Corporate Welfare

I had an insight into why bankruptcy is so difficult in the US, sparked by my friend Vincent. He pointed out that a big sticking point was that the Republicans insisted the bailout strip away many of the benefits enjoyed by the GM and Chrysler workforce. The automakers' union wouldn't agree to all the concessions, and the Republican senators wouldn't vote for the bailout unless they did.

Hostility to government means that big companies in the US take on responsibilities that fall on governments in other developed countries, particularly health care and pensions. Elsewhere these benefits aren't tied to the health of a particular corporation, so its failure is less devastating. The current workers have to find another job and might lose the pay for their last week or two of work, but they still have health care and their accrued retirement funds (the latter might be diminished by poor investment returns, but don't disappear along with one particular firm). Conversely, a bankruptcy in the US leads to workers losing benefits accrued over decades. This injustice creates a strong political constituency for propping up a dysfunctional company, even when society as a whole would be better off if it failed and made way for a superior competitor.

It's an exquisite irony: the failure to put in place socialism for individuals leads to socialism for corporations.

OK, Bad Call

Looks like I was wrong on the implications of the decision not to bail out the Detroit car manufacturers. The US market didn't fall much, even before the Bush administration said they might be able to redirect some of the previously allocated financial bailout funds. Apparently all the bad economic news has already been priced in. I've gone back to thinking that we'll see a drawn-out recession through all of 2009, but nothing worse than that.

The Day the Depression Began?

Just wondering, after the U.S. carmaker bailout got rejected, seemingly pushing General Motors and Chrysler into bankruptcy. When Lehman Brothers declared bankruptcy after failing to secure a government rescue, that event battered economic confidence and moved the slowdown into a full-blown recession. I suspect GM and Chrysler together are more important than one mid-size investment bank. While their failures won't come as such a surprise, they will still be sufficient to drag the world economy even further down, at a time when it's already pretty low. I'll be morbidly fascinated to see what happens when the US stockmarket opens in a few hours.

Even with this grim outlook, I can't blame the U.S. Republicans for opposing the rescue. It must be tough choosing between between likely economic depression and certain crony capitalism. When did the American economy become unable to handle bankruptcies, anyway? And why?

It's also interesting to consider the geopolitical ramifications. Cars will still be made in the US, but in a few years most of the factories will probably be subsidiaries of foreign companies. All the automotive design and research will happen elsewhere, eroding American manufacturing. Maybe that's already the case, thinking about which companies got petrol-electric hybrids to market first. I suppose the U.S. is still a leader in aerospace and software.

On a more parochial note, I wonder which company will acquire Holden, GM's still-viable Australian subsidiary?

Boutique Rats

There was an amusing article in the paper today, about a plan to reintroduce Australian bush rats to a posh Sydney suburb. There's more native vegetation now than in the period immediately after European settlement when the land was cleared, so the bush rats might be able to make a comeback. Only in Mosman would people worry about having a better class of rat.

The ecologists even speculate that the bush rats might displace the introduced black rats, but that's where I beg to differ. The native animals might thrive in the bushland and it would be great if they did, but my money's on the black rats in the residential areas.

Up in the Sky

Venus and Jupiter have been approaching one another in the evening sky, with their closest pairing tomorrow. However I've missed out on watching them move together over the last week because it's been so cloudy. Until tonight, when the weather was clear at the right time of day.

This is the sort of fairly routine planetary conjunction that comes around once or twice a year. Normally I'd just glance up with mild interest, but I'm really appreciating it after the earlier anticipation.

It was the second interesting celestial sight of the day: in the afternoon I saw an A380 aircraft for the first time. I liked the way that its double-decker structure created a bit of a face at the front of the plane, with the "forehead" of the second storey sitting above the "nose" of the cone. Better than the boring standard tube of a typical midsize plane, although not quite as cute as a 747. It has a partial second storey which also creates a face shape at the front but then slopes down halfway along the plane in a way that reminds me of a dolphin.

Ambigous Australian-ness

I'm enjoying a quiet evening at home, cooking some Anzac biscuits and drinking beer that I won betting on the cricket with a friend at work. It would be very Australian, except that I backed India and my workmate settled our bet with a six-pack from the Czech Republic ...

No You Can't

I had a few Australian friends express delight at today's US election result, and a string of celebratory status updates from all my friends on Facebook, but I just can't get that enthusiastic. Sure Obama will be an improvement on Bush and a better choice than McCain, but I'm not convinced that election results have much of an impact.

In this case I'm particularly cynical, because even before it begins there are so many obvious ways for Obama's presidency to fail:

• He'll have to deal with a nasty recession and the US' relative decline. These tough times will be a particular problem for Obama, as his supporters have high expectations that everything will improve and won't be prepared for a year or two of deterioration.
• Obama didn't adjust any of his programs or give any hint that things would have to be different when US finances took a remarkable turn for the worse 6 weeks ago. Now he'll have to break a whole host of election promises and lose all credibility and influence in his first few months.
• Obama promises to step up the war in Afghanistan, which has disaster written all over it. What's the strategic objective there? Transforming the society to be more pro-Western looks even less likely than in Iraq. Maybe the US wants to prop up the friendly Tajik/Uzbek/Hazara government against the Pushtuns, but that government will never control the country if it still needs American assistance after 7 years. The US would be better off withdrawing now before sinking deeper into another hopeless quagmire.