The human condition is to have a very limited perspective. We are all dumb about many things. Just being dumb is no big deal. If we have the humility to understand where our perspective falls short, we can trade with others for services that help fill in our knowledge gaps. Being dumb is no barrier to a successful and happy life, but living without humility—also called being arrogant—is a tremendous barrier. And when you combine stupidity and arrogance along with the power to coerce others, you are able to create misery not only for yourself but for many others as well.
Only a few short years ago, a student in my class told the story of his participation in the General Motors/United Auto Workers “job bank” program. As a laid-off union worker, he was eligible to collect a full salary of over $30 hour; all he had to do was sit in a room with other job bank participants and do nothing. He related how most of his colleagues simply talked, sat there staring at the walls, or did crossword puzzles. He couldn’t recall anyone even reading a book while they sat there all day, and he was the only one who was making use of the educational benefits that the union contract also provided. If the autoworkers went back to school, they didn’t have to sit around in the room—they would collect their salary, as well as get a free education. Amazingly, every other participant in the “job bank” program chose to simply sit, instead of choosing to get a free education.
By the time that this student had related his story, GM, Ford, and Chrysler had already spent hundreds of millions of dollars on these job bank programs. Apparently, my student’s fellow, laid-off autoworkers thought the party would go on forever. They thought that the power of the unions to coerce the automakers and consumers would continue unabated.
Remember, if Congress votes for an automobile bailout, part of the money will pay for workers to sit and refuse to change.
And what of the auto executives that signed such insane contracts? In their stupidity and arrogance, they believed that they could get consumers to purchase inferior products, carrying inflated price tags, and that they themselves would never bear the consequences. As they destroyed shareholder wealth, they paid themselves exorbitant salaries.
Remember, if Congress votes for an automobile bailout, part of the money will pay the salaries of these dumb and arrogant executives.
Mark Twain used to frequently include this joke in his lectures: “Suppose you were an idiot. And suppose you were a member of Congress. But I repeat myself.”
The powerful Congressman Barney Frank, chairman of the Financial Services Committee, would have to make anybody’s list of dumbest (at least about economics) and most arrogant Congressmen. This week Frank said about the proposed bailout of U.S. automakers, “There’s no downside to trying.”
No downside to trying! Since the 1980s, GM, Ford, and Chrysler according to David Yermack have collectively destroyed $465 billion dollars in capital. About the bailout for automakers, Yermack writes, “We would do better to set this money on fire rather than using it to keep these dying firms on life support, setting them up for even more money-losing investments in the future.”
In contrast to the automakers, according to Geoff Colvin in his book Talent is Overrated, Microsoft has created about $200 billion in shareholder wealth; Google has created about $120 billion in shareholder wealth. How did they do that? Compared to some other corporations, they better served the needs of the consuming public; and in the process, together they have created about $300 billion dollars in new wealth. Google has put at our fingertips the wealth of information on the Internet, and Microsoft (for all our complaints about them) has built an operating system and office suite that almost all of us use every day.
No downside to trying! More taxpayers’ money is wasted, setting the stage for an even more severe economic depression. Less capital remains for productive industries and firms; as a consequence, jobs are lost—not saved.
The problem is of course, when you are dumb and arrogant, you think you deserve the power to coerce others so that you can have your way. The autoworkers, the auto executives, and Barney Frank are more alike than they would like to believe. It is amazing how many Americans are fooled by their economic sophistry and bullying.
This is the former Packard Motor Car plant which closed in 1958 (source). Would we be better off today if we were still driving Packards? Who could possibly believe we would be?