Bailout, Creative Destruction, Rehab or Hospice.

Standard models for dealing with immense crisis often prove inadequate.

Instead of allowing ourselves only the unsatisfying political choices of bailout or "creative destruction," why not ask the question fresh?

This occurred to me yesterday as I was reading this post and the ensuing discussion. I wrote:

I don’t think bailout and creative destruction are the only options for the car companies. Assisted suicide or hospice might be others.

Then I shuffled off to bed, still mulling other models for working through great troubles.

Rehab, for instance.

Hitting rock bottom may be necessary before an addict can break the powerful patterns of destructive behavior. But after allowing the crash, family or co-workers may also choose to help the addict work through the resulting crisis. We want death of the addict, not of the person.

This morning, I heard animal behaviorist Richard Conniff talk about how elk herd defenses against grizzlies might provide lessons for dealing with financial crisis. Yesterday, I heard an economist suggest a possible approach drawing upon the reorganization of the  Penn Central Railroad — at the time, the largest bankruptcy in history — which involved nationalization followed by deregulation of the rail industry.

And then back at the comment thread, Joe Loveland asked me what a hospice for a failed business might look like policywise.

I was being a zen master there, not a policy wonk, but it would be possible to interpret the metaphor this way.

With hospice care, we recognize the end is inevitable but take steps to ease the passing, both for patient and family. Unlike a bailout, providing this type of aid to workers and communities, for example, would not cause a line of unworthies to form because it would be clear that death of the business corpus — not new life — would still be the ultimate "reward."  Shares (which disproportionately benefit top decision-makers) might be allowed to become worthless, for example, but pensions, medical benefits and job training might be supported to some extent.

Finally, I read this passage, and thought of the Hank Paulsens who are sifting through the rubble. Although it's about decision-making in the atomic age, it captures the dis-ease we feel about the options being presented to us by the financial experts.

[T]he power of the citizen will be eclipsed by that of the state, and those technocrats charged with making decisions for us all will be put in such a position not because they are the most good, but because they are the most highly trained in a certain sphere and the most willing to accomplish the tasks assigned to them without asking questions...
— Alexander Provan, "Menacing Earthworks," paraphrasing Edward Long's The Christian Response to the Atomic Crisis 

We know these new czars are most trained. We can only hope they are most good.

Comments

[Sherry]

You have a good point. Hospice, inject some morphine for the workers who will lose out, and let the beast die. I have felt the same about airlines- if they can't make it let them die. I am not an economist, but it seems hard to justify how this bail-out is helping anyone. The more insurance companies are buying small banks to get part of the bail-out assures me there is no end of greed in Corporate America. Corporate greed can choke this country if it is not gotten under control.

[Hal Davis]

Doesn't bankruptcy court work as a sort of rehab/hospice for failed enterprises?

Having worked for a company that went into Chapter 11 as a defensive move by one owner to stave off the other, I knew that most of the workers at the company were doomed. I ended up without a job when a new buyer came along. It was the New York Post and the "new" buyer, Rupert Murdoch, was buying it for the second time. Many employees fell on hard times after that, since bankruptcy wipes out collective bargaining agreements, and they got essentially pennies on their pension dollars.

Murdoch would "save" the Post only if Sen. Ted Kennedy moved to repeal a cross-ownership ban (He also owned Fox.)

Dunno what would "save" the domestic auto industry, but inducing them to make more environment-friendly vehicles might make sense.

[MNObserver]

The railroads went through a whole series of highly-regulated bankruptcies 35 years ago, emerging as new entities that had shed their passenger-hauling obligations, some of their over-the-top featherbedding, and the lines that couldn't sustain traffic. Congress passed laws that allowed for case-by-case oversight that figured out what would happen. Some of that direct oversight continued until the final Conrail carve-up in 1998, some ended when they were bought out later, like when the Milwaukee Road was bought up in 1986. It was a long, controlled process. The deregulation that allowed many lines to stay in business was a Carter administration deal, not the Reagan deal some try to say it was. But rehab it was, now that you mention it.

What sort of cataclysmic change does the auto industry need?

[Sherry]

The union needs a cataclysmic change. I am for unions, since their pay elevates all of ours, and helps us all get benefits. Live in Tuscan, AZ for a year if you differ.

I can see some sort of a slow deal where the car companies are steered to new technology while maintaining workers and benefits.

It pains me to hear that the auto industry is "failing because it gives their workers benefits." Of course that is not the whole story, but it seems to be the headline.