ROMNEY: ... to oil, to tax breaks, then companies going overseas. So let's go through them one by one.
First of all, the Department of Energy has said the tax break for oil companies is $2.8 billion a year. And it's actually an accounting treatment, as you know, that's been in place for a hundred years. Now...
OBAMA: It's time to end it.
ROMNEY: And in one year, you provided $90 billion in breaks to the green energy world.
Now, I like green energy as well, but that's about 50 years' worth of what oil and gas receives. And you say Exxon and Mobil. Actually, this $2.8 billion goes largely to small companies, to drilling operators and so forth.
ROMNEY: But, you know, if we get that tax rate from 35 percent down to 25 percent, why that $2.8 billion is on the table. Of course it's on the table. That's probably not going to survive you get that rate down to 25 percent.
But don't forget, you put $90 billion, like 50 years' worth of breaks, into -- into solar and wind, to Solyndra and Fisker and Tester and Ener1. I mean, I had a friend who said you don't just pick the winners and losers, you pick the losers, all right? So this -- this is not -- this is not the kind of policy you want to have if you want to get America energy secure.
The second topic, which is you said you get a deduction for taking a plant overseas. Look, I've been in business for 25 years. I have no idea what you're talking about. I maybe need to get a new accountant.
LEHRER: Let's...
ROMNEY: But -- but the idea that you get a break for shipping jobs overseas is simply not the case.
(CROSSTALK)
Regardless, I won't comment on this myself since I can't imagine any thread on this article staying clean...
I figure given the speed of writing, it was a poorly written article to take a soundbite and put it to a pre-existing opinion. It gets clicks and maybe a quick scan without providing the actual context. This is just one example of the next 24 hour news cycle from both side's news outlets. Job numbers hit Friday, so I only expect a day of it.
Romney is comparing money loaned ($90 billion) to money spent ($2.8 billion). As an investor Romney knows the distinction; as a politician he knows that many voters will not.
There's no energy-related company named Tester, though. So I think that was a transcription error by ABC (which does not make the context any less important).
This article is wrong. He wasn't calling them losers he was saying that politicians in general don't have the ability to pick the winners, they can only pick the losers through their policies. He was basically saying that Obama was trying to pick the winners in green but that it wasn't working because the market isn't ready (basically claiming he is failing because government can't make an industry a winner through policy). He was also probably implying that Obama was purposely choosing Oil as the loser.
> This article is wrong. He wasn't calling them losers
He pretty clearly is rattling off a list and then naming them as (a) Obama/gov't picks and (b) losers. Really, the best defense you can get of his comment is "well, that's what Romney said his friend said, not what he personally said."
> He was basically saying that Obama was trying to pick the winners in green but that it wasn't working because the market isn't ready (basically claiming he is failing because government can't make an industry a winner through policy).
Is he correct? Over in a parallel discussion, someone pointed at this piece:
Romney's statement was in the context of his reference to someone's joke making fun of Obama for picking losing companies. He was clearly calling Tesla a loser.
That's certainly consistent with conservative tech skeptics. I think the grandparent post offers a worthwhile alternative interpretation, but I think the majority of people would go with yours.
That said, the majority of people probably found both candidates too wonkish and abstract in this debate for many minds to be changed. As a policy guy, I enjoyed it, and I thought Romney did well for himself although I prefer Obama. But the candidates talked past each other to a large extent, and both were pulling their punches a little.
If the government is bad (or simply worse than the free market) at developing new industries, should it stay out of the business of giving subsidies to groundbreaking companies? Should this be left to chance? I suppose a more direct question is this: should we just sit it out and wait for green tech to be right? (Or for oil to be so costly that any alternative is better?)
What about the numerous areas in which government investment/research has paid off (eg. computing)? Could or should the free market today replace this type of public investment?
Yep, it probably should. Subsidies are just tax breaks in a different form. If the government really wants to get something, it should offer a contract to the first who can provide it. This worked in a couple of DoD instances and worked in civilian life with the XPrize. Funding individual companies is not the way.
As to green tech, if it does not become more cost effective and as easy / easier to deploy than current energy generation, we have lost anyway. China and India are following the path the 1st world took (coal / oil). I expect the rest of the 3rd world to do the same. Nothing short of force will stop that.
Not to pick one side or the other, but Tesla was made possible by artificial means, not market demand. The time will come when batteries are cheap and powerful enough that you could buy an electric car for $10k, but that time is not now and the government should not be an investor - historically it has both a bad record of managing budgets and delivering innovation per the dollar...And don't start with arguments about the internet - it was actually Xerox that largely made the internet possible:
http://online.wsj.com/article/SB1000087239639044446430457753...
Edit: overall, I have to concede, it is kind of dumb to attribute the internet to a single entity or person - it was a pretty natural progression of technology - basically the digital evolution of phone lines. Could you imagine trying to patent the internet?
If the government really wants to help out with energy, it should loosen environmental restrictions. I am as much a supporter of green tech and protecting the environment as the next guy, but there is something like 1000x the volume of natural gas under our soil as all the oil in the world combined. The sheer amount of wealth generated from tapping that resource could fund all kinds of green tech, and lessening foreign dependence creates jobs here and makes us stronger politically.
> If the government really wants to help out with energy, it should loosen environmental restrictions. I am as much a supporter of green tech and protecting the environment...
It's not about protecting the environment in the abstract. It's about who bears the costs of industrial activity. Loosening environmental reactions doesn't reduce costs, it shifts costs from polluters to the general public, particularly to the poorest people.
Polluting the air you breathe is no different than any other injury--if the government has any function it is to protect your bodily integrity. It is a failure of organized society when a company can profit by physically hurting you, and it's economically inefficient to allow polluting industries to shift the inherent costs of their activity onto other people. It causes companies to pick the technologies that have the most costs that can be passed to other people, not the technologies that are the most absolutely efficient.
The oil, coal, etc, industries were made possible by the intervention of government. Did you know that in the 1600s in American law pollution was basically illegal? E.g. if water ran through your property, it had to leave as clean as it went in. Allowing people to pollute during the industrial revolution was actually a tremendous government subsidy of industry.
It is actually not the government's job to decide this - it is the voters. People vote with their mouths and dollars, and right now everyone just does not care enough to boycott coal power or stop driving SUVs. I'd like solar panels to become cheaper and electric vehicles to become more common, but the government cannot realistically control free markets like energy generation.
That said our perception of air pollution may be a bit exaggerated. Atmospheric aeroforming is a very difficult task -- even if we tried actively for 500 years, I think we might have difficulty changing the composition of the earth's atmosphere significantly. Before air pollution is even a real threat, our technology will have probably progressed far enough naturally (i.e. sans government investment) to handle any problems. Keep in mind there are over 5,000,000,000,000,000,000 (5 Dectillion!) kilograms of atmosphere. Humans produce 2,500,000,000,000 kilograms of CO2 year roughly (2.5 trillion). However, each tree (on average consumes 33 kilos of CO2, and (by NASA estimate) there are roughly 400,000,000,000 trees on earth -- thus trees could consume up to 13,200,000,000,000 (13.2 trillion kilos of CO2), and CO2 is heavier than air so probably a fair amount of it reaches the ground. Even if only 1/5 of the trees processed CO2, we would still be not generating any significant amount of it. Anthropogenic global warming is mostly alarmist theory until we prove humans have a significant effect on the atmosphere (as one scientist pointed out, the earth has warmed and cooled dramatically before human existence, and it will continue to during it, despite our actions).
It is the governments job to protect you from other people physically injuring you. That's the whole point--you don't get a choice. I can protect my daughter from inhaling particulate matter from coal energy just by not using coal power. It's literally the economic definition of negative externality--where the costs of activity are borne by people not parties to any transaction.
Also your analysis of air pollution is shockingly bad and you should feel bad. What on earth makes you think pollution mixes perfectly with the whole atmosphere before anyone breathes it in? It's like saying 2+2=cat.
I do feel bad ;) - yes, I am aware that the thermodynamics of our atmosphere are extremely complex, so complex that we can barely model them. This is exactly why I advocate people to be wary of when any scientist claims "x is going to happen in y years" -- we simply do not know how our atmosphere will behave, no more than we know what the exact weather will be like in two months. Right now, everything is basically a theory - we know that CO2 warms the atmosphere, but we do not know how much CO2 will be in the atmosphere in 2 years (we do not even presently have an exact amount).
We don't need to know exactly how much CO2 will warm the atmosphere. We have a probability distribution. We can't quantify the economic damage of climate change precisely, but we know enough to know it won't be $0, which is what the "wait and see" point of view prices the cost as.
Also, climate change isn't even the big issue here. I'm talking about much more mundane and also much more damaging air and water pollution from factories, cars, etc. We have very solid empirical evidence about that. Did you know that after the EPA's ban on leaded gasoline, blood lead levels in children dropped by a factor of 3-5x in just one decade? See: http://www.epa.gov/ace/body_burdens/b1-graph.html. This corresponds to a multiple IQ-point impact from lead. What's the dollar value of a multiple IQ-point impact on the nation's children (and future workforce)? It's a huge number.
Did you know that a recent Harvard Medical School study concluded that the true price of coal power factoring in the externalized environmental costs is 2-3x as much as the market price? http://www.boston.com/lifestyle/green/greenblog/2011/02/new_.... The same study found the total externalized costs of coal power to be $200-$500 billion/year: http://onlinelibrary.wiley.com/doi/10.1111/j.1749-6632.2010..... Here in Chicago we recently shut down two coal-fired power plants that were causing $100 million in health damage per year and only creating 50-60 jobs each.
The total cost of environmental damage being down every year, in terms of quantifiable impact to people is probably into the trillion dollar per year range. People tend to think of environmentalism as being about "soft values" but that couldn't be further from the truth. Even if we assign zero value to the environment itself, we can't avoid putting a dollar figure on the value of the services the environment provides us. When New York manages to avoid building a $6-$8 billion filtration facility by properly managing the Catskills watershed, we can't avoid the inescapable economic conclusion that damage to the Catskills and similar watersheds needs to be valued in the billions of dollars range. We can't avoid the conclusion that when a company dumps waste into those watersheds, it's an economic injury no different than if tore up city streets or caused a bridge to collapse.
It's the government's job to protect us from all this, the same as it's the government's job to protect us from people who steal your car or break into our houses. It goes to the heart of why government exists.
Basically, my argument is that we are going to continue to pollute the air for some time to come (the automobile will not disappear overnight). Natural gas is much cleaner, but even if it were crude oil under our soil, wouldn't it be better to use our own rather than another country's? The actual process of extracting any kind of oil/gas is not that environmentally hazardous, unless of course there is a spill.
NIST, like many government agencies, has done good things. It's just that they have not done them cost-effectively. Real businesses have to operate responsibly, fear going bankrupt, meet market demands, and so forth. That said, I would actually gladly pour money into NIST over other government transactions (i.e. bank bailouts).
Anyone who has worked for a big business knows they are not cost effective. Also externalities don't magically make business profitable, they just move costs.
Many big businesses are even less cost-effective than govt. departments (I used to work at AOL, don't get me started...). The difference is that they must become cost-effective, or die (assuming they do not get a govt. bailout). Some businesses are very cost-effective (love them or hate them, Wallmart has an incredible track record; Valve, despite spending pretty liberally, makes more money per employee than most companies). The worst case scenario is when a government gets involved with a private business, particularly GSEs -- Fannie Mae and Freddie Mac being good examples: both reaped huge profits from their risks, but when they collapsed ended up costing US tax payers billions of dollars and destroying the economy. Long story short: the government has one job: to ensure the basic functionality required to run a country. It is not the govnernment's job to distribute tax payer money as venture capital. Leave businesses and other risks to entrepreneurs and investors.
Electric golf carts have existed for a long time, sans government investment (I used to drive one in early 2000, when I worked as a gardener, before Tesla existed and green tech was a popular term). These are not really suitable cars, in that they do not provide the same mileage, safety, highway capability, etc. as a normal gas/diesel vehicle. A $10k, quality car could easily be possible in the future (manufacturing an electric engine is a much simpler process than a combustion engine). Keep in mind today's Kia's provide more luxury than a Mercedes from 1980.
The larger "government shouldn't pick winners and losers" meme is idiotic in the context of alternative energy and green tech. It's basic economics that the market fails to pick efficient winners and losers in industries that involve large negative externalities.
Most economists do not accept that direct government subsidy to businesses leads to an economically efficient outcome, even in cases of negative externalities. Many economists would say that Pigovian taxes or creation of markets in the externality are likely to be more efficient. Bottom line: market failure does not mean that government solutions are automatically better. Government failure exists too!
I think in the political discourse, pigovian taxes would be considered "government picking winners and losers" (specifically losers).
Also, the question isn't whether direct subsidies are more efficient than taxing externalities. The question is whether direct subsidies are more efficient than doing nothing (which is the only politically feasible alternative).
1) I read a lot of economics blogs and I see many economists who are against "government picking winners and losers" in the form of subsidies; but favor, e.g. revenue-neutral carbon taxes. There are strong economic reasons why the two are not at all the same.
2) Direct government subsidies for favored corporations is likely less economically efficient than doing nothing in cases. Subsidy decisions are not guided at all by the info encoded in the price system, and are instead likely to be based on rent-seeking by favored interests groups. See <http://en.wikipedia.org/wiki/Economic_calculation_problem...;
Your original comment cited "basic economics" and implied that the government would be better than the market at "picking winners and losers" in the face of negative externalities. But that is not a consensus view among economists.
> Direct government subsidies for favored corporations is likely less economically efficient than doing nothing in cases.
In cases, yes. Given the sheer magnitude of thee externalities in environmental situations, not likely. We're talking trillions of dollars of implicit subsidies here.
I believe you are committing the "Yes Minister" fallacy:
"Politician's logic:
We must do something.
This is something.
Therefore we must do it."
Direct government subsidies create deadweight loss, and by hurting the competitive position of companies and technologies that don't get the subsidy, they can actually make the negative externality worse. You can't justify a bad intervention just by pointing to the magnitude of the externality.
I disagree. If you don't like the external costs of a particular form of energy you can tax it directly. Taxing things you don't want is different than subsidizing particular companies offering particular alternatives (i.e. picking winners and losers) since it does not favor one solution over another. Government should act as referee, not venture capitalist.
One irony to Tesla is that while they do benefit from loan programs they would have been much better off if GM and Chrysler had been allowed to fail. As it is now Tesla has to compete with companies with strong government support.
Taxing something in proportion to its external costs isn't picking a loser, it's levelling the playing field. OTOH, subsidizing particular manufacturers of solar panels or electric cars puts all other alternatives at a disadvantage.
BTW, you've failed to substantiate your claim that the market fails to pick efficient winners and losers. How would you even define "efficient" without appealing to the marketplace?
> Taxing something in proportion to its external costs isn't picking a loser, it's levelling the playing field
Clever rhetorical trick.
> BTW, you've failed to substantiate your claim that the market fails to pick efficient winners and losers. How would you even define "efficient" without appealing to the marketplace?
I don't disagree with those things, but the meme "government shouldn't pick winners and losers" doesn't capture any of those points. In the debate, Romney said in the same spiel that the free market always works better.
> Romney said in the same spiel that the free market always works better.
And he's right because the free market has far more diversity. To put it another way, govt is pretty much the definition of systemic risk.
The free market has folks doing lots of different things. Some think that electric cars are the way to go while others stick with gas. Still others go with compressed air.
Govts don't make diverse bets and they're a lot slower to change course when things don't work (because the folks benefiting from the current plan aren't paying its costs).
Yes, "all the wood behind one arrow" can be more efficient, but only when everything works out, which is not all that often.
"Let 1000 flowers bloom" works much better in the real world.
Whether or not the government should pick winners and losers is separate and unrelated to the question of market efficiency. Why can't I simultaneously acknowledge that externalities produce less than efficient markets and that government subsidies produce deadweight loss?
The terminology is reflective of the flawed proposition that the market will pick efficient winners. The government "picking winners and losers" is implicitly juxtaposed against a hypothetical "fair game."
You need to examine the legal statutes governing each industry in question and develop measures of the ease at which claimants can receive compensation for damages to determine whether the observed externalities are intrinsic to the industrial process or whether the externalities are intrinsic to the legal process.
Trust me, as a lawyer I'd love for the government to force companies to internalize externalities through litigation. But not only is it wholly impractical for physical and logistical reasons, it's also not the law and hasn't been since the industrial revolution.
I'd be interested in the justifications for "wholly impractical". Businesses are already quite capable of purchasing liability insurance including for pollution, so I imagine the debate is over the benefits of centralized vs. decentralized forensic services.
Regardless of where we come out on the above issue, my primary argument is that by recognizing that the existence of liability statues affects the existence of negative externalities, we recognize that we cannot make the assertion that markets cause the existence of negative externalities without first accounting for the effects of liability statutes.
First, realize that it's not limited liability by itself that insulates companies from the costs of their activity. Even without limited liability, it's just not really illegal to pollute. If your pollution increases my risk of lung cancer by 250%, that is something that has a cost. You can put a dollar value on that statistical probability. But you can't sue over it, because by and large outside of medical malpractice it's nearly impossible to sue for statistical injuries.
Second, individual private suits will never internalize even a fraction of the cost of an externality. When you're sitting in a lab with a computer simulation, you can look at the data and do a good estimate of how many cases of lung cancer can be attributed to the nearby coal plant, but it's nearly impossible to meet the necessary burden of proof with regard to one particular case. Say one factory causes 10% of all the lung cancer cases in one part of the city. The burden of proof in civil litigation is more likely than not. For any given case of lung cancer, it is not more likely than not that the factory was the cause. We don't allow suits based on statistically divisible causality.
Third, enough people won't sue. Partly because most people will have no idea what caused their injuries, but also because a disproportionate number of people injured by pollution are poor. They're ignorant of the legal system and don't have money for lawyers. Lawyers won't take such cases on contingency, because winning is nearly impossible.
Fourth, even when the suits are successful, defendants will pay a fraction of what they should, because they'll pay a team of $1,000/hour lawyers to make sure they do. BP is probably paying Kirkland & Ellis $1,000/minute, and its worth every penny because they're saving billions of dollars.
A smart man once pointed out: "When large numbers of people are involved, the argument for the institution of property rights is weakened and that for general regulations becomes stronger." Ronald Coase, "The Federal Communications Commission," 2 J. Law and Economics 1, 29 (discussing spectrum allocation, but using smoke pollution as an example). Coase is of course one of the luminaries of modern economics, and his theories are the bedrock of conservative political policies.
"If your pollution increases my risk of lung cancer by 250%, that is something that has a cost. You can put a dollar value on that statistical probability. But you can't sue over it"
> Even without limited liability, it's just not really illegal to pollute. If your pollution increases my risk of lung cancer by 250%, that is something that has a cost. You can put a dollar value on that statistical probability. But you can't sue over it, because by and large outside of medical malpractice it's nearly impossible to sue for statistical injuries.
Bodily harm is not the only form of harm for which one may be liable. Repeated dispersal of unwanted waste upon other's property could be considered property damage, even if the waste cannot or has not yet caused exposure related medical conditions upon their person.
In an alternate legal context, a society might decide that proving an ash residue repeatedly collected on your property matches ash repeatedly emitted by a factory is sufficient grounds for property damage litigation without requiring you to also prove bodily harm. However, this would raise costs on industry by requiring them to be located further from residential areas.
Different societies will arrive at different tradeoffs and balances on these issues through the use of non-market forces, which will influence the incidence of negative externalities as much as market forces.
Meh. Tesla is still in debt (and had to renegotiate their loan at that), so Romney's technically correct about that. The major benefit I see from the Tesla project is it puts pressure on other companies to make better electric cars.
I really hope they go mainstream, but it seems they're not targeting the average Joe. If it's going to be an "energy" project, it needs to go mainstream, like the Nissan Leaf or the Chevy Volt. I just don't see why the government should be sponsoring a company that will probably only ever sell to upper and upper-middle class customers.
Don't get me wrong, I love the Tesla company, but I think there were more interesting points of the debate than this. To be fair, Romney didn't single out Tesla; it was lumped in with other projects that haven't proven successful yet.
Just because a venture fails for its investors doesn't mean it's a failure for the economy as a whole. NeXT was a colossal flop, and yet look what came out of it in the end.
Interesting. Musks' political contributions are widespread, not to one single party, but apparently none for Romney, allowing him to make such a comment:
Politics aside, Tesla is not the future either. At least not with their current models or anything derivable. Sure, they're doing a great job building battery powered electric cars but personally I don't see how they can work for everyone in the same way that fossil fuel powered cars do today.
I'm driving a diesel (being european this isn't too odd) and I'm driving a lot of long distances. The beauty about the fossil fuel powered car is, that I can drive some 800km on a tank, stop for fuel which takes me about 5 minutes and then carry on. Tesla claims a 3-3.5h charge time. Even if the range was the same, which it isn't, this just isn't gonna work for anyone who drives across a country rather than through cities. To this day I haven't heard of any battery powered car that is charging in acceptable time compared to filling up a fuel tank.
Don't get me wrong, in a way I like electric motors. The torque they produce is amazing! What bothers me is the use of batteries. The technology I personally saw most potential in was the use of hydrogen fuel cells. The tank is filled with hydrogen, the fuel cell powers the electric motor. I'm not for a second suggesting hydrogen is a good "fuel" in the sense that we can just dig it up somewhere and get additional energy. What hydrogen is good at though, is storing energy and because filling a tank with it happens in a matter of minutes it's a whole lot better than carrying thousands of laptop batteries in your car.
I'd wager that most automobile use day-to-day doesn't come close to 800km stretches. Would it not be interesting enough if electric cars managed to replace all the fossil-fueled, city-driving cars?
Even with that point aside, I don't think one can write off Tesla based on a snapshot of charging infrastructure at this instant. There are already concepts like Better Place that involve swapping out batteries instead of waiting to charge the one in your vehicle. A little less ambitiously, DC Fast charging stations (already installed in places like Los Angeles, Wash. state and Oregon) charge EVs up to roughly 80% of capacity in around 30 minutes. My point isn't that the system is perfect, or that these concepts completely solve the range issue with EVs. Comparing charging options now to even one or two years ago shows a substantial difference in potential (heh), so it seems a little myopic to say "I can't do this right now perfectly so it will never happen".
Good point on the city cars and yes you're right, predicting the future has never gone well and I can't predict how the infrastructure is going to look like in a decade or so. However, the hydrogen fuel cell technology is here now and it works well yet there's very little hype around it. Hybrids and EVs on the other hand are hyped to hell and back while (for the time being) they are just not good enough. Hybrids, yes, obviously. But they don't solve the problem. Additionally those batteries weigh quite a bit. Unnecessary weight == wasted energy.
Thanks for the insight; I had heard about hydrogen fuel cells as far back as 2002, but only in a very theoretical sense (plus I was in middle school back then...). They definitely do look promising; my guess regarding why there hasn't been much hype around them is that (per Wikipedia) they've been prohibitively expensive until rather recently (in 2002, hydrogen fuel cell cars were estimated to cost $1mn, $300k in 2009, etc)[1]. That being said, it does like it's approaching cost-effectiveness in the near future.
BetterPlace has come up with a way to solve that problem (rapidly interchangeable batteries), and now they just have to execute on their vision.
If you switch every gas station in the country for a place that swaps and charges batteries, electric cars are completely workable. The only question is how we get there from here.
Headlines like this always remind me of the term wikipedia taught me: "Disambiguation". A simple Mitt Romney Calls Tesla Motors a 'Loser' would have clarified in the headline whether the author meant Tesla (the person), or Tesla (the car company). Leaving it vague probably gets more clicks.
While clarity is nice, it probably isn't necessary in this case. Heck, they could have left off "Mitt" and we could still safely assume the article wasn't about George Romney bagging on ol' Nikola.
Oh I'm sure they are counting on the rageviews. It is unfortunate for Tesla that part of the price of getting the loan from the DOE was to open themselves up more widely to the political process.
Will probably get downvoted, but my first thought when reading the headline was, "Why would Romney call Nikola Tesla a loser, posthumously? Is it because Edison had been able to turn his inventions into economic successes, while Tesla died penniless? Not very nice of him to add insult to injury."
After I clicked it, at first I wondered why there is a picture of a car on top of the article. And then I realized what an idiot I am.
> When the government set up and fostered the development of the Internet, was it picking winners and losers then, too?
The total expenditures then were a small fraction of what we're spending now.
Do you really think that the ROI today is as high as it was then?
Do you really think "govt spent money well once" implies "govt money spent now is well spent"? (It's also false that "govt money was spent badly in the past" implies "govt money spent now is badly spent".)
The constant dissonance between "don't you dare touch all the subsidies we give the petro" industries and the "dont you dare waste money on any alternatives" is just dumbfounding. I mean, the stuff is orthogonal to politics (or at least it should be).
i think, all this interest around for Tesla, grants and Obama associated with election president program. I like Teslo but it is too early say about loosers or winners Teslo.
You're "forgetting" the $15-20B in tax carry-forwards that are typically lost in bankruptcy. And, by stiffing some public pension plans who owned GM bonds, that bankruptcy increased the taxes that those jurisdictions will have to pay. (That money went to the ordinarily unsecured pensions, Fiat, and a couple of other places.)
GM and Chrysler's assets would have been bought and put to use.
If you really think liquidating GM and Chrysler's assets would have resulted in anything other than a net destruction of wealth for the U.S. I don't know what to tell you. What good is a car factory if the entire supply chain has broken down?
You can argue that the loans should not have been made on principle, and you can argue that they were a poor investment vis a vis net return to taxpayer dollars, but it's very hard to argue that they were a net loss on U.S. GDP unless you assume a "controlled bankrupcy" for GM and Chrysler would not have destroyed the U.S. (or global) auto industry. That's a big leap.
> If you really think liquidating GM and Chrysler's assets would have resulted in anything other than a net destruction of wealth for the U.S. I don't know what to tell you. What good is a car factory if the entire supply chain has broken down?
Why do you assume that the supply chain would have broken down?
> it's very hard to argue that they were a net loss on U.S. GDP unless you assume a "controlled bankrupcy" for GM and Chrysler would not have destroyed the U.S. (or global) auto industry. That's a big leap.
It's easy to assume that standard bankruptcy would not have destroyed the US auto industry because there's no reason why it would have destroyed the US auto industry.
Bankruptcy is basically about separating assets from liabilities.
If GM's assets are well-suited to profitably making cars, that's what they'd have been used for post-bankruptcy. Why do you assume otherwise?
US airlines go bankrupt every so often. Their creditors take a loss but the effect on the rest of us is that a few flights get cancelled and that's about it.
Comparing GM, Ford, and Chrysler all going bankrupt simultaneously in the middle of credit crisis is not comparable to when individual airlines go bankrupt due to poor management. The auto industry is highly concentrated in a single geographic area and are all economically dependent upon one another due to shared suppliers. It's very likely that if GM or Chrysler went bankrupt Ford would too. Who would be left then to use these assets? Some unnamed US automotive company? A Japanese automotive company? (imagine how that would go over.) Just how long do you think it would have taken for Detroit to get back to work? A month? 6 months? A year? A decade? Don't forget that if Detroit went bankrupt and turned into a dust bowl, aside from the untold amounts of human suffering it would drag down GDP and have wide-ranging effects on the rest of the country.
> Comparing GM, Ford, and Chrysler all going bankrupt simultaneously
GM was the only problem because Ford wasn't in trouble and Chrysler was (and still is) negligible.
> auto industry is highly concentrated in a single geographic area
Most "US made cars" are not made in Michigan.... "In 2011 , the Detroit Region produced 1.56 million vehicles, accounting for nearly 82% of Michigan's motor vehicle production, over 18% of the United State's motor vehicle production, and nearly 12% of North America's motor vehicle production. Currently more than 151,000 metro Detroiters work in the automotive and auto-related industries." http://www.detroitchamber.com/component/content/article/14-a...
US auto suppliers sell to all companies that make cars in the US.
> Who would be left then to use these assets? Some unnamed US automotive company?
Not necessarily - there are folks who could have afforded the assets. (Penske is a minor player and they made a serious bid for Saturn.)
Note that GM was selling cars for more money than it cost to make them - the problem was the legacy liabilities, liabilities which they'd have shed in ordinary bankruptcy.
The "bailout" money was a political payoff. It mainly went to keep the UAW pensions solvent and GM shut down Saturn as a sweetener. (The UAW always hated Saturn, even after organizing it.)
(CROSSTALK)
ROMNEY: ... to oil, to tax breaks, then companies going overseas. So let's go through them one by one.
First of all, the Department of Energy has said the tax break for oil companies is $2.8 billion a year. And it's actually an accounting treatment, as you know, that's been in place for a hundred years. Now...
OBAMA: It's time to end it.
ROMNEY: And in one year, you provided $90 billion in breaks to the green energy world.
Now, I like green energy as well, but that's about 50 years' worth of what oil and gas receives. And you say Exxon and Mobil. Actually, this $2.8 billion goes largely to small companies, to drilling operators and so forth.
ROMNEY: But, you know, if we get that tax rate from 35 percent down to 25 percent, why that $2.8 billion is on the table. Of course it's on the table. That's probably not going to survive you get that rate down to 25 percent.
But don't forget, you put $90 billion, like 50 years' worth of breaks, into -- into solar and wind, to Solyndra and Fisker and Tester and Ener1. I mean, I had a friend who said you don't just pick the winners and losers, you pick the losers, all right? So this -- this is not -- this is not the kind of policy you want to have if you want to get America energy secure.
The second topic, which is you said you get a deduction for taking a plant overseas. Look, I've been in business for 25 years. I have no idea what you're talking about. I maybe need to get a new accountant.
LEHRER: Let's...
ROMNEY: But -- but the idea that you get a break for shipping jobs overseas is simply not the case.
(CROSSTALK)
Regardless, I won't comment on this myself since I can't imagine any thread on this article staying clean...