Pain Aversion: The New Economics

us_prius.jpgAccording to Henry Paulsen, the economy has stabilized. Investment bankers are all cozy and happy now. Next up, US auto giants are hurting. After them, people in pain from expensive mortgages and foreclosures. Though I lean liberal, I have limits that apparently the US government does not. Where I come from, Americans work hard to earn what they can. Government provides a leg up on occasion, but the bulk of the effort lies with the individual. Corporations operate in a free market and should not be artificially emboldened or protected by governmental interference. Healthy competition has always fostered innovation.

Except where US automakers are concerned. Though the US automakers share of the market has been in a continual decline since the 80s, somehow they failed to wake up to the fact that people were buying foreign cars for a reason. Somehow US automakers forgot to ever do the reality check that other companies do: are we still competitive? And naturally, what can we do to become more competitive? Instead, US car makers kept pumping out suboptimal fuel efficiency, boxy fifties-era “American looking” styling, obscenely over-sized SUVs, and all with plenty of cup-holders rather than blue-tooth enabled. According to CNN Money:

If the Big Three carmakers were to cut U.S. operations by 50%, 2.5 million jobs could be lost in 2009, according to a study released Wednesday.

The Center for Automotive Research reported that the total employment impact includes nearly 250,000 jobs lost at the automakers and nearly 800,000 at suppliers.
In addition, the organization estimates another 1.4 million job losses outside the industry, such as those caused when stores go out of business in communities hit by plant closings.

That is pain. And the pain is compounded by the sudden lack of mobility of a large sector of the workforce who can’t relocate to better or different jobs because they’re tied to their horribly overpriced mortgages!! The thing I can’t understand, is why more people don’t just walk away when the value of their house is underwater. So you rent for a while. On the positive side, market-thumb.jpgeven if you have to declare bankruptcy as an individual, you’ve retrieved your mobility and are free of a huge burden of debt. Is this one more example of pain-avoidance? Do people consider it too painful to just let the house go?

If the automakers do receive a bailout, maybe Congress can enforce some sanity: require that the automakers use the funds to retool their factories to produce a hybrid car on par OR BETTER than the Prius. The minute they do, you better believe I’m buying American.

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November 17, 2008 | Filed Under Great Recession 

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