wonder if maybe you hit him with too much all at once. I think he would find that there is actually a LOT of support for balancing trade, for halting illegal immigration and reducing legal immigration. Population management and a no growth economy is going to be too much for any politician to swallow until there’s a broader understanding of the need for such things.

  10. ClydeB says:

    Here is another example of the lack of understanding that run rampant amongst economists.

    http://news.yahoo.com/s/nm/20090511/bs_nm/us_china_economy_krugman_2

    He just doesn’t get it!

  11. mtnmike says:

    Clyde,

    Krugman has always been somewhere left of Communism. He is also what I call a micro-economist and living proof of macroeconomics economist, Kenneth Boulding statement; “Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.”

    Pete, The monetary system is certainly complex and another great source for disclosing the problems is that of author Ellen Brown.

    I wrote a piece today regarding a big part of the problem. Our educational system continues to teach the principals of a failed growth economy right up through graduate school. So why are we surprised when we continue to do the same things over and over?

    The Senate candidate that I spoke with is a graduate of that discipline. He was shocked when I suggested that we cannot pursue a growth economy.

  12. Pete Murphy says:

    Give Krugman credit, though, for raising the issue of the trade imbalance. Like he says, China hasn’t shown any indication of a move away from their reliance on exports and, if they don’t, there will be no global recovery.

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