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."

P1_AP315_Rattne_DV_20090330213726.jpgSteven 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):

I’ve been meeting with elected officials in the region about
transportation and development issues. One representative from
Montgomery County recently expressed a general sentiment among area
leaders that "we have to do something" to accommodate increased traffic
between the American Legion Bridge and I-270. After all, Virginia is
building HOT lanes that will bring more cars onto the Beltway, and
Maryland is pushing for more lanes on 270 north of Rockville.
Logically, this person said, the state and the county will probably
have to connect the two with additional HOT lanes through Potomac and
Bethesda.

Later in the conversation, when discussing Gaithersburg West, I
noted the potential for biotech development at White Oak. That location
is already a life sciences hub. It’s closer to both DC and Baltimore,
reducing the likely commutes for people working there versus
Gaithersburg West. It’s also in a part of Montgomery County with far
fewer jobs than people, unlike the 270 corridor.

What it lacks, like Gaithersburg West, is good transit. There
is an inactive proposal to build a Purple Line spur up New Hampshire or
Route 29 to the area. Why not revive the idea? When I brought it up,
the representative jokingly said something like, "I’d like some of what
you’re smoking." And in fact, with many transit projects including the
Purple Line, Baltimore Red Line, and Corridor Cities Transitway already
vying for funds, it would be very difficult to add a Purple Line spur
to White Oak.

That’s the conventional wisdom among most elected officials. We
"have to do something" to add road capacity. But transit projects are
so difficult as to be nearly laughable. Yet freeway projects are not
cheap. As we saw from ACT’s alternative plan
for the I-270 corridor, you can build a lot of transit for the price of
some freeway lanes. It’s just that leaders are too accustomed to
viewing road capacity as a necessity and transit as a luxury.

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.