Here is a chart from Jim Manzi:
I added a trendline of GDP growth in the United States from 1995-2006 to suggest the general economic climate. As they usually don't say: the fundamentals are not strong. Matt Yglesias makes a pointed, if admittedly somewhat unfair, analogy:
To be clear, when I compared arguments for bailing out the auto industry to arguments I feel for before the invasion of Iraq, I'm not saying that the consequences of bailing out the car industry would be as catastrophic as the consequences of invading Iraq. I'm saying there's a certain structural similarity in the arguments I'm hearing. Specifically, I'm hearing a lot of progressives say things like "WE MUST BAIL OUT DETROIT!!!!!! (but it's important to do it with these conditions)" rather than things like "WE MUST NOT BAIL THESE COMPANIES OUT UNLESS THEY MEET THESE CONDITIONS." But if you want to actually get these conditions, you need to position yourself as much more skeptical of the overall merits of this idea. Once we accept the notion that letting these firms go bankrupt is unacceptable, then we guarantee that no conditions will actually be met.
This seems right. Many people, even those who aren't politicians with interest groups to satisfy, and elections to win, feel that we need to do something. But sometimes it is just important to do no harm. Unlike the Iraq war we're not trashing labor and capital on a fool's errand. But a "soft landing" toward the inevitable extinction for the American auto-industry means fewer resources for the rest of the economy.
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Is it an inevitable extinction of the US auto industry? Or just of the Big 3? It's not like Japan has especially low labor costs. Detroit is burdened with their massive pension and benefits guarantees, couldn't a younger American company without millions of pension-drawing retirees compete in the car business?
I understand why low-cost manufacturing industries get crushed by low labor cost countries like China. But the car biz has, until now, been dominated by some of the highest cost labor countries in the world (US, Japan, Germany).
I'm actually surprised more car building isn't done in China. US, Germany, and Japan could design the electronics and write the software and China could build it. It'd be like the electronics industry.
Is this due to real economics (shipping costs, steel production sites) or protectionism and national security concerns?