Stiglitz on the Auto Industry

Joe Stiglitz has this to say about the auto industry bailout: FT.com / UK – Chapter 11 is the right road for America’s carmakers

He muddles some things up. He says, for instance, that the bailout has been mischaracterized as a bailout of ‘undeserving dinosaurs’. Which in my opinion is exactly what it is. Where is the mischaracterization? He goes on to say that the real problem lies with the shareholders and bondholders of the auto makers. He objects to the bailout assisting them since they have not allocated capital efficiently and have allowed the management of the car makers to mess things up.

Well? What does this add? Nothing. The shareholders are part of the company. They own it. While it may be true that people who own stock are also participants in the financial markets, for the period during which they own a particular stock they are also ‘insiders’, they become part of the auto industry. The bondholders not so much, since they never have ownership.

The ‘failure of oversight’ does not, one iota, diminish the criticism of the auto makers as ‘undeserving dinosaurs’. The lack of oversight is endemic in bureaucratic capitalism. It is the reason so many failed managers still get paid vast amounts. Making a statement that there has been a mischaracterization leads the reader to expect the identification of a new villain.

But Stiglitz doesn’t do that and so does nothing to advance the analysis. Instead he simply gives a slightly more nuanced version of what we’ve all been saying.

This is especially true when Stiglitz says that he agrees with bankruptcy as the solution. Most of arrived there a while ago.

Ironically, take away this dotty reference to mischaracterization and I agree with the thrust of Stiglitz argument. What it adds to the discussion I don’t know.

Anyway: I pass his comments on to you. It’s good to see a Nobel Prize winner agree with the bankruptcy route to a solution!