ataxingmatter

It's the Jobs, Stupid--support for the unemployed, not repatriation tax holidays for multinationals

Mark Thoma over at Economist's View has an interesting graph on the topic of "how long will it take the labor market to recover?" (Oct. 9, 2011).  Although September's news was not as bad as expected--110,000 jobs created and thus official unemployment rate of 9.1% holding steady--it is still a far cry from good news. 

I'm pleased to report that Detroit is doing better than expected.  While its unemployment rate is still above the national average, it has come down faster from its exceptionally high rate.  And the people that I know best that were hardest hit are now back at work.  One worked for a business that made auto parts, and had been laid off for three years.  He got his old job back three weeks ago and has been estatically working overtime until he is too tired to get up on a Sunday morning!  The other is a construction worker who has suddenly gotten more potential jobs than he can handle.  Great news.  They and their families can now breathe somewhat of a sigh of relief.  They can afford a few new things for the kids and can worry a little less about where the next mortgage payment is going to come from.  They are out there buying groceries and clothing and gas at a higher rate than before, and that puts more dollars in the cash registers of local businesses.  A win all the way around.

That's why the most important thing for Congress to focus on right now is jobs.  That means funding unemployment insurance to keep the long-term unemployed on their feet looking for jobs and still buying food and clothing for themselves and their kids.  It means thinking about PROVEN measures that stimulate jobs should be up there with fairness in thinking about tax policies.  So Congress should continue the most important tax breaks for the part of the working middle class that is struggling the most--payroll tax reductions.  It ought to mean paying attention to labor laws and redressing the current imbalance that allows employers to intimidate workers who want to unionize and make it close to impossible for the union organizers to meet with the workers.   Unionization rights need to be updated to account for the fact that we are no longer a close-knit bunch of workers in the same geographic space but often communicate more by email than by talking in person--so card voting should be allowed.  And guess what--it also ought to mean ensuring that the already struggling middle class does not have to worry about the potential loss of Social Security and Medicare benefits.  The government should reaffirm that these earned benefits are earned, and not going to be taken away. 

Of course, one of the best ways to do that for Medicare would be to move to a "medicare for all" system that would (i) allow the government to be much more effective in controlling price increases; (ii) ensure that everyone had decent health care, whether or not they had a job; and (iii) permit employers to let the government handle health care while the savings mean more employees can be hired.

But that does NOT mean passing more tax breaks for businesses as indirect (and not very cost-effective) stimulus for jobs.  Prime example--the ineffective, costly, and Big Company-favoring "repatriation tax holiday" for which multinationals like Google and Cisco have been so assiduously lobbying--the very companies that have most easily artificially shifted their income offshore by claiming to sell their intellectual property cheaply to offshore affiliates (and getting by with it because of ridiculous transfer pricig rules that make it possible).  We already know repatriation is a very ineffective way to create jobs.  It would be foolish to repeat a past mistake that simply led more companies to offshore more money in anticipation of successfully lobbying for yet another repatriation holiday.

It should even mean cleaning up some of the obvious fairness problems in the tax code that favor the rich and uberrich--e.g., the carried interest provision (a no-brainer, since there's really no logic in private equity fund managers getting capital gains treatment for their managerial work, the treatment of profits interests in partnerships has long been rife with self-interested Wall Streeters setting the scope of the rules, and when ordinary workers have troubling just making ends meet, it is obscene for professional asset managers to be preferentially treated as to their compensation income).

Chrysler Bankruptcy: were the hedge funds reasonable in holding out?

Chrysler is heading to bankruptcy, and its workers to an even more uncertain future, because a group of hedge funds, most of which bought the Chrysler debt on the cheap because of the growing concern about bankruptcy, refused to take a haircut from the face value of the debt down to what it is probably really worth.  Remember that many bought the debt dirt cheap to start with, so even with the offered haircut they may have been making a good return, just not the rich return they hope to get if they can talk the bankruptcy judge into giving their debt a better deal than the government thought they should get.

Obama had this to say in the announcement of the bankruptcy:

[A] group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout.... They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting. I don't stand with them. Mufson & Tse, In Chrysler Saga, hedge Funds Cast as Prime Villain, Wash. Post, May 1, 2009.

Wall Street came to the defense of its own.  "It sounds like people are being bullied right now" , said a partner at a law firm that represents hedge funds.   I hope that the bankruptcy process does not let the hedge funds achieve the "double the return" game they are hoping for--write all the debt down to the value it would have without any government bailout or guarantees, and pay them that. 

Breaking News: Senate Fails, Journal Succeeds, Chrysler Succombs--and Big Banks Win Over Ordinary People On All Counts

Chrysler Bankruptcy:

It appears that the hedge funds that wouldn't take a haircut have broken the back of Chrysler, forcing it into bankruptcy. See 'Surgical' Bankrutpcy Is Set for Chrysler, New York Times, Apr. 30, 2009.   the US is on the line for $8 billion to support the restructuring.  Obama was "pointedly critical of investment funds that rejected the government's settlement offer, saying they hoped to benefit from the sacrifices of others while making none of their own." 

Workers have been vilified by the Wall St. Journal editorial board for wanting decent wages and a decent future, yet it is the investment funds--unregulated speculators--that are seeking to get blood out of a turnip in this process.  When are we going to break the back of these hedge and private equity funds, that leverage other people's money and their connections with power to make themselves lots of money, that they claim should be taxed lightly?  Congress must step in to regulate these giants/monsters and Obama should nationalize the wayward banks. We can't let Big Banks continue to run the country for their own benefit.

Wall Street Journal Inclusion of Thomas Frank (What's the Matter with Kansas?):

If you didn't read the editorial in today's journal, you should.  (Sorry, although I subscribe, I refuse to fill out the private information required to get my free online edition, especially since it says I cannot even quote a headline online without their consent.)  The Economic Populist has a good bit of it, here.

Defeat of bankruptcy mortgage loan modification in Senate:

Big Banks have handed us our worst economy in fifty years:  after privatizing enormous gains, they managed to socialize all the associated losses, a perfect example of casino capitalism gone awry.  And today this powerful "fourth branch" continues to gain "victories" for itself, losses for the people, as the Senate hands them another victory, defeating the Democratic proposal to allow homeowners to renegotiate their mortgages in bankruptcy.  Labaton, Senate Refuses to Let Judges Fix Mortgages in Bankruptcy, NY Times, Apr. 30, 2009. 

This is one more example of the unseemly, inordinate clout of bankers over Congress.    The banks and bankers have been lobbying away, and the Senators--including 12 Democrats (including newly minted supposed Democrat Arlen Specter)--voted for their money bags over ordinary American people. 

 What's left in the legislation?  Surely, you say, the rest must be measures that impose some restraints on banks?  No, don't be disillusioned.  The rest of the bill is a giveaway to the banking industry--cutting by 50% the amount they have to pay to the FDIC to insure their deposits and costing the US while saving the banks (and their mostly wealthy owners) $7.7 billion; making permanent the larger insurance limit of $250,000, over the former $100,000 limit.  Folks, that's a benefit for upper middle class Americans, not for the ordinary folks who are losing their homes and don't have to worry about having too much cash in one bank to be eligible for government funds if the bank fails.  The banks claim that modification in bankruptcy would hurt borrowers, but that has got to be bunk.  Every other kind of loan can be modified in bankruptcy.   People of America, rise up.  Every one of you reading this, please write or call your Senators and tell them that they have failed. 

More on the auto bailout--the GOP anti-union gang

Who was the guy who took a lead role in blocking the bailout plan for the Detroit automakers?  Bob Corker, Republican senator from Tennessee, a state that hosts both Toyota and Nissan US headquarters--and one that makes sure that it is very hard for any workers to be unionized--and the autoworkers at the Japanes and German plants, unsurprisingly, are not. 

Read more about the motivations of the anti-union Senate GOPers in Salon, Meet the GOP's Wrecking Crew, Dec. 13, 2008.

The fiercest opposition to the loan proposal -- and nearly a third of the 35 votes against ending debate on the deal -- came from Southern Republicans, and the ringleaders of the opposition all come from states with a major foreign auto presence. Not coincidentally, nearly all of those states -- except Kentucky -- are also "right-to-work" states, which means no union contracts for most of the employees at the foreign plants. The Detroit bailout fell victim to a nasty confluence of home-state economic interests and anti-union sentiment among Republicans.

Auto Bailout

Senate Republicans on Thursday blocked the potential bailout for the auto industry.  See Herzenhorn, Senate Abandons Auto Bailout, NYTimes, Dec. 12, 2008.  this sentence in the Times story tells it all-- negotiations were "deadlocked over Republican demands for steep cuts in pay and benefits by the United Automobile Workers union in 2009. "  The Republicans don't care if millions lose their jobs, businesses crash, and ordinary Americans are hit with a depression, so long as they can bust a union.  Meantime, their tale of too-high pay is a misleading deception like so many others.  Autoworkers make decent wages, but they don't have feathernests that are implied by the Republicans wanting steep cuts in pay and benefits.  The Walmartization of the workforce of this country is happening without the Republicans in Congress shoving the few decently paid workers down the well.

As the New York Times editorial notes today, the question is "What's Plan B?"

Tax News Worth Noting--Ways and Means, Offshore Reinsurance, Auto Bailout, Goldman's advise on Credit Default Swaps, and Illinois's Corruption Scandal

Various items of tax news are worth noting.

1) Ways and Means

Republicans named Dave Camp (R-Mich.) as ranking member on the House Ways and Means Committee.  Free Press, Washington, Dec. 10.  Meanwhile,  according to BNA's Daily Tax RealTime, the Democrats' Steering and Policy Committee nominated Danny Davis (D-Ill.), Bob Etheridge (D-N.C.), John Yarmuth (D-Ky.), Brian Higgins (D-N.Y.), and Raul Grijalva (D-Ariz).  In addition, there may be a need to nominate a replacement for Becerra, who has been nominated as U.S. Trade Representative.

2) Offshore Reinsurance Scams

The Senate Finance Committee is proposing revisions to the treatment of offshoring of reinsurance to related parties.  See Finance Staff Discussion Draft (disallowing deduction for "excess" nontaxed reinsurance premiums, with a proposed Dec. 31, 2008 effective date) and Technical Explanation of Staff Discussion Draft.

3) The Auto Bailout (or not)

The auto bailout is becoming a farce.  We're giving multiple tens of billions to many banks and insurance companies--$50 billion to Citi, $40 billion plus to AIG, $25 billion to JPMorgan Chase, even $10 million to supposed gold star investment bank Goldman Sachs.  The three auto companies together think they need about $30 billion to continue operating, and many economists think allowing the auto industry to be liquidated would be disastrous for workers (though admittedly not the Friedmaniacs who want the real industry to fail so unions are decimated). 

But the bailout package for the auto industry, the Auto Industry Financing and Restructuring Act,  is a mixed bag with too much and too little. 

• It does not use the TARP funds.  Instead, apparently at Bush's insistence, it provides only $14 billion for loans at an initial 5% rate, with the funds coming in large part from funds already intended for development of improved technology vehicles.  
• Can't Congress ever do anything without a big tax break in it for banks or somebody similar?  The bailout includes crazy tax provisions like a section 382 giveaway (yeah, the same one invalidly permitted to banks by Treasury) and a ridiculous government guarantee for a transit lease shelter (the illegal SILO deals)--in other words, the bill would have the government serve as the guarantor to the users of these tax shelters now that they have been declared illegal. That's mostly banks Baucus has said he won't vote for the bill on that basis alone, and that may lead to Senate amendments that would take that absurd provision out of the bill.  

                Grassley yesterday called the provision “offensive” and said it would have the  “perverse” effect of having the federal government ultimately pay off the users of the tax shelter, known as a sale-in-lease-out, or SILO. “Senator Grassley and I shut down their tax loophole, and now the banks want to sue the transit agencies to make their money anyway,” Baucus said today. “That’s wrong -- but paying the banks off with federal dollars is not the right way to respond. Congress must not let these banks game the system further and siphon more cash off taxpayers.” Donmoyer, Baucus Says Tax Provision in Bill Must Be Stripped, Bloomberg.com, Dec. 10, 2008.  

• It calls for warrants the voting power of which won't be exercised, yet it creates a car czar--a presidential designee with incredibly strong powers to review auto business records and oversee executive compensation standards.  The GOP apparently thinks the czar doesn't have enough power (funny that they didn't insist on any kinds of real oversight for the banks)--and apparently want equivalence of bankruptcy restructuring capabilities (including, I suspect, rewriting union contracts).
• The bill does set terms that the TARP bill obviously should have included (no bonuses for top 25 executives, no dividends etc.). 
• Sillily, it requires the auto companies to divest themselves of any privately owned aircraft--come on, folks, I know we all thought the CEOs should have known better than to fly their private jets to DC to plead for help.  But it is also a rather petty part of the problem that they own private jets, for which there may even be business efficiencies.  Couldn't Congress have enacted a CAFE standard that made sense, or one of the many other much needed modernizations of auto manufacturing, rather than focusing on such a petty thing as whether the company owns a private jet?  After all, it will likely cost them a good bit to sell those jets into a sinking economy.  
• Finally, the law includes a provision that prevents the government from using TARP funds to assist the companies, making this limited assistance the only thing that can be done by the executive without coming back to Congress and getting another bill passed, which would likely be too late to help the companies stay in business.

The House passed the bill and sent it along to the Senate.  See John Hughes, House Approves Automaker Bailout, Sends to Senate, Bloomberg.com, Dec. 10, 2008.  But it looks like the Senate Republicans are intent on sending the Big 3 to bankruptcy and getting rid of the UAW once and for all.  See the Bloomberg story, above; Hughes and Faler, Auto Bailout Hits Senate Snag, Bloomberg.com, Dec. 10, 2008; and Montgomery and Branigin, Vote on Auto Bailout in Limbo as GOP Resists Measure, Washington Post, Dec. 10, 2008.  This would have been an excellent opportunity to move these important manufacturing centers in a new direction more in line with the public interest while taking aggressive action to set new CAFE standards to make inroads on our carbon footprint and to save millions of jobs.  Too bad Congress isn't up to the task.

4) Tax Legislation, anyone?

Can we expect decent tax legislation out of a new Congress?  It is worrisome. First, there's the Illinois corruption scandal, where Governor Blagojevich was apparently attempting to sale  (or takeover for himself) a Senate seat.  Rep. Jesse Jackson Jr. is identified as Senate aspirant No. 5 in the disgusting scandal.  See Slevin and Lyderson, Jesse jackson Jr. May be Tied to Blagojevich Probe, Washington Post, Dec. 10, 2008.  Then there's Max Baucus, who doesn't seem to be on board with the progressive changes that the voters opted for.  Bloomberg notes today that Baucus is letting it be known that he is not sure that he wants to increase rates on the top income earners. 

5) Credit-Default Swaps

Not a tax issue, i guess, but i can't help noticing that Goldman, recipient of taxpayer bailout funds, is advising investors to bet against states in the credit default swap market.  See this story on Bloomberg.com.

6) What's next? Devaluation of the Dollar?

Cafe Americain has an interesting discussion of the Federal Reserve's bid to issue its own debt, here.  Interesting reading, at the least.

The TARP: should Paulson get to do the other half of the bailout? what's that about fuel efficiency funds?

Treasury Secretary Paulson is rumored to think that he should ask for the remaining $350 billion in the TARP program so that he can allot it before Obama comes aboard.   See, e.g., Schmidt and Brinsley, Paulson May Ask for Remaining $350 Billion of TARP, Bloomberg.com, Nov. 24, 2008. 

Think that's a good idea?  Seems to me Paulson is mostly just giving lots of money to big banks, without enough strings and without enough results. The GAO has issued a 72-page report on TARP noting significant problems with the TARP program.  the Treasury Department's inspector general thinks Tarp is a mess. See Declan McCullogh, Cracks in TARP Program, CBS News,  Dec. 4, 2008.  Oversight simply isn't functioning properly yet.  See Paley, Bailout Lacks Oversight Despite Billions Pledged, Washington Post, Nov. 13, 2008.  Elizabeth Warren, a very well-respected Harvard bankrupcy expert, heads  a new congressional panel set up to provide more accountability for the program, see Pelosi, Reid Name Members of TARP Oversight, The Crypt, Nov. 14, 2008; but it makes it even harder to trust Paulson when Warren says that Treasury is flailing around and not really accomplishing much, as far as the panel can see right now, with its incoherent approach.  Henriques, Bailout Monitor Sees Lack of a Coherent Plan, NY Times, Dec. 1, 2008.

Here's Naked Capitalism's Yves Smith's analysis on this issue.

And the Progress Report's analysis, Pulling the TARP Over Your Eyes, Dec. 3, 2008.

And worth reading, because Stiglitz is one of the best economists in the country today, and because he wrote about the problem of giving banks too much leeway back in 1992: Joseph Stiglitz, In Search of Nostradamus, Economists' Voice, Nov. 2008.

By the way, for those who might not have noticed it, the unemployment news was even more terrible than expected, and Democratic leaders in Congress have said that they are committed to providing some assistance to the auto companies, apparently in the form of short term loans.   It is expected that legislation to this effect will be brought up in a special session next week. See Vlasic and Stout, Democrats Plan Short- Term Rescue for Big 3, NY Times, Dec. 5, 2008.  It likely won't be TARP funds, though; it will be funds from the fuel-efficiency program.  It's worrisome when we continue these ad hoc approaches, rather than figuring out how to ensure that the money doesn't just go to those at the top and that the lifeline to factories is a new start for greener manufacturing here in the US.

Detroit: to save, or not to save

The progressive weekly, The Nation, has some articles on the bailout and Detroit that are worth reading.

In the Dec. 8, 2008 issue (at 11), Alexander Cockburn suggests the administration should just "Nail that Double Standard to the Mast."  Bankers have gotten a great deal from the "TARP" bailout program--Wall Street, after all, is close to K Street and close to the heart of all those folks on Capitol Hill, especially Bernanke and Paulson.  Financial institutions generally come under the rubric of "bailoutable", as Treasury considers extending the TARP program to cover the big insurers that are buying up ailing S&L's so as to qualify for TARP's seemingly bottomless bucket of dough-for-almost nothing.  But Cockburn notes, "Whenever the issue is one of giving money to big industrial corporations employing real, live workers, particularly workers in labor unions, the commentariat hauls up the Double Standard and nails it to the top mast...."   So the McLaughlin Group, making "at least $200,000 a year[,] deplored the unconsciounable wages of line workers in Detroit."  The Wall Street Journal is content letting  "law of the capitalist jungle" rule to allow workers and farmers in Latin America to fall to bankruptcy or suicide but the bankers must be saved--TARP can't "be a honey pot for any industry running short of cash."  Cockburn thinks, as I do, that the reason the Wall Street Journal and others support bailouts for the big banks and not for the auto industry is basically support for billionaires and antagonism to people with union cards.  Finance capital wants all of the TARP funds, Cockburn notes, but a little bit of that money could do a good deal towards helping ordinary Americans--$25 billion to the FDIC to help mortgage holders and $25 billion (now about $31 billion) to the automakers to keep them in business and save 5% of the American workforce.  Cockburn's warning line to Obama and the incoming administration--"A government seeking a sane manufacturing policy, a sane housing program and a well-considered strategy for investment and recovery cannot hope to move in this direction with Wall street financiers in the control room."  Take heed, Obama, and make sure Geithner, Summers and the rest of your economic team also take heed.

Marissa Colon-Margolies has another take on the GM bailout in the December 15th issue of the magazine (at 20).  Bankruptcy is risky, she notes, in the current credit climate.  It would likely deteriorate into a chapter 7 bankruptcy--total liquidation of the US auto industry.  So a bailout is "the most viable solution", but one that should be undertaken only with a commitment to "systematic reform" informed by insights from academe. (Sounds like one of my prior postings on this issue.)  Nelson Lichtenstein, at the University of California at Santa Barbara has called for bailout of the automatkers as part of a larger economic recovery plan that includes a jobs program, infrastructure projects, universal healthcare (which would go a long way to "alleviating headaches" for domestic manufacturing) and a seat on the board for the public sector, moratorium on golden parachutes, agreements on fuel efficiency standards, and oversight to prevent use of funds to prop up shareholders or allow bond brokers to cash in.  Gary Chaison at Clark University considers there to be clearly a current of "thinly cloaked antiworker narrative" in the debate over the auto bailout, with unionized workers being blamed for the problems.  Fact is, though, that the GM workers have already taken significant concessions--saving GM $500 million in labor costs since the signing of the 2007 agreement and $4 billion annually beginning in 2010. 

The corporatist agenda, I would argue, wants CEOs to get the high pay that they are deemed to need to entice them to undertake the grueling work of commanding a major corporation, while workers on the line are supposed to be content with the crumbs--deteriorating retirement security, limited health benefits, and falling salaries that are pittances compared to the millions CEOs are presumed to merit.  If anybody doubts the anti-worker agenda, just look at Bush's last-minute executive order banning collective bargaining for 8500 federal employees who currently have collective bargaining agreements with the federal government.

Colon-Margolies points out another interesting paradox about GM in particular.  This is worth excerpting directly.

GMAC, GM's auto loan company, is the parent company of the nation's fifth-largest mortgage lender, Residential Capital, which is teetering on the brink of collapse under the weight of toxic assets and plummeting revenue because of the crippled housing market.  ResCap lost $1.9 billion last quarter alone, putting significant strain on GM, which owns 49% of GMAC.  The flailing GMAC--majority owned by Cerberus Capital management, John Snow [Bush's one-time Treasury Secretary] and Dan Quayle's [Father Bush's VP's] privte equity firm--has recently applied for bank holding company status.  Becoming a bank holding company would provide much needed oversight and transparency, but GMAC must also be compelled to reform.  The loan company markets a high-risk investment to GM employees called Demand Notes. These offer check-writing privileges and a 5.25 percent return... GM workers have $3.9 billion sunk into these...; should GMAC go down, they stand to lose retirement funds, college savings, the works.  This dangerous arrangement deserves careful attention.  As Robert Scott, an economist at the Economic Policy Institute, put it, "We cannot have another Enron."" 

As quid pro quo for the bailout, the government could ensure that research and development moves us into a "green car" age.  Colin-Margolies mentions the work already being done on this by engineers in Detroit and the technologies that could be supported to expedite this process while creating jobs in related industries.  Mass productiof of lithium-battery charged cars like the GM Chevy Volt "could entail opening factories on US soil [and the] battery could become a niche product for the United States."   in other words, a bailout for the auto industry could potentially do double duty by "reindustrializing" the country and "generating well-paid jobs for American workers while moving domestic industry away from its reliance on fossil fuels."

And, online, there's Jane Hamsher's, Forget GM's Plan. Where's the Government's Plan?, Nov. 26, 2008.  Here's how it starts off:

When Harry Reid and Nancy Pelosi sent the Detroit automakers away and told them to come up with a plan, it made me want to put my head through a wall.  Not because the automakers didn't need one, but because they're operating in a black box unless and until the government comes up with their plan. 

Then she goes on to quote Jeffrey Leonard's piece:

Like it or not, a major reason that American automakers have built the cars that they've built for the domestic market is that they've had to contend with highly misleading long-term market signals based on cheap gas.

And, she adds:

We can sit around and wax rhapsodic about highways covered in green cars, but until the government adopts policy that creates demand for them, there is no evidence that anyone will buy them. ... [So] You can ask them to be profitable, or you can ask them to be energy efficient.  If the government wants them to be both, they have to create the market conditions for that to happen.  

As goes Detroit: another "string" (thanks to Prof. Emeritus B.P. Leonard)

B.P. Leonard, Professor Emeritus of Mechanical Engineering at The University of Akron, suggests another important requirement for any new cars to be produced by the US auto industry-in-receivership (or in receipt of bailout funds).

There's a general misconception (in the US) that efficient cars have to be light and small and cramped and unsafe. This need not be the case. Energy is dissipated by vehicles in three ways:

1. Internal inefficiency (poorly designed power-plants; a result of cheap fuel; and the need to cover a wide range of torque in "off- design" conditions).
2. Drag (mostly air resistance, proportional to speed-squared). Important for long trips.
3. Braking (dissipated as heat in the brakes). Important for lots of stopping and starting.

Item 3 is greatly reduced by having a mechanism for regenerative braking (kinetic energy of the vehicle, proportional to mass-times- speed-squared, is efficiently converted and stored as reusable energy): super-capacitors (for fast energy-transfer) plus storage batteries (for slower long-term storage); hydraulic/pneumatic energy storage--ideal for large commuter vehicles (trams, buses). This, of course, is the motivation for purely electric or hybrid vehicles.  There is no limit on size (mass); high-strength materials can be used to increase safety. However, without the regenerative energy storage, dissipation is proportional to mass.

Item 2 is greatly reduced by aerodynamic drag-reduction; i.e., reducing the drag coefficient (CD) by streamlining. Mercedes only recently found that by adding an aerodynamically contoured "belly- pan" underneath the car (covering up all those lumpy bits-and-pieces causing turbulence), the already low CD was further reduced significantly. In addition to speed-squared, aerodynamic drag is proportional to "frontal area"--roughly, the cross-sectional area viewed from the front. So there is some dependence on "size." That's why a low, longish station-wagon is preferable to a high-and-wide SUV, if a lot of space is needed.

Item 1 can be satisfied with a hybrid design--efficient kinetic-to-stored-energy conversion plus an on-board "range-extender," such as a small internal-combustion engine (ICE) driving an electric generator--that can be fully optimized so that the ICE is always running at its most efficient design point while minimizing bad emissions. Using electric motor/generators for (or, possibly, in) each wheel independently allows for ideal stability control, enhancing safety.

All of this technology is available. So I would add to the list of "strings attached"--all future vehicles should be low-drag with regenerative braking. There would be no price disincentive against a hybrid as compared with the analogous non-hybrid version.

As Goes Detroit

The market reaction yesterday--to the news that Congress would not act now to assist Detroit, and would instead require a "plan" from auto manufacturers and possibly reconsider some aid in mid-December--was a quick-fire selloff at the end of the day taking the Dow down into the heart of bear territory.  Andrew Leonard, over at Salon, considers whether this is a real causes-and-effect or whether the importance of the auto industry to the US economy is being overstated when one views yesterday's drop as instigated by Congress's inaction.  Worth reading: As goes Detroit, so goes the Dow.

In the meantime, over on Economist's View, Mark Thoma has posted Paul Krugman's Friday op-ed. on the two related concerns of Deflation and Detroit, Paul Krugman: The Lame Duck Economy.  The op-ed is certainly worth reading, but also read the commentary on the post.  (See, e.g., the comment by Bakho about the interlinkage of the economy of many towns and counties around the country with auto-related jobs.) There are a lot of people thinking about the problems, both long and short-term, if there is nothing done to save US auto manufacturing.  Let's hope Congress is watching (and reading and listening and thinking).

And, for a sobering perspective on  both bailouts and self-help tax evasion, my colleague Jim Maule has an interesting post over on Mauled Again: Evading Tax = Self-Help Bailouts?  Ultimately, Jim says, we're back to the question of education and integrity.  I'd add that the Reagan revolution's resulting indoctrination of a generation or two or Americans into the "greed is good" ideology bears a good part of the blame.