To “save” the domestic auto industry, the union may end up killing itself

Columnist for the Nation Max Fraser made this his principle assessment of that last, mad rush to close the Summer and the Summer’s negotiations, for the United Auto Workers.

The historic concessions made by the United Auto Workers, billed as necessary measures to keep the reeling Big Three from bankruptcy, in fact represent something far more ominous. To “save” the domestic auto industry, the union may end up killing itself.

This is a fair assessment (allowing for the trouble the union is having with ratification for the Chrysler deal. The GM deal was ratified – just). The union has protected – more or less – its current members, but has done so at the cost of getting many more. Having established two tiers of auto workers – the new hires, the “non-core” hires, will cost around a third less (depending upon the estimates I see), so the odds of them giving any of what’s left to the union that created that tier is small. Even allowing for the argument that, without that concession, the jobs wouldn’t exist, on any tier (Communication Workers Union, if you’re reading…).

Fraser looks, with some clarity (and some subjectivity, but that’s cool, too) to the future:

… the proliferation of Toyota, Honda and other foreign-owned plants has accounted for virtually all recent growth in domestic auto manufacturing. After decades of watching plants close down and jobs move overseas, the UAW finds itself beset by a process of globalization-in-reverse, as foreign automakers increasingly “insource” production with cheap nonunion labor in right-to-work and Rust Belt states. The global South has arrived in Detroit’s backyard.

…

If the UAW is to have a future, it must figure out a way into these foreign-owned factories.

More easily said than done. Amongst other things, we’re talking about foreign firms building factories in the US. They aren’t stupid: in the Age of Waltons and Monopsony Employers, they know exactly how to keep both unions, and out-of-work-union-labour-from-out-of-state (read: Detroit) from buggering up their game – while also having learned exactly how Big Firms Appeal to State Legislatures. The UAW probably only had employed, unionised workers for them, and they just mortgaged off most of their future of that resource.

Ultimately, the debate is larger than this, entirely, including such questions as, should the US even make its own cars anymore? Can it compete in the world for the production of elaborately-transformed manufactures? At some point even the protectionist resource allocators may need to decide that there just isn’t a margin in pursuing that final value-added step in production.

Eco 1 students: this is comparative advantage, specialisation and gains from trade. Come the day, we may well look back on the death of Big Union with gratitude, for allowing unimpeded pursuit of points of consumption well outside our production possibilities frontiers. We may also deeply regret it – that’s half the fun of economics (we’re never the ones being squeezed out of our mortgages, you see).

Oil, ethanol, drought, climate change, government – and the Australian farm

Today’s Sydney Morning Herald is running a very strange story on .. not sure, actually.

NSW has only one ethanol plant – the Manildra facility at Nowra with a capacity of 100 million litres a year – but earlier this year there were proposals and plans for enough plants to increase capacity to well over a billion litres.

When the rural newspaper The Land looked at the predicted biofuels boom six months ago, it noted: “Ethanol plants in NSW are set to consume a massive 4 million tonnes or more of wheat, barley, sorghum and maize annually by 2009 if all the projects approved or on the drawing boards go ahead.

“That’s about half the state’s average production of these grain crops, which averaged about 9 million tonnes annually in the past five years – and is more than the total grain tonnage produced from last season’s drought-depleted 2006-07 harvest. The figures suggest intense competition [for grain] is looming … in good seasons, and serious grain shortages in bad years.”

… which of course is among the reasons why ethanol is such a bloody terrible idea.

I do, truth be told, know why the story is there: because oil is USD90 per barrel, now – a price at which things like this were supposed to become wildly popular, and the Sydney Morning Herald has space to fill and advertising dollars to earn. Only now, really, are editorial pages beginning to get into why ethanol isn’t such a great idea (newspapers are nothing if not late to the game, after all).

The interesting part of the story, for me, was the reaction of the farmers/townships that had seen Big Ethanol as a cash-cow. For example:

At Condobolin, where the company wanted to build a 200 million-litre plant consuming 600,000 tonnes of grain a year, Lachlan Shire Council’s general manager, George Cowan, said the disappointed town had invested a lot of hope in the project.

Somebody will need to explain to me why we revere our “battler” farmers, while they’re going about giving up our food for fuel (no, you don’t: not for nothing do I teach Principles of Economics – that was more a criticism of the reverence itself). These demonstrations of agriculture’s sense of entitlement for a permanent place at the of government welfare stood out:

At Oaklands, near Corowa on the Murray River, grain grower Pat Day offered part of his farmland to Agri Energy to build a plant the same size as Condobolin’s.

…

“I’m just disappointed. Governments haven’t come up with the necessary mandating to encourage [Agri Energy] to keep going. They have got better opportunities in other parts of the world.”

The Swan Hill operations manager, Stewart Rendell, blames government and oil companies for Agri Energy’s troubles, rather than record-high grain prices.

“You can’t deal with big oil in this country when there’s no mandate,” he says. “Even when you bring the wheat price back to a reasonable level, big oil don’t need to deal with us.” Oil companies were prepared to buy the ethanol, but not at realistic prices.

Rendell says that if every state mandated 2 per cent ethanol, as NSW has, or the price of oil rose above $US100 a barrel, as some are forecasting for next year, Agri Energy would reconsider the viability of its Australian projects.

Yes, the solution to this “problem” is that the government has not passed legislation mandating that a product we don’t want – a product whose development is not profitable, and demands more water than we have to provide, not to mention exhausting food crops in a time when yields are declining – be made compulsory in fuel.

I’ve looked around: there isn’t much on Australia’s transport fuel consumption – almost nothing, in fact. Apparently the data is either commercial-in-confidence, or just not there. Back in 2000/1, though, we were up around 31bn litres:

according to the Australian Institute of Petroleum. So 2% of that, right across the country, etc. Irregardless of the cost to government (since they mandate it, they’ll need to subsidise it which is, of course, where a farmer’s ear perk up), hence to tax-payers; irregardless of the burden on the environment (through water use, monocultural agriculture, etc.), the argument is that we have a problem that only government mandating can fix.

Meanwhile, the same government, trying to mandate some manner of intelligent water use, is vilified by the same people.

The Voluntary Assistance Return Programme

An interesting development in the UK, vis. (failed) asylum seekers.

Failed asylum seekers are to be offered an extra £500 to return home in the wake of figures showing the number of removals is at its lowest level for five years.

The changes announced by the International Organisation for Migration, which runs the £22m-a-year reintegration scheme, will provide a flexible package of support in cash and in kind to help those who go home to start up their own businesses, go through further education or take up a job.

…

Under the present system a £500 cash relocation grant is paid at the airport for each member of the family going home and a £1,000 reintegration package paid in kind is made available to help set up a business or in other ways ensure their return home is “sustainable”. About 80% use the aid to start a business and all are given help in getting travel documents and buying flight tickets.

The new approach announced yesterday includes boosting the £1,000 package to £1,500 and making it more flexible to cover an individually agreed return plan. The aid could be used for short-term accommodation costs, to cover part of an annual salary bill for a job or even contribute to the costs of children’s schooling. A further new element is the potential for a further £500-worth of assistance six months after the failed asylum seeker has returned home to keep a new business going.

The natural reaction to this is taken up by the Tories:

The Home Office announcement was criticised by the shadow home secretary, David Davis, who said it was extraordinary that the government was having to “bribe” asylum seekers to return home.

While the more-or-less Toryish justification of it belongs to the government (still reasonably Blairite, fair to say):

A Home Office spokesman said the new approach to voluntary returns represented good value for money against the cost of enforcing a return through deportation. He added that further potential savings would be made through not having to provide support and accommodation while still in Britain. Those who had to be forcibly removed did not receive such help.

What did you expect – kindness? Not from a department dedicated to immigration/asylum in a rich country’s government. They’re lucky they’re not locked up in a prison in the middle of a desert (had they gone to Australia, say).

To muddy the waters, somewhat: do we object to the Home Office paying-off rejected asylum seekers? Or do we object to their rejection? Compared to forcible removal (or mandatory detention, the horrid Australian model for so many), is getting a payoff such a bad thing?

Back when the UN released its report on refugees, all more-than-10-million of them, we got a feel for the origins of the world’s (meaning the world’s – not necessarily the UK’s) asylum seekers:

One has to ask how far that 500 pounds sterling + GBP1,500 business grant (or, if increased, GBP2,000) will get you in, say, Afghanistan or Iraq, Somalia or the DRC.

One answer says, frankly, pretty far. That’s a lot of money. Moreover, conditional upon being denied asylum/residency in the UK, can you think of a better outcome for the asylum seeker, given the options? The caveat to this answer, more or less clearly, is the attempt by the Home Office to, yes, bribe asylum seekers to abandon their legal avenues and return home, before those avenues are exhausted. Which is a sight below our expectations of ourselves.

The other answer to the question is not very far, because the country is bloody dangerous: odds are the person did escape for a reason (just, apparently, not one one of sufficient urgency). We (all countries) repatriate people to some pretty dangerous countries (in many cases made so, or made more so, by us) – show up back in Baghdad with that sort of money, belonging to the wrong tribe, and with all/most of your previous associates potential dead, left or kidnapped, and how long, honestly, would expect to last? You’re probably better off with the Home Office stealing your kids, rather than some lunatic militia group.

The debate, for me, is just kind of off. These things aren’t the issue. How few refugees are taken in by how many countries who do so much of the damage in the first place, that is – or ought to be – the debate.

Has the UK ever done for an affected country the sort of favours done for it by the US, back after the second World War? Has the US ever repeated the favour? What happened to us? Is it (probably, but we’d like to believe not) purely because our economies have no interest, no investment, in these newly-war’ed-upon economies? Is it racial/ist? Eugenic? Are we just more distracted, now? Are we lead by people of inferior moral fibre? Are those leaders followed by people of inferior moral fibre?

At the end of day it seems reasonable to suggest that we would make very little in the way of sacrifice to support more of the people fleeing the countries we destroy. If we’d only make more of an effort to repair and rebuild them once we’re done, such support need not be permanent – our asylum seekers would willingly return home to rebuild the social fabric of a country whose actual fabric had been re-stitched, I should think. But, then, I’m kind of an idealist.

The G-7’s finance ministers assume you don’t know what money is

Group of Seven finance ministers and central bankers said the credit-market rout will slow economic growth and strengthened calls for China to let its currency appreciate.

…

The group also urged an “accelerated appreciation” of the Chinese yuan as Europe and Canada joined the U.S. in complaining it remains undervalued and threatens their trade balances.

So far, not interesting. China, as discussed here a few times, is a sovereign country. It will act in its own self-interest, and so far that does not include being bossed around by the G-7. The EU still has its Common Agricultural Policy. The US still has subsidies all over the freaking place. If China chooses its subsidiy to be a low exchange rate, that is their right. More importantly, China can’t stop its behaviour without inviting a crunch in the labour market that it doesn’t know how to handle – because it’s never had to, previously.

We should be trying to help them deal with unemployment and establishing a welfare state, rather than harrying them over the Yuan.

More importantly/amusingly:

The G-7 set aside differences over the dollar’s drop to a record low against the euro, sticking to past language in saying “excess volatility” in currencies is “undesirable” and that they should trade in line with fundamentals. Other than the yuan, no specific currency was mentioned.

The only possibly conclusion I can draw is (a) they’re all hypocrites, or (b) we’re returning to the gold standard! “trade in line with fundamentals” – that is fundamentally incompatible with fiat currency: the simple deposit multiplier, with its debt standard of currency value, most certainly is not “in line with fundamentals”.

The ministers also started in on sovereign funds, which is fine. I stopped reading, frankly. These are the same people who tell us things like “don’t panic: the liquidity crisis is well-contained”.

Energy Accounting

Returning to the idea of nagging China endlessly over its currency, while ours is backed only by the ever-weaker promises of a nation of borrowers. Energy Accouning is something I’ve come across lately – it is an approach to commodity money, but not the gold standard, and not barter (reserved for perishable goods, which never work as money). This time, the commodity is energy:

Energy accounting would replace money in a Technate, but unlike traditional money or currencies, energy units could not be saved or earned, only distributed evenly among a populace. Energy credits or certificates would probably not have to be physically used by the populace themselves, as the system would be computerised. In this proposal, the Technate would use information of Natural resources, industrial capacity and citizen’s purchasing habits to determine how much of any good or service was being consumed by the populace, so that it could match production with consumption.

The amount of energy each citizen would have would be equal to what they spend, thus they never have to worry about running out or budgeting, the only constraining factor being the Technate’s resource base and Technological level. The reason for the use of energy accounting, according to Technocrats, is that it would ensure the highest possible standard of living, as well as equality, among the Technate’s citizenry.

I don’t really follow the Technocratic movement’s model that well (but, then, it dates back to at least 1955): as their wikipedia entry explains, the idea of distributing the currency, rather than having it serve as a store of value, will likely break down (particularly in a peak oil period).

Consider this, though: our current model of fiat currency works, more or less, according to the same ‘rules’: debt, as long as it is increasing, increases “money”. Our belief in the surety of economic growth (at least as directed by our politicians) relies upon the idea that technology will remove the scarcity of the serious resources (oil shale, anyone? Switchgrass?). So…

Their model, and perhaps the model itself, has the serious pragmatic difficulty – countries currently very wealthy do not have much, relative to other countries, in the way of energy-producing natural resources. Good luck getting that kind of re-balance. It also provides the very worst kind of incentive: a ‘gold rush’, of sorts, to extract/identify the maximum energy potential from a country’s natural resources early on, to establish wealth. The technocratic movement’s model really only works absent globalisation.

The idea has some appeal, though. We’ve given effective plutocracy more than its fair share of opportunities – maybe technocracy would work better? I refer to the Asian application of it, not the Western one (the former holds – in theory, but often enough in practice – government to account; the latter is just too bossy for our tastes). At least we’d build things to last, once more.

At the very least, debt is not a commodity: debt is not a fundament of an economy, or its strengths (at least, it is not supposed to be). It can’t buttress the money supply forever.