Advice for Policymakers: Time to Check Your Blind Spots

Last week, I left my Washington home, walked to the nearby Metro station, rode a train downtown, walked to the National Press Club, and settled in to hear Steven Rattner, former head of the Obama administration's auto task force, declare that "no one has yet invented a substitute for the automobile."

Steven Rattner (Photo: WSJ)

This was like declaring in an airport terminal one's hope that man may someday enjoy heavier-than-air powered flight, but most of the heads in the audience nodded in agreement.

Rattner was there to speak on the topic of the administration's automobile bailout and rehabilitation strategy. He was hopeful but realistic; he recognized that General Motors and Chrysler face an uphill battle, but he believes that the government was able to do enough to give the firms a shot at returning to profitability.

Why that should be a concern of the government is another question altogether, and it's not one with which Rattner really engaged. Understandably, I think, the administration agreed that GM and Chrysler really shouldn't be allowed to fail in the depths of recession.

And then I believe they determined that if they were going to keep propping up the companies, they ought to at least shepherd them through a balance sheet-clearing bankruptcy and reorganization, in the hopes that the companies might eventually make money.

But what Rattner was careful not to address was this: Saving the car companies will not protect American automakers' market share, will not save the city of Detroit, and will not really save that many jobs.

The line I quote in the first paragraph was made in the context of an argument about annual auto sales, and why sales totals are likely to return to levels typically observed before the recession. Sales of light vehicles grew to a peak of 17 million in 2005 before declining and then plummeting to their current level, in the neighborhood of 9 million (save for the month of August, thanks to "cash for "clunkers).

According to Rattner, GM will break even at a level around 16.5 million car sales. Maybe we'll get there. Population continues to grow.

On the other hand, households may find themselves holding on to automobiles longer (particularly since household debts may remain a problem for the next decade). They may also find themselves buying fewer cars. America is aging, and households with retirees may not want a car for each commuter. More families might opt for one vehicle, and use car-sharing services when another vehicle is necessary.

But now we find ourselves in a world in which GM shareholders -- among which number you and me and every other taxpayer -- need sales to move above 16.5 million to get the company back to profitability. That's a strange place for us to want to be.

If, given the option to buy as many automobiles as they want, Americans choose to buy fewer than they did before, we should cheer. Cars are expensive and largely used as production goods rather than consumption goods -- people buy them because they need them to do other things, like work and buy food. If they then find that they don't need them as much, a lot of revenue is freed which can be used on debt service, health care, better food and homes, education, and entertainment goods.

A world in which Americans are as happy with one car or no cars as they are with two or three is a better one, just as a world in which companies can produce more goods with less energy or machinery is a better one.

The transition is a difficult one for workers in the automobile industry who find themselves needing a new line of work, but nothing in the reconstitution of GM and Chrysler will change that. Manufacturing processes continue to become less labor-intensive. That's a technological trend that the government is powerless to reverse. The question, then, is how best to facilitate transitions into new fields.

And here, the bailout looks somewhat counterproductive. Today a shuttered car plant in Delaware will be converted for use by a producer of electric vehicles. The decline of GM opens up production possibilities for other enterprises, and the impeding of that decline frustrates them.

It also prevents policymakers from seeing beyond the automobile. As David Alpert wrote yesterday (and Sarah Goodyear noted today):

There is a terrible chicken-and-egg problem to transportation planning, in which planners express regret that there is so little transit demand and so much traffic before building new roads. They have to accommodate the demand they've got! But you can't have transit demand if you don't have transit, and if you don't recognize that, then you're doomed to keep building roads forever. No one in the mind of the planners has yet invented a substitute for the automobile.

But of course, that's not true. There are many substitutes for the personal auto. And now that households seem to be warming to them, the government finds itself looking at the shift as a problem to be solved, rather than a welcome trend to be encouraged.

It's fine to try and alleviate the pain of a major economic transition, but if officials don't understand that the transition is just that, and not a temporary slump, they may attempt to turn the palliative into a barrier to change. If you think there's no substitute for the automobile, then the decline of the auto industry looks like running headlong off a cliff.

But in reality, there is something just fine on the other side of the transition: a world in which people drive less and don't mind it. Maybe officials blind to that possibility will eventually stumble into it nonetheless. It would be much better for all concerned -- including those dependent on the auto industry for their welfare -- if the government managed to see it and chart a course for it.