Obama is also exceedingly beholden to the environmental lobby, which through CAFE standards and other Green religious tenets has contributed mightily to the public policy failures at the root of Detroit’s ills. The U.S. auto industry cannot make small, fuel-efficient cars profitably at UAW factories. Cars they import from overseas, where they can make small, fuel-efficient cars profitably, do not count for CAFE purposes.

The goals of the UAW and the environmental lobby do not intersect. It will be interesting to see how Obama handles this. I do not think he is going to get the help he wants from President Bush.

It’s hard to imagine a worse mess.

(Bush’s sentiment in the NYT: “Mr. Bush said his administration had thoroughly briefed the president-elect about this process, and that he wished Mr. Obama the best in confronting the economic problems.” http://snurl.com/5knzo)

Of course, it could happen that Obama reverts to Hooverian policies, but I do not see it.

(In 1930, Congress passed and President Hoover signed into law the Smoot-Hawley Tariff Act, a protectionist measure vigorously opposed by the nation’s top economists.)

My sense is that Obama will adopt a more pragmatic, inductive policy stance. He will think big, like Brown has been doing on his proposals to reform regulation of international capital markets.

At the same time, Brown faces some counter pressures that might end up deflating his rhetoric about a US auto rescue.

http://snurl.com/5kp5d

My sense is that we are heading for a “Muddle Through” recovery: a slow and prolonged recovery, as markets work though the bursting of the twin bubbles of the housing markets and the credit markets.

Your fears of Democratic protectionism, I think, are overblown.

“Mr Brown was already risking confrontation with the President-elect in barely coded criticism of a planned measure to bail out America’s ailing carmakers, a plan Mr Obama supports. “I do think it is really important that we send out a signal today that protectionism would be the road to ruin,” the Prime Minister said, in a speech to the Council of Foreign Relations in New York.

“If we get into a situation where countries made decisions irrespective of what happened anywhere else, then we will see the same problems of other times. The dividing line here is between an open society capable of trading round the world, against a protectionist response that happened in the 1930s and is totally unacceptable.”

The EU said that it was ready to take action against the US at the World Trade Organisation if aid for the stricken US car industry was judged by the European Commission as illegal under international rules. The US Congress approved a $25 billion (£17 billion) aid package for American carmakers in September, although no timetable was fixed for payments to be made.”

For all of those who loved using analogies between the current economy and the Great Depression before the election as a way to get Obama elected and Congress in firmer control of Congress, be careful what you wish for; here it comes.

However, there is considerable scepticism both within the industry and among analysts as to whether Chapter 11 is a way forward for GM and Ford (though it may, some concede, be more appropriate for Chrysler). Mr Cole says that “it would kill them in the market”. The fear is that rather than give the firms a breathing space in which they could complete the restructuring of their operations and extract further concessions from the union, Chapter 11 would set off a downward spiral….

A further reason why Chapter 11 might not work for the carmakers, says Mark Oline, an analyst at Fitch Ratings, is that they have very little scope for further cost-cutting. “They’re not being crushed by wage and benefit costs—it’s about revenue and products now,” he says. Bankruptcy would do nothing to speed up the introduction of vital new models….

Mr Cole’s firm has modelled a scenario in which Detroit’s production falls by 50%. He estimates that in the first year that would cost 2.5m jobs: 240,000 from the carmakers themselves; 795,000 from suppliers and 1.4m from other firms indirectly affected. The cost in transfer payments and lost taxes would exceed $100 billion over three years…

http://snurl.com/5jl4z

Or, as the Economist puts it, the Republicans have become “the stupid party”.

http://snurl.com/5itx9 (Thanks to Valdis for his tweet.)

Pundits who are pontificating a permanent shift are not reading the numbers right.

If moderate Republicans stepped forward to spearhead a deal with Detroit, the party would benefit enormously.

But party leaders are still playing to the base…which is narrow, ideological, and shrill.

As for Obama getting 40,000 votes less than Kerry, I’d say he did as well as Kerry and effectively wiped out the Bradley effect (5-6%). A remarkable achievement.

Whether these gains hold, of course, depends on how well he governs.

I’m not sure I made myself clear.

I have been a strong opponent of the UAW’s policies for twenty+ years.

(In 1975, as a young legislative assistant for a member of the House Ways and Means Committee, I developed a graduated excise tax for automobiles based on their fuel economy: a market-based solution to pressing for more efficient automobiles. Management and the UAW preferred a regulatory “fleetwide average fuel economy” strategy…a policy they could more readily control.)

I support negotiating major concessions from both the union and management as part of a bailout. The bankruptcy alternative creates enormous social costs (which will be concentrated in the Midwest.)

But if the parties are unwilling to structure a strong deal, then I agree with you. Reorganize through bankruptcy court.

Throwing money at Detroit without fundamental changes in their business model only postpones the final reckoning.

As to the future of the Republican Party, I would be more cautious than you are. Barack Obama received 40,000 FEWER votes in Ohio than did John Kerry. His election was largely a function of increased turnout and high support among minorities. His coattails were not big enough to carry big changes in either house of Congress, to deliver any Democratic governorships, or to change state house/senate demographics.

Time will tell.