Do we really want to rescue these firms? Since the writing first appeared on the wall in the 1970s they have ignored the future to grab the quick profits of a so-called the free market. Yeah, if you think that a market that includes $5B per year to modify demand through advertising is the informed consumer required to make the free market work to solve problems, that is. I don’t think so, look how well that worked for us in the last national election.  Paraphrasing one of our brain trust …

While it might be argued that government regulations (union shops in the Rust Belt, CAFE standards, corporate income taxes, possibly an inequitable trading relationship with Japan (health care bills are a favorite here)) have caused them big problems but fundamentally their problems stem from their inability to make a product people want.  Toyota, Nissan, et al are all having troubles with sales right now but they have strong balance sheets to withstand their present difficulties because they have consistently made cars people want and they have sold them at a profit.  The present crisis is not something that would kill a healthy car company–it will kill a company already on life support.

What is a principles based analysis of this situation? Let’s see …

People should be free to make choices (otherwise we would simply outlaw the purchase of gas-based vehicles). The government should not be in the business of picking winners and losers. Why not? Because the government picks based on political power and as such is NOT a good consumer.  We are going to be saddled with years of problems from the last time the government tried because corn-based ethanol is not a winner unless government makes it so.

Application: If the people won’t buy their products, a cartel of failed companies and their unions should not be able to force taxpayers to fund their rescue because they control a block of electoral votes and congressional seats in the Midwest.

Decision: Let them go.  The role the government has is to provide for an orderly disposal of the assets of failed companies through the bankruptcy court.

So, we conclude that a principles-based decision comes down  on the side of

“it’s more principled to cover the pensions than to bailout the firms”

The cost of covered pensions is a major argument often used to support bailing out these firms. Well, that’s like solving your credit card problem by getting a new credit card so you can quit using the one that’s maxed out.

Update: even as I post this I am hearing on NPR that some Democrats are also not going to push for a bailout. Maybe we are going to see real change …

Update:(2008 Nov 20) Thursday NPR reported that Democrats have finally seen the light and may be giving up on trying to bailout these companies.

The results are in (see table below) and in a nutshell we see the following quick insights for our BPOU …

• we cannot win in our area unless we convert (D) to (R).
  • We could not carry our area for presidential elections even if we got all the voters who went for third parties to vote for our candidate. All of them.
  • Unless you believe that (R) voted in significantly smaller percentages than (D), there are not enough sideline sitters to change the outcome.
• Fewer than 1% of the (D) voters jumped ship to vote for Kline.
• Fewer than that jumped ship to vote for Rud.
• Barkley appealed more to (D) than to (R).
  • 3000 Obama votes did not translate to Franken votes
  • 1000 McCain votes did not translate to Coleman votes
  • Barkley picked up those plus some miscellaneous
    (Of course, these are statistical statements, there are other places these votes could go and come from, but statistically speaking …)

We’ll revisit this data again in the future, but what lessons might we learn?  We will probably learn that

• economically frightened voters have always made frightening voters. This year was no exception.
• Social issues that are hot-button vote getters are unsustainable as the foundation of a party. Are we driving away 5,000 voters to appease 1,000? That trade is a losing proposition. At an early meeting in this campaign a grass-roots supporter stood up and told us this. He warned that focusing on the 3-Gs (guns, God, and gays) was going to cost us elections.  We must consider this grassroots wisdom. We must expand our tent.
• No new taxes is not a foundation upon which to build a party. The people know better. Our politicians should know better.  We cannot be simply the party of no new taxes.  For too many years we have attacked the malignancy on the economy that big government represents by trying to cut off its food supply by lowering taxes. We need to refocus the debate to be about HOW the taxes are used and WHY the programs they support are not economically just.  Other parties mouth the phrase “economic justice” meaning wealth redistribution by bayonet. We must take the phrase back by defining it to mean “economic freedom and the right to keep the fruits of your labor“. Even the catch-phrase is a mouthful, but the lesson is important.
• No ad hominum debates … ever. Our opponents may be scoundrels and scallawags, but we must remember that we cannot convert people on highly technical, reasoned grounds (e.g., micro- and macro- economics) when both sides are screaming epithets and frightening the undecided. Coleman responded very graciously to the last-minute Franken attack.  We should be as strong, so we are in an unassailablly strong position as the party of reason and respect and responsibility.

Reason, Respect, Responsibility. These are the 3-R’s for the next two years, as we set up for the next election. Read up on your history, because we cannot afford to repeat this year.

Visions of a future that are backed by good understandings of markets and economic forces are dreams to be fulfulled. Visions that are fueled by hopes and wishes are fantasies. The impact of this difference can be traced through the history of the dreams that have led us to the economic disaster we are now confronting.  It is critical that every voter understands this failed process and how to prevent it from driving future policy. We hope we can start with you, gentle reader, and that you will help proselytize this information as we move into a troubled future.

The history of this crisis is summarized in an editorial comment at the Investors Business Daily.

How Mortgage Crisis Happened: Good Intentions Paved Dire Path

On the eve of what may be the most important election of our time, the financial catastrophe that many believe will most influence Tuesday’s vote remains only partially covered by the major media. IBD has run many articles and editorials on the mortgage meltdown, including a 7,500-word history from Web magazine American Thinker on Thursday. This timeline is condensed from that article, written by M. Jay Wells. (Click here to read the full version.) It lays out the essential facts of the crisis, which at its heart is a tale of misguided government intervention rather than a failure of free-market capitalism, as argued by presidential candidate Barack Obama.

By M. JAY WELLS | Posted Friday, October 31, 2008 4:20 PM PT (Read the rest, don’t miss the link to the extended version)

One particularly interesting quote of Rep. Barney Frank (D) drives home a critical side issue … we as a society have long refused to directly help people, preferring instead to construct byzantine tax codes and special organizations (Freddie Mac and Fannie Mae) to try and push markets into that business.

Rep. Barney Frank, D-Mass., countered that “the companies [Freddie and Fannie] served a public purpose. They were in the business of lowering the price of mortgage loans.“

Maybe we should stop integrating the two and let businesses be businesses and make these other programs function as open handouts (like other subsidies, crop, oil, wind power, etc.).  Admittedly, such programs would draw the righteous fire of the fiscal conservative, but they fail we would at least have isolated the problem somewhat. In the giant interconnected credit web we wove over the past 70 years or so, we created far too many institutions that are “too big to fail” and we now reap that bitter harvest. Like monocrop agriculture we have placed all our bets in one credit basket, and when the crop fails, we ALL feel that pain.

I hope we all can take the time to understand this,  because we will have to take the time to explain it to all those decided voters out there. No matter who wins on Tuesday, we must make it our mission to get this basic understanding spread throughout the electorate, because we have no brake on collectivist idealists other than education.

“He’s working for Rice and Scott Counties to get our fair share.”  [emphasis added]

Our fair share?  Our fair share! This short-sighted, what’s in it for me, attitude toward government money is the ruin of democracies.  Neither party is doing its job well right now (consider the bailout), but this egregious and blatant attempt to buy votes stands out in this economy like a warning buoy in a channel. It says, “this is the wrong way, do not go this way.“  And we will not go that way. We must vote, proselytize and keep the discussion on the important principles that guide us.

We cannot win this battle one bill at a time, we must win it at the principles level.  There are many possible creeds out there that claim to be Republican.  Some are close … claiming

• That the free enterprise system is the most productive supplier of human needs and economic justice.
• That all individuals are entitled to equal rights, justice, and opportunities and should assume their responsibilities as citizens in a free society.
• That fiscal responsibility and budgetary restraints must be exercised at all levels of government.
• That the Federal Government must preserve individual liberty by observing constitutional limitations.
• That peace is best preserved through a strong national defense.

Others more basic:

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

Others more foundational …

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. (Excerpt from The Declaration of Independence)

All derive from basic assumptions about the role of government. The underlying assumptions are that governments serve best that serve all of the people by:

• providing basic security by:
  • securing the borders and
  • providing for the common defense
• providing for prosperity by
  • coining and printing well regulated money and
  • enforcing legal contracts
• providing for the freedom of the individual by ensuring and protecting the freedoms we promised ourselves in the Constitution

The founders started the system with a requirement that only taxpayers (land owners at that time) were allowed to vote. They were worried about precisely the sort of appeal that we see above, an appeal to the greed of the voter by promising to get them “their fair share!” My friends, this is not good, this is not freedom. It is proper that we have extended the vote to all adults. It is dangerous that we have done so without ensuring that they know the importance of that vote, and especially the ramifications of voting their pocketbooks rather than their principles.

We are in for some turbulent times, made worse by the upcoming divisive election. Over the next two years we will be revisiting these principles-based discussions with an eye toward creating a grassroots movement to bring reason back to the ballot box in numbers that will swamp the self-serving and self-righteous who would use the power of the bayonet to subdue the people.