A pie-centric opposition to the GM bailout

I think this the official end of any possibility of my involvement in a senior post in the Obama administration, and one gets the feeling that this is just writing against the inevitable, but here's perhaps the only pie-centered story of what the GM bailout will likely mean for our economy.

The economy of Anytown, in our story, depends on both Pie Widget Maker and Auto Parts Supplier. While the bank rescue successfully prevented a massive run and general financial collapse, the deleveraging of the town continues. Pie Widget Maker is still waiting on the loan to buy the new Widget Stamper, and sales are down.

However, PWM is a responsible, well run company and has quite a bit of capital tucked away. They also recognize that as people do more of their cooking at home, they'll come to appreciate the joys of home baked pies. Some may even open restaurants or bakeries, and so there is a good chance for a market in both home-size and professional tools for better pie making. In particular, a self-leveling "pie rotisserie" could vastly improve the quality of pie making, especially for people with older houses that have sagged a bit. To build these, PWM will need to hire engineers with expertise working with moving parts in hot environments, get equipment appropriate for working with such metals, and some experienced machinists as well.

Anytown Auto Parts Supplier has all of these, since brake rotors and suspensions are not all that different from what's needed for the next quantum leap in pie technology. However, their factory is booked solid with orders from Lumbering Motors, a huge company that makes very anti-pie products that have fortunately gone entirely out of fashion. They have also been poorly run for a couple decades, and so find themselves teetering on the edge of bankruptcy. If they collapse, then AAPS will be in a struggle for its own survival, forced to find new business and lay off employees.

So now, if you're a concerned citizen of Anytown, USA, it's probably time to write your congressmen. But what to say? The owners of AAPS want the Lumbering 3 to get an unlimited supply of tax dollars because they bought into those bad bets, and won't be able to make their boat payments otherwise. PWM's owner has already picked out the cream of AAPS' workforce, and is hoping to grab some of their equipment in the liquidation sale. But for the rest of Anytown, the choice is less clear. Obviously, the short term answer is to pump money in from their kids' salaries and more prosperous parts of the country to keep the Lumbering 3 lurching along. However, the long term picture is trickier, and supporting the auto maker rescue means betting that they will start making worthwhile products. The last company to be "rescued" bounced from foreign hands to private equity and now back to the bailout bin, leading one to think the problem is their business model, not market conditions. So, they're kids will end up paying for a mess and using lower quality transportation than they would otherwise.

Clearly, this blog is in favor of an orderly unwinding, possibly under the protection of Chapter 11, of GM and Chrysler. If they've developed worthwhile intellectual property towards the development of next generation vehicles, sales of those patents will go a long way towards making their creditors happy. It is almost certain that the new owners will make better use of them than the current ones. This will probably result in a significant reduction in PMCIN in the short term, but pulling down two companies that could not turn a profit in the best of times is the right choice for the long term health of the economy.

In order to make the most of this, it's time for two other big changes: (1) a national health care system and (2) substantial financial regulation. The first is a long overdue reform of a system that has always provided universal coverage in the form of emergency room visits, and while the devil is in the details, the Obama plan is probably a good start. At the very least, giving potential entrepreneurs the freedom of knowing that they are not putting their asthmatic kid at terrible risk by starting a new company would be good. It would also nix one of the major issues in most labor disputes recently. The second would hopefully kill off the notion of "financial innovation" of the type we've seen over the last thirty years, meaning students with strong science and math backgrounds would be more tempted to enter the "real" economy than the murky world of hiding spreading risk around.

Here's to hoping.