# Is it a Sam Stone economic prediction? Then it's guaranteed to be wrong. **URL:** \ **Category:** The BBQ Pit\ **Created:** [August 26, 2011, 4:10pm UTC](https://boards.straightdope.com/t/is-it-a-sam-stone-economic-prediction-then-its-guaranteed-to-be-wrong/594191 "2011-08-26T16:10:00Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![Hentor\_the\_Barbarian](https://avatars.discourse-cdn.com/v4/letter/h/8edcca/32.png) [@Hentor\_the\_Barbarian](https://boards.straightdope.com/u/Hentor_the_Barbarian)\ **Post date:** [August 26, 2011, 4:10pm UTC](https://boards.straightdope.com/t/is-it-a-sam-stone-economic-prediction-then-its-guaranteed-to-be-wrong/594191/1 "2011-08-26T16:10:00Z")
I saw a news story today that reminded me of a discussion here at the SDMB. Rather than re-open a two year old thread, and because this is more of a point regarding **Sam Stone’s** predictions generally, I thought it best to put it here in the pit. [http://boards.straightdope.com/sdmb/showpost.php?p=11201462&postcount=16](http://boards.straightdope.com/sdmb/showpost.php?p=11201462&postcount=16) > [@Sam Stone](#): > > This is why the bailout was such a bad idea in the first place. But now that government has a stake in GM, it will not be allowed to fail. It now has access to a pool of capital that no other car manufacturers has, giving it a competitive advantage over companies that are technically better and which have been managed more efficiently. This is not only unfair, it’s unhealthy for the industry. > > And then there’s bias. You can bet that whenever government regulators are considering new auto rules, there will be pressure on them to make sure that the rules don’t ‘punish’ General Motors. It could easily become the case that any advantage that GM has in production will be magnified by a government law. If GM happens to make the cleanest engine, suddenly there will be a new rule mandating emission limits that are cheaper for GM to reach than others. If GM has the most efficient airbag production line, we could see a greater mandate for airbags, etc. The temptation for government to tune the market in favor of GM will be hard to resist. > > Then there’s the next phase - trade complaints. How long will it be before Toyota or Honda file complaints with the WTO over government subsidy of GM? What does Ford do if it perceives the rules are being changed to favor the government’s auto company? > > **This bailout was a very bad idea, and it’s going to get worse.** Bolding mine. Oh really? [http://www.washingtonmonthly.com/political-animal/2011\_08/its\_a\_good\_thing\_obama\_saved\_t031808.php](http://www.washingtonmonthly.com/political-animal/2011_08/its_a_good_thing_obama_saved_t031808.php) > [@LA Times](#): > > Taxpayers bailed out much of the U.S. auto industry. Now the carmakers might be what saves the nation’s economy from falling back into recession. > > After a massive restructuring and several high-profile bankruptcies, a leaner, more aggressive auto industry is making a comeback, hiring workers and ramping up manufacturing plants. From a trough two years ago, Ford Motor Co., General Motors Co., Chrysler Group and other auto companies have added almost 90,000 manufacturing jobs, a 14% increase, according to federal employment data. > > Job growth in Michigan, which was devastated by the downturn, is even more robust. That’s why Michigan’s jobless rate stood at 10.9% in July, well below the 12% rate of California. > > And it’s not just the Big Three American manufacturers that are thriving. Nissan, VW and other foreign-based firms are expanding in the United States, putting billions of dollars into building and refurbishing plants. Start-ups Tesla Motors in Palo Alto, Fisker Automotive in Anaheim and Coda Automotive in L.A. are hiring and spending hundreds of millions of dollars designing and launching electric and hybrid vehicles. > > Dealers are having a banner year, making more money per sale than they have in years and hiring back some workers shed during the recession. The link above is to Steve Benen at the WashingtonMonthly rather than the LA Times itself, because the WashingtonMonthly includes a copy of the figure from the La Times with an additional blue line to denote when the Obama bailout program started. It also coincides roughly with the point in time that Sam made his prediction. At some point, having your economic theories and predictions consistently smashed by reality ought to result in a re-consideration of the theoretical models you are using. That never seems to be the case with **Sam**. Then again, I don’t believe he’s really interested in refining a model to generate more accurate predictions. He’s interested in a model driven by a particular political agenda. ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [August 26, 2011, 4:48pm UTC](https://boards.straightdope.com/t/is-it-a-sam-stone-economic-prediction-then-its-guaranteed-to-be-wrong/594191/2 "2011-08-26T16:48:14Z")
I don’t see how your cite relates to anything Sam was predicting. ---
**Author:** ![PlainJain](https://avatars.discourse-cdn.com/v4/letter/p/5daacb/32.png) [@PlainJain](https://boards.straightdope.com/u/PlainJain)\ **Post date:** [August 26, 2011, 4:52pm UTC](https://boards.straightdope.com/t/is-it-a-sam-stone-economic-prediction-then-its-guaranteed-to-be-wrong/594191/3 "2011-08-26T16:52:17Z")
> [@Hentor\_the\_Barbarian](#): > > He’s interested in a model driven by a particular political agenda. He’s so unique that way. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [August 26, 2011, 4:53pm UTC](https://boards.straightdope.com/t/is-it-a-sam-stone-economic-prediction-then-its-guaranteed-to-be-wrong/594191/4 "2011-08-26T16:53:58Z")
> [@Fotheringay-Phipps](#): > > I don’t see how your cite relates to anything Sam was predicting. Really?" I think this bailout was a bad idea and its going to get worse", is not a prediction? The point is it is not getting worse .so far. It actually has increased employment unlike so many other sectors. ---
**Author:** ![Jas09](https://avatars.discourse-cdn.com/v4/letter/j/d07c76/32.png) [@Jas09](https://boards.straightdope.com/u/Jas09)\ **Post date:** [August 26, 2011, 4:57pm UTC](https://boards.straightdope.com/t/is-it-a-sam-stone-economic-prediction-then-its-guaranteed-to-be-wrong/594191/5 "2011-08-26T16:57:34Z")
Well, none of the government meddling to favor GM happened, and none of the trade complaints happened. Instead, the recapitalization allowed the companies to restructure during a period where restructuring capital was unavailable and now they are performing quite well. **Sam** also made predictions in that post about production gluts and this bailout hurting Ford and the Japanese makers - I don’t think we can claim that those predictions were very accurate either, but it is obviously difficult to prove that the auto industry is in better shape than it would have been without the bailout. He also hinted that a non-GM auto-maker would fail due to GM being propped up. I don’t believe this has happened either. Not sure it’s worth a pitting. Folks screw up economic predictions on both sides every day here. It is worth noting, I suppose, that in this instance government intervention was a useful method of preventing the destruction of an industry primarily due to failures in the financial sector. ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [August 26, 2011, 4:58pm UTC](https://boards.straightdope.com/t/is-it-a-sam-stone-economic-prediction-then-its-guaranteed-to-be-wrong/594191/6 "2011-08-26T16:58:38Z")
> [@gonzomax](#): > > Really?" I think this bailout was a bad idea and its going to get worse", is not a prediction? He pointed to specific bad things that he predicted would happen, none of which had anything to do with the number of jobs at those companies two years later. > [@](#): > > The point is it is not getting worse .so far. It actually has increased employment unlike so many other sectors. Again, this has nothing to do with Sam’s prediction, as quoted in the OP. But as regards to that argument, the words “so far” are the important words here. The idea that a company facing backruptcy would be better off two years later after the government pumps billions of dollars into that company is not a vindication of that strategy. ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [August 26, 2011, 5:01pm UTC](https://boards.straightdope.com/t/is-it-a-sam-stone-economic-prediction-then-its-guaranteed-to-be-wrong/594191/7 "2011-08-26T17:01:39Z")
> [@Jas09](#): > > Well, none of the government meddling to favor GM happened, and none of the trade complaints happened. These are long term concerns. The government doesn’t act in these matters on a day-to-day basis. Plus, the pressure to favor GM has been alleviated by the relative success of the company. If and when they start facing hard times again, we’ll see what happens. (Although that too depends on whether the government still has a stake in the company at the time, and on whether the same administration is still in power.) ---
**Author:** ![Jas09](https://avatars.discourse-cdn.com/v4/letter/j/d07c76/32.png) [@Jas09](https://boards.straightdope.com/u/Jas09)\ **Post date:** [August 26, 2011, 5:08pm UTC](https://boards.straightdope.com/t/is-it-a-sam-stone-economic-prediction-then-its-guaranteed-to-be-wrong/594191/8 "2011-08-26T17:08:15Z")
> [@Fotheringay-Phipps](#): > > The idea that a company facing backruptcy would be better off two years later after the government pumps billions of dollars into that company is not a vindication of that strategy. You are aware that GM did in fact file for Chapter 11 bankruptcy and reorganization, right? They did not avoid this fate due to government meddling. Fully agreed that the long-term conclusion of this bailout is undecided. But it’s clearly a much better-looking proposition than it was at the time. If, in the end, a viable, reorganized GM is standing, with the government fully divested, then surely we can conclude that it was a positive use of government resources, no? I understand that the free-market runs on creative destruction, but sometimes destruction is just destruction, and is to be avoided. ---
**Author:** ![mhendo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mhendo/32/3159_2.png) [@mhendo](https://boards.straightdope.com/u/mhendo)\ **Post date:** [August 26, 2011, 5:10pm UTC](https://boards.straightdope.com/t/is-it-a-sam-stone-economic-prediction-then-its-guaranteed-to-be-wrong/594191/9 "2011-08-26T17:10:24Z")
Yeah, i’m going to agree with **Fotheringay-Phipps** here. There’s not a single thing in that quote from **Sam Stone** that is refuted by the news stories you linked to. He never said, at least not in the section you quoted, that the bailout would not help the big automakers survive. His argument was one about competitive advantage and the possible implications of government owning a stake in a particular manufacturers in an industry where different manufacturers are in competition with one another. It was, in many ways, an argument about conflict of interest, and there’s some considerable merit to it. Now, i have more faith than **Sam** that government can, at least in cases like this where the potential conflict is so widely known and recognized, play fair with the industry. But the argument itself it not unreasonable, and is not contradicted by the current recovery of the industry. In fact, a free market proponent like **Sam** would probably argue that, without government interference, the industry would still have recovered, although one or two players in the game (maybe GM, for example) might have gone under. And this would have been fine, because the gap left by the failing company/ies would have been filled by other, more efficient, better run companies. It’s not that different, really, from the argument that a lot of people (including me) were making about the airline industry a decade ago. After 9/11, the government stepped in and handed over wads of cash to the airlines, saving some that were well on their way to insolvency even before the terrorist attacks. While i’m a social democrat, and believe that government has a role (often a significant one) to play in the economy, i also believe that there are areas of the economy where competition serves the general interest better, and i don’t think that government bailouts of these large corporations is necessarily the best move. ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [August 26, 2011, 5:12pm UTC](https://boards.straightdope.com/t/is-it-a-sam-stone-economic-prediction-then-its-guaranteed-to-be-wrong/594191/10 "2011-08-26T17:12:08Z")
> [@Jas09](#): > > You are aware that GM did in fact file for Chapter 11 bankruptcy and reorganization, right? They did not avoid this fate due to government meddling. Of course. What’s your point with this? > [@](#): > > If, in the end, a viable, reorganized GM is standing, with the government fully divested, then surely we can conclude that it was a positive use of government resources, no? Even there, you need to consider the moral hazard on other businesses (& unions) in similar situations. [Also, I think the Obama administration effectively stole from a lot of people, in that their prepackaged bankruptcy plan favored the unions over the bondholders, using TARP funds as leverage. But that may be another issue.] ---
**Author:** ![Merijeek](https://avatars.discourse-cdn.com/v4/letter/m/f05b48/32.png) [@Merijeek](https://boards.straightdope.com/u/Merijeek)\ **Post date:** [August 26, 2011, 5:13pm UTC](https://boards.straightdope.com/t/is-it-a-sam-stone-economic-prediction-then-its-guaranteed-to-be-wrong/594191/11 "2011-08-26T17:13:06Z")
> [@Jas09](#): > > Not sure it’s worth a pitting. Folks screw up economic predictions on both sides every day here. It is worth noting, I suppose, that in this instance government intervention was a useful method of preventing the destruction of an industry primarily due to failures in the financial sector. Well, sure, but I think it’ll be fun to watch his fact-free “I didn’t mean that when I said that, I meant this but you twisted my words” bullshit attempt to rewrite history. And isn’t that what the Pit is for? -Joe ---
**Author:** ![Hentor\_the\_Barbarian](https://avatars.discourse-cdn.com/v4/letter/h/8edcca/32.png) [@Hentor\_the\_Barbarian](https://boards.straightdope.com/u/Hentor_the_Barbarian)\ **Post date:** [August 26, 2011, 5:17pm UTC](https://boards.straightdope.com/t/is-it-a-sam-stone-economic-prediction-then-its-guaranteed-to-be-wrong/594191/12 "2011-08-26T17:17:36Z")
I’m at a loss as to how Mhendo and Fotheringay-Phipps are evaluating claims here, assuming that you read both Sam’s claims and the LA Times article. Perhaps if you actually go back and read Sam’s post in full, that might help. > [@Sam Stone](#): > > In any other industry, if the demand for a product goes down, the weakest, least efficient manufacturers go out of business or start making other things. This culls the herd of production, leaving the strongest behind to fill the gap. So overall production goes down, but the entire industry doesn’t become sick. > > What the Obama administration has done is short-circuit this process by propping up the weakest auto manufacturers. Every sale GM and Chrysler make now comes at the expense of Ford, Toyota, Nissan, Honda, and the rest. The result could be the failure of an auto company that is actually better at making cars than is GM or Chrysler. The whole industry remains sick because there is a glut of production. > > There are currently 300,000 vehicles sitting on new car lots across the country. That’s a huge backlog. Too many cars are being produced. If GM and Chrysler were allowed to fail, then fewer cars would be made, but sales would go up for the other manufacturers, making them stronger. First - Sam’s flat claims that the auto industry was going to get worse. He made this claim right around the time of the blue line in the figure at Washington Monthly. You can clearly see that subsequent to that time (the implementation of Obama’s bailout) the industry has gotten demonstrably better, and is performing better than the economy as a whole. Does it appear that other manufacturers are struggling while GM is sitting pretty? No, as cited in the article, not only are the Big 3 all doing well, but foreign based firms are expanding in the US. Dealerships are also “having a banner year” and are hiring people back. Sam’s argument strongly implied that the government would start shaping new laws and regulations that would favor GM. Did that happen? No. Further, Sam suggested that Honda and Toyota would lodge WTO complaints, and Ford would perceive government favoritism. Did these happen? Pretty much none of the dire consequences Sam outright stated or implied have remotely come true. ---
**Author:** ![Jas09](https://avatars.discourse-cdn.com/v4/letter/j/d07c76/32.png) [@Jas09](https://boards.straightdope.com/u/Jas09)\ **Post date:** [August 26, 2011, 5:19pm UTC](https://boards.straightdope.com/t/is-it-a-sam-stone-economic-prediction-then-its-guaranteed-to-be-wrong/594191/13 "2011-08-26T17:19:53Z")
> [@Fotheringay-Phipps](#): > > Of course. What’s your point with this? My point was merely that your quote used the phrase “a company facing bankruptcy” - I figured you knew that they didn’t avoid it, but it made it sound like the government saved them from that fate. > [@](#): > > Even there, you need to consider the moral hazard on other businesses (& unions) in similar situations. > > [Also, I think the Obama administration effectively stole from a lot of people, in that their prepackaged bankruptcy plan favored the unions over the bondholders, using TARP funds as leverage. But that may be another issue.] Perhaps so. It’s not unreasonable to conclude that even if GM is saved and becomes a powerhouse job-creator and economic engine, that it was still wrong to bail them out at a time when they literally could not get funding from anywhere else (due to the credit crunch). I’m not sure I’d want to make that argument, but it could be made. And you could of course argue about what exact form the bankruptcy should have taken, and to what extent the government’s involvement screwed the resulting deal for various parties. That doesn’t change the fact that, so far, **Sam** ’s predictions regarding government intervention and trade warfare have been wrong. As well as his predictions regarding the outlook for the industry as a whole. ---
**Author:** ![Hentor\_the\_Barbarian](https://avatars.discourse-cdn.com/v4/letter/h/8edcca/32.png) [@Hentor\_the\_Barbarian](https://boards.straightdope.com/u/Hentor_the_Barbarian)\ **Post date:** [August 26, 2011, 5:23pm UTC](https://boards.straightdope.com/t/is-it-a-sam-stone-economic-prediction-then-its-guaranteed-to-be-wrong/594191/14 "2011-08-26T17:23:20Z")
> [@PlainJain](#): > > He’s so unique that way. Assuming you’re being sarcastic, then serendipitously Paul Krugman has a nice post today describing how he was clued in to the liquidity trap issue: javascript:blogPostShare(‘permalink’,%20’‘,%20’August%2026,%202011’,%20’23765’); > [@Paul Krugman](#): > > Many economists just dismissed the Japanese example, asserting either that it reflected very special circumstances — zombie banks! — or that the Bank of Japan just wasn’t trying hard enough. I guess I was the first to suggest that Japan actually showed that the liquidity trap was not a myth, after all. The way I got to that conclusion, by the way, was as follows: I set out to prove, using a model with all the eyes dotted and teas crossed, that monetary expansion would always work even at a zero interest rate. But the model said just the opposite. And so I was forced to acknowledge that the liquidity trap was real, and to think through the implications, which I did in this 1998 paper (pdf). See, I think many, many people actually check their predictions in an empirical fashion. If their predictions don’t pan out, they revise their assumptions. That’s how I am. Perhaps Paul Krugman and I are different from everyone else in that regard. Or maybe you weren’t being sarcastic. ---
**Author:** ![PlainJain](https://avatars.discourse-cdn.com/v4/letter/p/5daacb/32.png) [@PlainJain](https://boards.straightdope.com/u/PlainJain)\ **Post date:** [August 26, 2011, 5:42pm UTC](https://boards.straightdope.com/t/is-it-a-sam-stone-economic-prediction-then-its-guaranteed-to-be-wrong/594191/15 "2011-08-26T17:42:31Z")
> [@Hentor\_the\_Barbarian](#): > > Perhaps Paul Krugman and I are different from everyone else in that regard. Or maybe you weren’t being sarcastic. I read Paul’s piece. Look I’m no great fan of **Sam Stone** but I don’t feel the bailout has come close to meeting its expectations. It’s true that some specifics of his “prediction” weren’t met but that’s hardly pit-worthy. I could say of you that your pitting is a model driven by a particular political agenda. ---
**Author:** ![mhendo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mhendo/32/3159_2.png) [@mhendo](https://boards.straightdope.com/u/mhendo)\ **Post date:** [August 26, 2011, 5:46pm UTC](https://boards.straightdope.com/t/is-it-a-sam-stone-economic-prediction-then-its-guaranteed-to-be-wrong/594191/16 "2011-08-26T17:46:52Z")
> [@Jas09](#): > > Fully agreed that the long-term conclusion of this bailout is undecided. But it’s clearly a much better-looking proposition than it was at the time. If, in the end, a viable, reorganized GM is standing, with the government fully divested, then surely we can conclude that it was a positive use of government resources, no? Depends on what you think would have happened otherwise. Look, at one level, i’m happy that GM survived, and that all those people who work for GM still have jobs. That is, for those people, and for society more generally, a Good Thing. Without the money injected by the government, there would have been a lot of misery in places where GM employs workers. But your use of the term “destruction” implies that, if a company fails, nothing emerges to replace it and all we are left with is a huge hole where the company used to be. After all, it’s clear from the OP’s link that the industry as a whole is now doing better. What if, for example, the failure of GM was followed by a corresponding growth in Ford, Chrysler, Honda, Toyota, Nissan, etc.? And what if the growth of all those companies ended up employing just as many people as the now-defunct General Motors? In that case, all the government has done with its investment is succeeded in shoring up a company that was going to fail, and saving a bunch of jobs that would have been created by its competitors anyway. For me, one factor making the government’s intervention more acceptable was the fact that the economic meltdown and the decline of the auto makers was, in many ways, a result of factors external to the auto industry itself, i.e., the mortgage issue and associated financial downturn. But it’s not like the industry was in great financial shape anyway, and plenty of its problems were of its own making. **Hentor** , two things: First, the reason i didn’t go back and read all of **Sam** ’s postwas that i assumed that you would have been smart enough, in your OP, to quote some actually relevant material. Second, even your subsequent quote doesn’t really refute **Sam** ’s argument. In discussing the recovery in auto sales, one thing that just about all the articles agree on is that a large factor behind the bump is America’s aging fleet. That is, people have been hanging onto their cars longer due to the economic downturn. But those aging cars need to be replaced eventually, and as far as i can see, there’s a pretty good chance that people would have replaced them whether or not GM and Chrysler got bailed out. I’m not arguing that the bailout makes no sense at all. But we need to be honest about what was getting bailed out here. As [this article](http://motherjones.com/kevin-drum/2011/08/economy-and-auto-industry) from _Mother Jones_ says: > [@](#): > > Some of the immediate rebound is due to pent-up demand following the Japanese tsunami, but in general it seems like a fairly durable response to an aging auto fleet. And it’s benefiting American employment due in large part to the Obama administration’s surprisingly agile rescue of GM and Chrysler. Taken as a whole, it probably saved upwards of a million jobs economy-wide. For many free-market economists like **Sam** , saving a domestic manufacturer at the expense of foreign manufacturers is bad economics and bad policy, because it rewards inefficiency in the industry. Of course, the opposite argument is that, by saving GM and Chrysler, the government saved a lot of American jobs, and a lot of well-paid union jobs, and that is a good thing for America. Some people also argue government’s responsibility to enact policies that benefit American workers. I have a lot of sympathy for that argument. But none of this is the same as saying that the recovery of the auto industry invalidates **Sam** ’s arguments. What also seems to be happening in this debate is that many people have a rather dated view of what a “domestic” and a “foreign” auto maker look like. In many cases, companies like Honda and Toyota and Nissan do almost as much of their manufacturing in the United States as the Big 3 do. Those Japanese companies, as well as German manufacturers like VW, all have plants in the United States that employ American workers. And the Big 3 routinely use a lot of components imported from low-wage regions like SE Asia and the Mexican border region. If GM had been allowed to fail, maybe those companies would now be responding to growing demand by adding shifts at their American plants, and maybe even opening more factories. Overall, i think the auto bailout, economically and politically, was probably a pretty decent move, but i recognize that my opinion is shaped by my politics. My biggest criticism was for the Cash For Clunkers program, which i think was a stupid waste of money; luckily, on the scale of our recent economic crisis, it actually didn’t cost that much. ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [August 26, 2011, 5:47pm UTC](https://boards.straightdope.com/t/is-it-a-sam-stone-economic-prediction-then-its-guaranteed-to-be-wrong/594191/17 "2011-08-26T17:47:24Z")
> [@Hentor\_the\_Barbarian](#): > > I’m at a loss as to how Mhendo and Fotheringay-Phipps are evaluating claims here, assuming that you read both Sam’s claims and the LA Times article. > > Perhaps if you actually go back and read Sam’s post in full, that might help. I was responding to the part you quoted in your OP. As to the rest, again time will tell - see my prior posts to this thread. The dynamic Sam was describing takes longer than two years to take effect. FTR, I happen to agree with Sam in that regard. Besides for the bailout, the carmakers were helped out a lot by the significant concessions made by the unions, which made them a lot more profitable. But the unions are not going to be happy with these concessions forever, if the carmakers continue to be profitable. Eventually they will get more and more aggressive with their demands, and labor costs will increase, and the situation will return to where it was before the bailout. And I would think it would be tougher for Ford, which hasn’t written off their debt in bancruptcy court. (Plus, I believe the unions have a stake in GM, which may lead them to favor that company.) But again, that’s a long term prediction. Don’t be starting threads next month to crow about how it hasn’t happened yet. ---
**Author:** ![Jas09](https://avatars.discourse-cdn.com/v4/letter/j/d07c76/32.png) [@Jas09](https://boards.straightdope.com/u/Jas09)\ **Post date:** [August 26, 2011, 5:54pm UTC](https://boards.straightdope.com/t/is-it-a-sam-stone-economic-prediction-then-its-guaranteed-to-be-wrong/594191/18 "2011-08-26T17:54:56Z")
> [@mhendo](#): > > For me, one factor making the government’s intervention more acceptable was the fact that the economic meltdown and the decline of the auto makers was, in many ways, a result of factors external to the auto industry itself, i.e., the mortgage issue and associated financial downturn. But it’s not like the industry was in great financial shape anyway, and plenty of its problems were of its own making. That’s exactly what I mean. In a functioning market a poor competitor is “destroyed” by creative competitors that out-perform it. In an environment where credit is impossible due to external factors, a company being unable to restructure due to lack of capital is destruction for destruction’s sake. I fully agree that GM needed to re-work its benefits and union stance, and trim its product line and distribution network. The question was whether they would be given the resources to do that when they couldn’t get them from the private credit market. ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [August 26, 2011, 6:02pm UTC](https://boards.straightdope.com/t/is-it-a-sam-stone-economic-prediction-then-its-guaranteed-to-be-wrong/594191/19 "2011-08-26T18:02:50Z")
> [@mhendo](#): > > But your use of the term “destruction” implies that, if a company fails, nothing emerges to replace it and all we are left with is a huge hole where the company used to be. After all, it’s clear from the OP’s link that the industry as a whole is now doing better. What if, for example, the failure of GM was followed by a corresponding growth in Ford, Chrysler, Honda, Toyota, Nissan, etc.? And what if the growth of all those companies ended up employing just as many people as the now-defunct General Motors? In that case, all the government has done with its investment is succeeded in shoring up a company that was going to fail, and saving a bunch of jobs that would have been created by its competitors anyway. Is this accurate? Generally when these big companies fail they don’t disappear, but instead they are taken over by their creditors and continue to run, after restructuring in bankruptcy court. I’m not claiming that this was expected to be the case here - my memory of the details is not so clear. Perhaps someone else has a better recollection or is interested in researching it. ---
**Author:** ![Tom\_Tildrum](https://avatars.discourse-cdn.com/v4/letter/t/e95f7d/32.png) [@Tom\_Tildrum](https://boards.straightdope.com/u/Tom_Tildrum)\ **Post date:** [August 26, 2011, 6:19pm UTC](https://boards.straightdope.com/t/is-it-a-sam-stone-economic-prediction-then-its-guaranteed-to-be-wrong/594191/20 "2011-08-26T18:19:38Z")
According to this [article](http://www.cleveland.com/business/index.ssf/2011/06/barack_obama_democrats_call_the_auto_bailouts_a_success_but_did_they_work.html), GM and Chrysler have shed about 15,000 jobs, so the 90,000 in sector-wide job growth is presumably coming from other companies. [Next page](https://boards.straightdope.com/t/is-it-a-sam-stone-economic-prediction-then-its-guaranteed-to-be-wrong/594191.md?page=2)