Politics and Profits: The Meltdown

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I was reading Wall Street Journal reporter Paul Ingrassia’s latest piece about the never-ending bailouts of Detroit automakers.  Halfway down, he wrote this:

So why were these problems allowed to fester, when smart people recognized them all along? The answer is that the solutions were painful, requiring not just brains but considerable amounts of courage. UAW officials weren’t brave enough to risk re-election defeat by agreeing to curtail the 30-and-out plan. Detroit executives weren’t about to take on the union and risk a strike that could cost them billions. GM likewise felt hamstrung on Saturn and Saab by state dealer-franchise laws, especially after they spent $1.3 billion to shut down Oldsmobile a few years ago.

Perhaps the best analogy, and one that Washington will understand, is Social Security. Everybody in Congress and the White House has known for years that it’s a ticking time bomb, thanks to actuarial trends and inadequate funding. But when President George W. Bush tried to reform the system early in his second term, he was handed a crippling defeat.

We are a nation of political cowards.   No one wants to pay the price consequences of real honesty, especially once they’ve ascended to power. Whether it’s a political office, or a CEO position, or the presidency of a labor union; whether we’re talking about a Democrat or a Republican; the underlying cause for the meltdown we’re experiencing now, and the meltdowns soon to come is cowardice.

Not just fear of taking a stand.  Our leaders have conditioned themselves to be afraid to speak the truth.  They pay millions to PR helpers for assistance in drilling them within an inch of their lives so they won’t accidentally acknowledge certain problems, because acknowledging something implies the requirement to act.

An enduring pop-culture joke of our times — a tiresome one by now — is the guy who is about to be given some information for which he doesn’t want to take responsibility for knowing, who sticks his fingers in his hears and shouts, ” No! I can’t hear you, la la la la la la la la la la la. Earmuffs!”  Everyone can relate to that guy.  Knowledge is power but sometimes it is just too powerful, sometimes it is a threat to your existence, if your conception of existence includes a prominent position that entitles you to rewards and respect.

Reading Ingrassia’s piece, he points out all the people who knew almost 40 years ago that the U.S. auto industry would end up on its knees, bleeding money in the form of outrageously generous benefits to people who stopped working in their 50s.  Rather than pulling the plug on these unsustainable commitments, each CEO and each UAW president pushed the problem onto their successors.  The problem grew, and now it threatens to capsize a critical industry.  So critical that the automakers and the unions have shown up at the taxpayers door and said, in essence, honor our ridiculous promises or we’ll fail and take the US economy down with us.

We are still a wealthy nation.  There is no reason why taxpayers with depleted 401(k) plans shouldn’t be able to cough up a few thousand more bucks in additional taxes to keep a retired autoworker living comfortably for another ten years.  That’s just the price of our cowardice, which we always expect someone else to pay.

Eventually, telling people they’re entitled to something they haven’t earned, and making promises you can’t back up catches up with you. For some, it already has, but I suspect the meltdown has only just begun.