Thursday, November 20, 2008


Sam Smith

The debate over the automobile company bailout is a reminder of how many of Washington's problems are not political, but cultural and psychological. What it comes down to is this: there is apparently no one in power who knows how to fix the situation nor even where to begin. Of course, no one wants to admit this and so we watch a cspanic charade on TV that increasingly looks less like a congressional hearing and more like the dinner table of some dysfunctional family.

This is a problem that requires a whole new perspective and not merely a new administration. We have, as a culture, created a class of leaders who are so far removed from the realities of what they are managing that they have little idea of what to do when something goes wrong.

It's a problem that has been creeping up on us for a long time as trades were replaced by professions, boot straps by MBAs, lowly experience by higher education, empiricism by theory, and social intelligence by a form of high functioning autism.

Sixteen years ago, I ascribed this to a form of entropy that I dubbed global dumbing:

||| In physics, entropy is a measure of unavailable energy. In the natural world, entropy is reflected in the pollution from your car and radioactive tailings. If the world were perfect, energy would do just what it was supposed to do and not go wandering off like some groupie of that cosmic band, The Second Law of Thermodynamics. As it is, much of it is wasted and thus when you bake something, your kitchen as well as your oven gets warm. Such phenomena led the German physicist Ruldolf Clausius to propose in 1865 that we were losing energy everywhere and that we call this sorry state of affairs entropy. It's been downhill ever since.

Cultures lose energy, too. Which is why the Egyptians don't build pyramids any more, and why Guatemalans have to import digital watches rather than just checking their Mayan calendars. The creation of a great civilization or a great world power wastes a enormous amount of energy. As Barry Commoner put it, in nature there is no free lunch. . .

The global human mind faces a similar problem, thanks to such factors as the ubiquity of American film and television, excessively frequent summits of world leaders, international conferences on every conceivable subject, multinational corporations and other well meaning efforts that bring the world closer together but in so doing leaves no corner of it immune from human energy loss. If there is, in fact, a entropic collapse of the earth, the last sound may well be that of Larry King telling a caller from Bali to hold on a minute for a word from his sponsor.

Nor is this entropy limited to the more public pursuits. Indeed, a cursory examination of American business suggests that its major product is wasted energy. Compute all the energy loss created by corporate lawyers, Washington lobbyists, marketing consultants, CEO benefits, advertising agencies, leadership seminars, human resource supervisors, strategic planners and industry conventions and it is amazing that this country has any manufacturing base at all. ||||

While there is much talk about the inefficiency of the auto industry, no one seems to notice the inefficiency of those trying to correct it, symbolized by word that at least one government agency is holding planning meetings in preparation for transition planning meetings. If these people were in Detroit there would be no cars at all.

One of the blessed teachings of journalism is that you don't have to know anything; you just have to know who does. But even the press seems to have forgotten this as they regurgitate the stalls, sideshows, and superfluities that pass for a serious discussion.

Is there any way out? In the spirit of the hope we have been so frequently promised of late, here are a few things that might help:

- Bring in people who are good at things to baby sit those in the auto industry who aren't. A few examples would be the best from Silicon Valley and, if it doesn't violate the current laws of patriotism, even those from other countries who know how to make and sell things. The purpose would not be to micromanage but to observe, suggest and report back to Congress and the American people what the hell is going on.

- Figure out how many and what sort of cars we are actually going to need if we really do go green. The answer to this will help us figure out what sort of auto industry we need.

- Take one third of the Defense Department's research and development budget and use it for research & development of new forms of transportation and transit. Why one third of the Pentagon's R&D budget? It turns out to be about $25 billion, a figure that's being thrown around a lot these days as too much to spend to save the industry that built modern America.

- Go through all the patents that the auto industry bought up in the past in order to prevent competition with a strategy that has resulted in so much trouble. We may even find one for a car that runs on a USB connection.

- Start converting the auto industry into a mass transit industry. There is a precedent for this in the Budd Company that started building steel car bodies for Dodge in 1916 and ended up making modern Amtrak cars. It died in the 1980s because we thought cars were better than trains. Using billions to make equipment for the huge new rail system that we badly need would not be a bailout but a startup. And we could do it with government printed money - and not more debt - because it will be public works that creates wealth and employment rather than inflation.

- Bearing in mind that Detroit labor costs - despite conservative propaganda - is less than ten percent of what goes into a car, any adjustment in compensation should be matched by new forms of involvement by workers including board seats and novel ownership plans.

If you don't like any or all of the above, come up with your own damn ideas. But note, in character and substance, how different these proposals are compared to the ones one more typically hears discussed in Washington, many of which involve little more than financial or legal manipulations of one sort or another. They are not unnecessary, but because of the inability of Washington's elite to deal with practical ideas, the fiscal and legal ones assume a disproportionate role.

This is a town which primarily likes to deal with law and numbers, policies and procedures. Making a car is not in its job description. Yet - as the housing foreclosure mess indicates - we can not retrieve America by ignoring the practical and the real.


At November 20, 2008 10:16 PM, Anonymous Anonymous said...

This is a problem that requires a
whole new perspective and not merely a
new administration. We have, as a
culture, created a class of leaders who
are so far removed from the realities of
what they are managing that they have
little idea of what to do when something
goes wrong.

The operative word here Sam is culture.
The corporate culture in this country
is geared toward profit rather than
people and product. Unfortunately
nearly all of out congress critters
come from this same culture.

With the focus on profit only the
CEOs and Congress do not have a clue
how to put out a viable product any

If one looks at Japan, China, Europe...
just about any other country and their
corporations, one finds that in the
vast majority of the cases the product
and people are more important than the profit.
This is why they are able to beat us in
technology as well as autos and nearly
everything else.

And unlike most American corporations
they are constantly researching and
refining their products to improve
them. And kick out asses in the

Where in the "Big 3" only want to make
them more sellable as apposed to better.

It wasn't always this way. Product and
people used to come first here too.
And if America wants to be on top again
it has to restore this attitude.


At November 21, 2008 8:54 PM, Anonymous Flavian said...

Picking up on a quote from your article:
"And we could do it with government printed money - and not more debt - because it will be public works that creates wealth and employment rather than inflation."

I wanted to add the subtle point, the reason government printed money does not create inflation is becuase it does not have to have a compounding interest payment attached to it.

Say my local Council borrows from a Bank say $10 million over 30 years to build a new swimming pool. We as rate payers will end up paying back $30 million depending upon the interest rate. We end up paying for it 3 times and we only have one pool. If Government created money was used the local Council could just pay the Federal Government back the $10 million interst free and then could take the money out of existence. We only pay $10 million once and don't lumber future rate payers with a debt for a worn out pool in 20 years time.

The interest bearing debt based money creation system we have now is best equated as a debt spiral. The money supply has to ever keep increasing to enable all the indebted people to pay off their old debts. The problem is the Bankers create the credit but do not create the interest payments. The only way to prop up the system is to keep creating more debts to keep money flowing in the system. It is bit like having to keep filling the bucket that has a whole in it.
This is best demostrated in an example:

If I buy your house off you for $100,000. I borrow the $100,000 from Bank A at a compounding interest rate of the day, say 10% for 30 years. You end up with the $100,000 in your Bank B flush with money. I, on the other hand have the debt that doubles in a discreate period of time. The higher the interest rate the shorter the period of time it doubles. At a fixed interest rate of 10% for 30 years I will end up paying off $215,925. A doubling of my debt.
At 15% for 30 years I will end up paying of $355,199. This is a tripling of my debt.

As a formula, my debt over 30 years: The borrowed $100,000 does not equal $215,925 unless I pull another $115,925 out of the economy.

Now, everyone else who has an interst bearing debt is doing the same thing at the same time. We are all trying to pull more money out of the economy than is already there. How do we keep the system afloat? Create more debt. What is "growth" but the pretext to create more debt? The money supply has to keep growing so we can all continue pay off our doubling and tripling debts. That it, untill our debts get too big for our ability to pay. Our incomes and growth rates are not compounding. Enventually, the interest bearing debt based money system must collapse and reset itself. This is the Boom Bust economy.

Three things become apprant. One, interest makes everthing expensive by adding the cost of paying off an interest bearing debt that is a part of every good and service. Think of any supply chain and think of who has debts along the chain to produce any good or service.
Two, the doubling or tripling of all the debts in an economy over time is what inflation is. Your dollar today buys so much less today because there is so much more money in the economy than 30 years ago. The debt spiral is inflation.

Three, the banks create the debt from nothing and then charge you a private tax called compounding interst on top. The money creation is a fraud and the interest charged makes it a spectacular rip off. A Bank is like no other business like it in our society. Create money out of nothing and charge a private tax on it. The returns are phenominal. No wonder the Bankers want to keep hold of the money creating power. It is absolute power.

So, until we have real money creation reform and put it back in the hands of the population we will be at the mercy of a handful of men who create and issue our money. The Bankers have created the world finacial crises we are in. We are the one who will pay the price. We should not allow them to do it all again.

Democratise Money Creation Now!

At November 24, 2008 4:03 PM, Blogger Dave said...

Over the years, I have watched as corporate management has changed from those who came up through the ranks of the doers - production, product R&D, etc. - to people from the financial part of the business. Corporations are increasingly run by people who have no real understanding of what their company produces and sells. They would be really happy if the company could get rid of the cost of making product and just concentrate on making money. And then, of course, when their badly-informed decisions result in a corporation badly in debt with no customers, they run to the taxpayers (mommy and daddy) to bail them out. Disgusting!!


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