Tag: Ford

A Remembrance of William Niskanen

I first met Bill when I went to the Council of Economic Advisers in mid-1982. Bill had come to the CEA in the spring of 1981 as one of the early appointees of the incoming Reagan administration. He had known the president and worked with him when he was governor of California.

Bill and I quickly became good friends. Whenever we were both in Washington, we would usually start the day with 20 minutes of chewing over what was going on in the economy and in public policy. Part of the bond that developed between us was a consequence of the unrelenting infighting within the administration. The infighting sometimes involved the CEA but Bill and I, most of the time, were able to stand clear and remain in neutral territory.

Of course, Bill understood how bureaucracies work, or failed to work, from both his research and his experience at Rand, Ford, OMB and, yes, at UCLA and Berkeley. His insights were a staple of our conversations both at the CEA and later. Very few scholars have such first-hand experience in these various sectors of the economy. That fact often shows in the work of academics who have policy ideas that are simply untenable in the context of how organizations and the political system actually work.

A wonderful sense of humor lubricated Bill’s interactions with others. Well, most of the time anyway. During the administration’s work that culminated in the Tax Reform Act of 1986, Bill cracked along the way that the Treasury proposal was one that Walter Mondale would be proud of. I had left the CEA and returned to Brown University by that time, but Bill’s crack so angered Treasury Secretary Don Regan (who was not renowned for a sense of humor) that Regan vetoed Bill’s path to become chairman of the CEA. He served as acting chairman for a short time and then joined Cato.

Bill was the most widely read person I have known. That, plus the breadth of his personal experience, made him a delightful conversationalist on almost any topic in almost any group.

Although it was a big loss to the Reagan administration for Bill to depart, it was a huge gain for Cato and for the nation for him to join Cato. His leadership there, working closely with Ed Crane, built Cato to what it is today—the premier libertarian think tank in the world. Bill’s scholarly work will influence future generations; so also, in equal or greater measure, will the Cato Institute that he helped to build.

Ongoing Ripples from the Auto Bailout

A couple of weeks ago I suggested that the person responsible for Ford’s anti-bailout ads was deserving of a raise. Today, I wonder how that extra income will be spent…in Siberia. According to media accounts seemingly originating with the Detroit News, Ford has pulled that ad after learning the Putin Obama White House was none too pleased.

It is unclear from the Detroit News article whether overt threats, implied repercussions, or mild expressions of regret best characterize the communications from the White House to Ford. Regardless, something spooked Ford enough to prompt it to pull the popular ad (no longer available on YouTube), which sought to differentiate the Ford brand over the “bailout” characteristic, which is not insignificant to auto purchasing decisions.

Hopefully, some probing journalists will discover the true nature of what transpired. In the meantime, it’s important to reflect on the fact that—contrary to the views of E.J. Dionne and others who cannot contemplate what is not seen—the auto bailout was not a discrete event, which happened and now resides in our memories. It is an ongoing tipping of the scales of competition—intentionally and inadvertently. Ford’s mere perception that the administration might stir up trouble if it didn’t fall into line is a vestige of the bailout.

To the extent that the administration wants to tout the bailout as evidence of its “successful” economic stewardship, it should know that there are plenty of us willing and able to do the auditing on that claim.

Why Don’t Koreans Buy More Ford F-150 Trucks?

Ford Motor Company ran a full-age ad this morning in The Washington Post urging Congress and President Obama to reject the pending free-trade agreement with South Korea unless its provisions on automobiles are changed to promote the sale of more U.S.-made vehicles in Korea.

To drive home the point, the ad shows 52 cars with Korean flags in the windshield dominating one car sporting an American flag. The ad claims that, “For every 52 cars Korea ships here, the U.S. can only export one there.”

As my colleague Dan Ikenson blogged earlier, Ford blames the disparity on Korean trade barriers that discourage auto imports. Ford demands that the Obama administration “fix” the agreement before it can be approved by Congress.

In a study we released last month analyzing the agreement, Cato senior fellow Doug Bandow offered a different explanation of why we import so many more cars from Korea than the Koreans import from the United States, and why the agreement would go a long way to addressing legitimate concerns about barriers to U.S. auto exports:

In terms of tariff reduction, the agreement would deliver the “level playing field” many members of Congress demand. Tariffs on imported passenger cars and parts and accessories are currently 8 percent in Korea and 2.5 percent in the United States. Most of those tariffs would be eliminated upon enactment of the agreement, and all by its full implementation.

Although the FTA reduces South Korean tariffs, American automakers complain that the accord does not address non-tariff restrictions. … In fact, social and cultural barriers may be more important than government policies. One problem is auto size, since American cars are larger than those typically preferred by apartment-dwelling South Koreans. Even if all tariff and non-tariff-barriers were removed, the average Korean would still be much less inclined to buy a Ford F-150 pickup truck, a Chevy Suburban, or a Jeep Grand Cherokee than the average American would be inclined to buy a smaller, more fuel-efficient Korean-made vehicle such as a Hyundai Sonata. No free trade agreement can change fundamental consumer preferences.

Instead of complaining about all those Korean cars Americans want to buy, we should be glad for an agreement that opens both markets to greater competition.

Ford Motor’s Curious Policy Priorities

Though it has been relatively successful in the marketplace lately, the Ford Motor Company continues to confound in its public policy commitments.

First, the company remained silent for the better part of two years as its chief domestic rivals General Motors and Chrysler were nursed back to viability by a doting government dispensing $65 billion of taxpayer-funded nourishment. Not once (to my knowledge) did Ford publicly complain that the government bailout of its struggling competitors was an affront to its own prospects or that it would deny the company its rightful increase in sales and market share (the so-called spoils of competition).

But now Ford is trumpeting its opposition to the U.S.-Korea Free Trade Agreement. In a full page ad in today’s Washington Post, Ford implores Americans to reject the agreement as it currently stands, arguing that it would “allow Korea to remain one of the most closed automotive markets in the world.” So all of a sudden Ford is concerned about sales and market share?

Had GM and Chrysler been allowed to contract to a degree commensurate with their reckless decisions over the years, Ford might have hit the mother lode of sales and market share. But Ford didn’t even attempt to make that case. If Ford is so concerned about sales and market share, where is the outrage over the $45.4 billion in unconventional tax deferrals being granted GM as part of the ongoing bailout bonanza? Aren’t those deferrals just subsidies to help GM regain market share … at Ford’s expense?

Instead, Ford has chosen to target a trade agreement that promises enormous benefits to American businesses and consumers, a slew of new domestic employment opportunities, and annual increases in GDP of anywhere from $17 to $43 billion (bailout-type sums!) on the grounds that the agreement contains no guarantees of increased U.S. auto sales in Korea.

There are no guarantees in trade. But that’s what Ford and others in the U.S. auto industry and in Congress want: guaranteed sales figures, bilateral trade balance within the auto sector, managed outcomes. Is that what Ford means in the ad where it claims to support free trade?

Granted, the Korean auto market has been notoriously difficult to penetrate. Behind-the-border taxes levied on engine size and other non-tariff barriers have discouraged purchases of U.S. automobiles in Korea. But without the agreement, none of that will change. With the agreement, Korea reduces its tariff on passenger vehicles from 8% to 0 immediately, while the United States reduces its tariff on passenger vehicles from 2.5% to 0 immediately. So both are good reforms, but there is no question that U.S. auto exporters get a relatively bigger boost from the agreement. And though there are no guarantees of hard sales quotas, one can be pretty well assured that only the most inept producer/exporter would fail to capitalize on an 8 percent cost reduction granted with the stroke of a pen.

Ford should stop politicking and stay focused on the goal of making better automobiles.

Whip (Health Care) Inflation Now?

During the runaway inflations of 1974 and 1979, Presidents Ford and Carter suggested that inflation was caused by the profligacy of American households. President Ford’s infamous “Whip Inflation Now” speech, for example, said, “Here is what we must do, what each and every one of you can do: To help increase food and lower prices, grow more and waste less; to help save scarce fuel in the energy crisis, drive less, heat less.”

Much of the recent discussion of health care costs likewise treats this as a problem caused by a demonic private insurance industry, and therefore requiring such “reforms” as expanding Medicaid to the non-poor and Medicare to the non-old.

The facts are quite different, as shown in “The Evolution of Medical Spending Risk” by Jonathan Gruber of MIT and Helen Levy of the University of Michigan, in the latest Journal of Economic Perspectives.

Gruber and Levy calculate that real private health care spending per person (in 2007 dollars) “increased from about $700 to $3,500 between 1960 and 2007, a five-fold increase.” They note that “private out-of-pocket spending has not quite doubled.” Yet “government health spending over the same period … increased from about $250 to $3,5000, a 13-fold increase.”

In fairness, the quality of health care has been hugely improved since 1960. And prices of physician services (which are often incorrectly compared with the overall consumer price index) have risen no faster than prices of non-medical services.

In any case, President Obama’s claim that the pace of total public and private spending on health care could somehow be “contained” by greatly increasing government spending clearly flunks 3rd grade arithmetic.

Unless the hidden agenda is to impose draconian wage and price controls and political rationing on health care providers, all the rhetorical pretense about proposed health care legislation being a way to hold down overall spending on health care is like saying the solution to chronic drunkeness is more booze.

Stifling Innovation by Subsidizing It

In 2007, the Advanced Technology Vehicles Manufacturing Loan Program was created in the Department of Energy to support the development of advanced (i.e., “green”) technology vehicles. Last year Congress appropriated $7.5 billion to support a maximum of $25 billion in loans. So far, the subsidies have been dished out to Ford ($5.9 billion), Nissan ($1.6 billion), Tesla Motors ($465 million), and Fisker Automotive ($528 million).

Darryl Siry, a former official at Tesla, has written a piece for Wired that illuminates a fundamental problem with the government trying to pick winners and losers in the marketplace:

To the recipients the support is a vital and welcome boost. But this massive government intervention in private capital markets may have the unintended consequence of stifling innovation by reducing the flow of private capital into ventures that are not anointed by the DOE.

Private investors, such as venture capitalists, make investments based on perceived risk and expected financial returns. Companies with government backing are more attractive to investors because government support “amounts to free leverage for the venture capitalist’s bet” given that “the upside is multiplied and the downside remains the same since the most the equity investor can lose is the original investment.”

According to Siry:

The proposition is so irresistible that any reasonable person would prefer to back a company that has received a DOE loan or grant than a company that has not. It is this distortion of the market for private capital that will have a stifling effect on innovation, as private capital chases fewer deals and companies that do not have government backing have a harder time attracting private capital. This doesn’t mean deals won’t get done outside of the energy department’s umbrella, but it means fewer deals will be done and at worse terms.

Siry concludes that a solution to avoiding these market distortions would be to “cast the net more broadly” by giving subsidies to more companies. That’s where I part ways with his analysis. The real solution is to get the Department of Energy out of the subsidy business – and energy markets – altogether.

Cash for Clunkers Lesson: How to Use the $$ to Buy a Gas Guzzler

My son’s station car is an old Ford Explorer AWD which, despite being a V-6, was rated at about 15 mpg.  Approaching 100,000 miles, the SUV’ s resale value is very low.

The House approved a bill to give him a $3,500 voucher to buy a car that is supposed to get only 18 mpg, or $4,500 if it gets 20 mpg.  Only 18-20 mpg?  That’s not moving us much closer to President Obama’s pie-in-the-sky 35.5 mpg goalpost is it?

Consider how easy it would be to game this giveaway program by using that $4,500 voucher to buy a big SUV or V-8 muscle car.

First of  all, with Chrysler and GM dealerships folding, it should be easy to buy a mediocre Chevy Cobalt or Dodge Caliber for about $10,000 more than the voucher.

What you do next is sell that boring econobox, even if you end up with $1,000 less than you paid – that still leaves you with $3,500 of free money, courtesy of taxpayers.

As this  process unfolds, the flood of resold small cars will make it even  harder for GM, Chrysler and Ford dealers to get a decent price for small cars, because of added competition from new cars being resold as used.

That’s their problem, not yours.

So, take the $9,000 net from reselling the crummy little car plus the $4,500 from Uncle Sam.  Then use that $13,500 to make a big down payment on a used Cadillac Escalade,  Toyota Tundra pickup or Corvette.

File this under “unintended consequences” (my own file is running out of space).