Superannuated Models

Over the past few years and especially months after writing A Looming Terror, I have been trying to gain some sense of American’s financial challenge and where we are headed in a post-American world. So in recent weeks I turned to two books I thought might help, to better understand what’s happening to America. I had read Thomas L. Friedman’s, The World is Flat, a best seller, three years ago. Friedman, one of the smartest columnist anywhere, in his latest book, Hot, Flat, and Crowded, explains how global warming, rapidly growing populations, and an astonishing expansion of the world’s middle class through globalization have produced a planet that is hot, flat, and crowded. He proposes how America can mend its problems by taking the lead in solving the world’s big problems. In addition, I selected The Post-American World by Fareed Zakaria. Zakaria uses a term, reoccurring: “rise of the rest.” It’s the advancement of people and development of other nations. The book delves into some world history, America’s rise, and the challenges, potential pitfalls that our country is not prepared for, but also opportunities for Americans in a fast changing world where America may at some point no longer be the sole world superpower.

In the ubiquitous news of the latest corporate financial dilemma, i.e. the original American-auto dynasty, Detroit Auto, questions have surfaced as to what government’s involvement should be, if any, to save millions of jobs. In thinking of Detroit’s predicament, the thought occurred to me: Detroit’s Auto perplexity is an example, a perfect model cast in the same mold of thoughts and attitudes, as that of the United States of America, a failed model in a mounting financial crisis. If the U. S. A. were a corporation it would have long ago been closedown. Here forward I’ll try to illustrate parallels of Detroit and USA. The jump-start of this writing began with an email (Funniest Joke Ever) I received about the establishment of the Department of Energy during the Carter Administration, Aug. 4, 1977, being established to lessen our dependence on foreign oil. (Of course the dept. was established only in part to lessen our dependence on foreign oil.) It’s true that DOE has done little, or maybe nothing, to lessen our foreign oil dependence; however, DOE, if liable at all, it’s fractional. Most to blame are all the presidential administrations and congressional bodies over the last 30 years, since the DOE’s establishment, in part, for energy independence, plus many other responsibilities, including the recent $25B appropriated for Detroit’s Auto retooling. My response to that email began:

“Talk about the Department of Energy! I remembered this article by Mitt Romney, Let Detroit Go Bankrupt, in yesterday's NYT. Not sure I agree with him on letting Detroit go bankrupt but I do agree on his idea that we have to do more investment in energy research. I have said if we have to risk wasting further national indebtedness it should be on renewable energy research, because it's the number one issue facing our nation. (If only our leaders could have had the guts to do this years ago!) He is suggesting even another $50b more than Obama and $150b more than McCain had suggested. Have a nice day! CC”
Then a reply to the group-email from George:
“I believe the Romney approach was for a Chapter 11 re-organization (similar to the airlines' experience) -- not a dissolution. Buy time to organize / structure costs similar to Mercedes, BMW, Toyota, Hyundai, Honda, Suzuki, Mitsubishi, Nissan, none of whom is burdened the same way as US automakers. Congressional Dems are mainly interested in re-paying the UAW for the hundreds of millions of dollars spent on campaign support.”

George, yes, that’s correct, I think, a Chapter 11. Maybe that could be the best solution, but I think at this juncture of global economic uncertainty Detroit-auto-industry’s survival becomes more problematic. Of course, I don’t claim to know about all those things. As for the labor unions, I’ve said for years that, for the most part, they have outlived their usefulness for their own good and our nation. However, I say this with a “grain of salt.” From experience: I worked for an independence businessman for the first 18 years of my career. I never received a salary increase that I did not personally ask for, and I was never refused an increase when I did ask. I worked diligently for that company as if it had been my own. I did, however, receive substantial bonuses without asking. I realize that, for example, in a modern-day Wal-Mart store, a waged individual has no leverage whatsoever, whether or not he/she’s doing a great job, to go to management and be successful. So, there probably remains a well-disciplined function for unions to do reasonable negotiations, if the group by freewill votes it in.

For auto bailout consider this: On Nov. 24th, Spencer Abraham responds with: For Detroit, Chapter 11 Would Be the Final Chapter A Chapter 11 would be catastrophic. “J.D. Power predicts an "outright collapse" of global car sales in 2009, with some analysts expecting U.S. sales to drop as much as 30 percent next year—that's on top of this year's decline. European automakers called for a $50 billion aid package of their own; Australia passed a $2.3 billion aid package; and even Chinese carmakers, shocked by shrinking exports and domestic sales growth just as massive new capacity comes online, begged Beijing for help,” says Newsweek’s article Driven Into the Ground. So, the Big Three are not alone in this financial fiasco. Although, imperatively I believe, this is the time to reflect on the things that went wrong in Detroit, make corrections; build the new models that bridge to a conservational, sound, economic future.

Having a continuity of understanding (a chronology) from were the Detroit auto industry has evolved in tandem with government’s provision should be helpful. Be reminded of the attitudes, the mold (model) in which the thinking of our leaders and their constituents (us), over the past 30 years, not only for auto industry but in general, has brought us to this point of downward spiral.

As Thomas L. Friedman says, there was a time when Washington had a bipartisan approach to solving environmental and other important issues. It was President Richard Nixon who signed into law the first wave of environmental legislation. Urged on by Presidents Ford and Carter, subsequent to the 1973 energy shock (an experience I do know something about), in 1975 Congress passed the Energy Policy and Conservation Act by which corporate average fuel economy (CAFE) standards were set to double vehicle mileage within ten years to 27.5 mpg. As an example of government’s seriousness about conservation and alternative energy development, President Carter had solar panels installed on the White House roof.

In 1986 President Reagan reduced CAFE standards to 26 mpg and slashed the budgets of most of President Carter’s alternative energy programs, particularly the Solar Energy Research Institute and its four regional centers, according to Friedman. Further, Reagan had all the solar panels removed from the White House roof. Reagan and a Democratic Congress also teamed to let tax incentives for solar and wind lapse. Reagan ran on an optimistic outlook for our country as well as antigovernment and anti-environmental regulations, moreover anti any regulation. Perhaps the regulatory pendulum had swung too far to the left, but Reagan’s reckless-regulation swing to the right was not only unwarranted; it was a reversal of a critical trend prior administrations had set in course for our country’s long-term conservation needs and security from petrodictatorships we have come to depend on.

In 1989 President George H. W. Bush raised the CAFE standard back up to the 1985 level of 27.5 mpg. His administration also improved building and appliance efficiency standards and a few other enhancement efforts. The Clinton Administration tried to raise CAFE standards just for trucks, which would have included those large gas-guzzling SUVs. It was a failure at the behest of Detroit’s Michigan congressional delegation leaders, at which time a lock was put on mileage standards until 2003. Only then was the George W. Bush administration able to get a tiny adjustment upward for small-duty trucks. CAFE standards were not adjusted upward for 32 years; however, in 2007 U. S. fuel economy was moved to 35 mpg to be met by 2020. The United States has the lowest standard of fuel economy of any nation in the world, including China, which requires 2 mpg more than USA. The European Union and Japan have fuel economy standards almost twice as high as the United States.

President George W. Bush’s incoming administration attempted to roll back President Clinton’s implementation of an increase of 10 to 13 SEER rating for air conditioners --- back to 12 SEER, against its (Bush’s) own EPA counsel. The Natural Resources Defense Council and ten states sued and won the reinstatement of a 13 SEER efficiency rating for air conditioners.

These patterns, attitudes, a self-indulgence-corrupted model, hardly born of personal ethical convictions but most surely of lobbying influences, bring home to roost an absolute culpability, including Detroit auto. Many of the general public has to share responsibility in this blameworthiness. Our leaders, both Democrat and Republican, each who had full control presidentially/congressionally for long enough periods, had they wanted to could have acted responsibly. They’ve told us over the past many years what they thought we wanted to hear: no tax; no regulation; no sacrifice, as our self-indulgence demanded not conservation, but a disregard for harsh consequences for future generations.

We only want, without sacrifices, to drive our pickup trucks and big SUVs (exempt of auto CAFE standards) and ride on cheap gasoline (me too). “Big Oil and Big Auto used their leverage in Washington to shape the market so people would ask for those cars that consumed the most oil and earned their companies the most profits – and our congress never got in the way. It was bought off,” says Thomas Friedman.

Big Loser: Detroit Auto. Big Winner: Exxon Mobil, BP and rivals Chevron Corp., Royal Dutch Shell PLC and ConocoPhillips posted combined earnings of $44.4 billion in the most-recent quarter, up 58 percent from the same three-month period a year earlier. Any help there? Unequivocally NO!
As for U. A. W. Union’s responsibility in this debacle, it may be significant but maybe not as much as perceived by most people. For another view of the Union’s case read: Pundits Peddle Revisionism in Attacking U.S. Automakers. It’s been reported that under their current agreement, union wages by 2010 will be equivalent to those of foreign brands being manufactured in the states. And as foresaid, they are in the process of retooling. Fareed Zakaria says, “For a century after 1894, most the cars manufactured in North American were made in Michigan. Since 2004 Michigan has been replaced by Ontario, Canada. The reason is simple: health care. In America, car manufactures have to pay $6,500 in medical and insurance cost for every worker. If they move a plant to Canada, which has government-run health care system, the cost is around $800 per worker. In 2006 General Motors paid $5.2B in medical and insurance bills for its active and retired workers. That adds $1500 to the cost of every GM car sold. For Toyota, which has fewer American retirees and many more foreign workers, that cost is $186 per car.” (He states this is not necessarily an advertisement for the Canadian health care system.)

In the current national and world banking collapses, capital injections are being made around the world to under gird financial bases and give economic stimulus. Paul Krugman, winner of 2008 Nobel Memorial Prize in Economic Sciences, says the US deficit worries are misplaced in today’s situation: Deficits and the Future “Should the government have a permanent policy of running large budget deficits? Of course not. Although public debt isn’t as bad a thing as many people believe — it’s basically money we owe to ourselves — in the long run the government, like private individuals, has to match its spending to its income.”

Thomas Friedman says, “Something’s going on in this world economy that even the smartest investors in the world didn’t see: Prince Ali-Valid of Saudi Arabia last January bought into Citibank at $30, now worth $5; months later Warren Buffet of Omaha bought into Goldman Sachs at $115, now valued $50. (Approximate nos.)” Friedman last week characterized bank failures, a culture of covetous irresponsibility, a corrupted model, in All Fall Down: “That’s how we got here — a near total breakdown of responsibility at every link in our financial chain, and now we either bail out the people who brought us here or risk a total systemic crash. These are the wages of our sins. I used to say our kids will pay dearly for this. But actually, it’s our problem. For the next few years we’re all going to be working harder for less money and fewer government services — if we’re lucky.”

As much as I have talked of fiscal responsibility, and I hold to that imperative for the long term, there apparently is a justification for further national indebtedness: A debt almost doubled in the last eight years to well over $10T, and now adding another $1.5T to $2T that Republican, Democrats, conservatives, liberals, and progressive say we must inject. But will China be able, or have the political incentive, to continue buying our bank notes. We want their goods; they want to sell us their goods. America is truly globally interdependent in all aspects: security, economics, environment-climate-change. President George H. W. Bush referred to “A New World Order.” He was disparaged by the rightwing for his remarks about the role of the United Nations, but he was right. Cooperation, interdependence between major national economies, as world populations’ increase, becomes not only a mutual responsibility but also an imperative to solving world problems. America can’t unilaterally financially or defensively continue to act alone. We must not let the fear of terrorism, immigration, and free trade blind our society and leadership to the fact there is a higher road that leads to opportunity and a more secure future for our country.

The problems we face as a country are enormous, I believe, more so than many, or more than most, of our citizens are aware. Our country has elected a president to mitigate risk and find solutions for the short and long-term. In my best wishes for the incoming president, the “man of hope,” I offer this message:

President-elect Barack H. Obama
United States of America
Washington DC

Dear President-elect Obama:

I know these are very difficult times, and many of us justifiably feel insecure about our future and our children’s. While our country awaits your leadership, we know you don’t have all the answers; however, I offer whatever support one citizens can do to help our country. I commit to never disparage your earnest leadership, even though I may at times respectfully disagree and debate the issues, as I have respected the past administration. I hope others will oblige the same level of personal courtesy and respect for the institution of the presidency.

Two years ago I read your book, The Audacity of Hope, and was inspired. After reading many columns and listening intently to you and all the other presidential candidates, early on in the primary, I made a decision to support you. It was only in part because I thought you would bring “change,” it was the qualities that I believed you had, more outstanding than all the other candidates: a certain conscientiousness, integrity, intellect, communication skills, a listener, and unflappable, level headedness; a person who could be an important role model, so sorely needed in a country exhibiting depravity in too many ways. I liked the way you handled closed-ended questions, refusing to give an unequivocal simple yes or no, claiming to know exactly what America needed. Instead you turned us to open-ended answers that cause us to think, rather than jump to conclusions. I liked that; our country needs that.

My support never wavered in the face of friends and family who disagreed. I fought with my own personal integrity to debunk an unprecedented number of slanderous, fear and smear, email rumors. I sent your campaign money, exhibited the Obama bumper sticker and yard sign, all of which I had never before in a presidential race participated. I know you thank many Republicans and Independents throughout the nation who did equally as well for you.

Your campaign survived the onslaught of personal attacks, your association with Rev. Jeremiah Wright and whatever perceived connections with other defamed people. Many of us understood your family’s connection to your church; only those who have been in a church for many years understand that you don’t just pull out and leave (some do however) your church because of a disagreement with one pastor. Our loyalty is to the church family, to help guide a principled Christian body. I regret that you were forced to leave your church, because there is more than a tread of “truth” woven in Jeremiah Wright’s zealous message, a message only one in the experience or with sincere empathy can comprehend. You can thank many good Americans who understood that. And we know you understand that despite older generations of white and black cultures, backward thinking, our country is moving forward into a new generation of racial equality.

President-elect Obama, I did not support you because I thought you knew everything, quite the opposite. No one knows everything that’s needed to run this country. But I believe you have an instinctive ability, a view of the big-world picture, and other qualities needed to surround your administration with the necessary skills for each department; with opposing views, you will listen to and ultimately make the best decisions. Surely there will be mistakes by you and your cabinet of advisors. But don’t be distracted by the fringe elements of disparagement that will surely continue to polarize our citizenry, the right-wing radio and even some left-wing commentary. Don’t let it deter your straightforward, levelheaded honesty. Just tell us the truth; don’t just tell us what you might think we want to hear. Keep on leveling with the American people the challenges our country is facing. Don’t let politics be “rule of the day;” don’t even think politics; don’t even think of getting re-elected. Since you are beginning “behind the eight-ball,” we have no time to lose. After three and half years, if you’ve done justice, done the best you can under the circumstances, we will consider accepting you a second term. I believe you understand the gravity of our era, and I trust you will exemplify a certain sobriety that we Americans should also embody in an ever-changing world. However, in the haze of all our country’s problems, we must continue to have HOPE, tempered by reasonable expectations.

Along with your advisors and congress, hopefully, the right thing will be done for Detroit Auto, financial institutions, and stimulus. I’ve never expected miracles, as mockers derided you as “The One” to end all problems. Although, you can be “the one” to effectively replace the outmoded models, many in Detroit. But most importantly you can be the much-needed-preeminent role model for ethics in big business and finance-institutional management and our greediest society. Where rampant fear of you was spread in the campaign, you will prove it fake, by your honorable leadership in the light of hope. When you have delivered this it will be the sufficient “change” that I believe most Americans are looking for. Let me be not naïve, I know America’s leadership will not be easy in the face of overwhelming opposition at times, it will be tough.

Keep up the diligent work for us, and when you are inaugurated January 20th, let change be triumphal. May Hope, Faith, Love, and Joy surround your family during this Christmas Season! I’ll be praying for your family’s and our country’s safety, as the world earnestly awaits a new American leader.

Most Sincerely,
Cornell Cox