The proposed end games for General Motors and particularly Chrysler illustrate why government shouldn’t have gotten involved in the first place.

It’s worthwhile to begin with the broader picture. Americans used to buy about 17 million new cars and trucks a year. Now, we’re buying fewer than 10 million. That, of course, puts considerable stress on manufacturers with weaker products or financial structures.

How many new cars Americans will want to purchase in the future is unknown. But there can be a high degree of confidence in this: However many it is, someone will sell them to us.

Moreover, they are likely to be produced in the United States. A majority of cars sold by foreign manufacturers in the U.S. are actually built here.

So, why should the federal government care who it is that sells us our cars?

There are two rationales offered. First, to preserve an “American” auto industry. Second, to preserve “American” jobs.

The proposed Chrysler restructuring gives the lie to both rationales.

Under the Obama administration’s proposal, Chrysler would, in essence, be given to Fiat, an Italian company, to operate.

So, how is an Italian car maker operating in Michigan any more “American” than a Japanese manufacturer operating in Kentucky?

And why should the federal government give a market preference – through taxpayer financing and warrantee guarantees – to Italian cars produced by American workers in Michigan over Japanese cars produced by American workers in Kentucky?

The Obama administration’s proposed restructuring is more than just unjustified, however. It dangerously undermines the rule of law, as explicated so beneficially by Friedrich Hayek in his classic, “The Road to Serfdom.”

The essence of the rule of law, according to Hayek, is that what the government will do is known to all economic actors in advance. That government will not act arbitrarily in specific circumstances to favor some economic actors over others.

Chrysler has $6.9 billion in secured debt. Under the law, secured lenders have the first claim on the assets of the debtor in the event of nonpayment.

The Obama administration is attempting to muscle past this law. Under its proposal, the health care trust of the autoworkers union, an unsecured creditor, would forgive 57 percent of what Chrysler owes it, and receive 55 percent of the company’s equity in exchange.

The federal government would forgive about a third of what it would loan Chrysler and receive 8 percent of the company’s equity. Fiat would pay nothing for its 20 percent initial ownership.

The secured creditors, with the first claim on Chrysler’s assets, were asked to forgive 70 percent of what they are owed and receive nothing in equity. When they refused and forced the company into bankruptcy, they were excoriated by Obama – a shameful act by a president who pledged to uphold the law, not make it up as he went along.

The purposed GM restructuring is equally lopsided. The union trust would forgive half of what it is owed and receive 39 percent of the company. The government would forgive half of what it is owed and receive 50 percent of the company.

The other private lenders, in this case unsecured, would forgive 100 percent of what they are owed and receive just 10 percent of the company.

In his recent press conference, Obama said he had no interest in owning or operating car companies. Until this point, I was willing to accept Obama at his word, while fundamentally disagreeing with his economic policies.

Given his actions, however, it’s hard to credit his disclaimer in this instance.

These proposed restructurings are power grabs, pure and simple. The positions of lenders are eviscerated to give control to the union trust and the government.

The emergent companies are given market preference through taxpayer financing and government warrantee guarantees. All to serve no true national purpose.

Robert Robb, an Arizona Republic columnist, writes about public policy and politics in Arizona. E-mail: robert.robb@arizonarepublic.com

Thousands of unemployed wait in lines for buses to a job fair at the Mall of New Hampshire parking lot in Manchester, N.H., last week. The economy is the worst on both coasts. In middle America, there's more hope and optimism.

Last week I took a cross-country business trip from my adopted state of Florida to my native South Dakota to California, where I did much of my World War II Army infantry training.

Across the USA, there still is concern and fear about the depth and length of this depression.

But it’s the worst on both coasts. In middle America, there’s more hope and optimism.

Those attitudes are partly a reflection of these latest unemployment figures:

• California: 10.5 percent

• Florida: 9.4 percent

• South Dakota: 4.6 percent

Those figures alone don’t account for the difference in moods.

Most people on the coasts – especially in big cities – usually shoot for the moon when times are good, and then many fall into the cellar when times get tough. In middle America, the economy generally ranges from the upper to lower-middle, but seldom hits the top or tanks.

My field of newspapering reflects that. On both coasts, many newspapers are in trouble. In between, many are doing very well.

Two examples of the latter reflected in a downbeat national convention of the Newspaper Association of America in San Diego last week:

• Bill Marcil of Fargo, N.D. He said, with some necessary staff reductions at “The Forum,” the company, which includes 11 daily newspapers in North Dakota and Minnesota, is having “one of our best years ever.”

• Walter Hussman of Little Rock. He’s famous for having driven the competing big Gannett Co., which I formerly headed, out of town. He now is doing very well with his expanding media group, which includes 12 daily newspapers.

Some of us on the coasts could ease our problems in future bad times if we became a little less ambitious or greedy in good times. I was guilty of the latter 20 to 30 years ago.

Al Neuharth is founder of USA TODAY.

———

Feedback

“No one should be jobless. Rather than dwell on that, we’re focusing our efforts on getting people retrained or back to work now.”

- South Dakota Gov. Mike Rounds

“The manufacturing-concentrated states located in the northeast part of the Midwest have been hit as hard or harder than the East and West Coast states.”

– Paul M. LaPorte, economist in Chicago office, Bureau of Labor Statistics

General Motors workers view President Obama's address in Detroit on Monday. Obama refused further long-term federal bailouts for GM and Chrysler, saying more concessions were needed from unions, creditors and others before they could be approved. He raised the possibility of controlled bankruptcy for one or both of the beleaguered auto giants.

Barack Obama promised that, if elected, he would create more jobs for Americans.

Yet for the most part, all President Obama has created so far is confusion over his stance on the jobs Americans already have – and the ones they’ve lost.

In fact, you could say it’s a full-time job keeping up with all of the president’s incarnations on the employment issue.

There is Obama the pragmatist who, during a recent online town hall meeting, dished out some straight talk.

In fielding a question about when outsourced jobs would return to the United States, Obama acknowledged that “not all of these jobs are going to come back” because there are so many countries that pay workers much lower wages than Americans would want to do the same jobs.

The goal, he said, was to “go after the high-skill, high-wage jobs of the future” and create positions that can’t be outsourced to the lowest bidder.

But then there is Obama the protectionist who, during a primary election debate last year with Hillary Clinton, tried to sweet-talk displaced workers and organized labor.

In that exchange, Obama demanded that the United States take steps to discourage outsourcing of jobs. Obama said the government should “stop providing tax breaks for companies that are shipping jobs overseas and give those tax breaks to companies that are investing here in the United States of America.”

How you see all this – either a shameful flip-flop or a commendable evolution – depends on where you stand on the Obama presidency.

I am willing to give the chief executive the benefit of the doubt and go with the latter. And, as such, I like the new Obama much better than the old one. I just hope he doesn’t regress.

With rising unemployment, and many Americans either out of work or worried about losing their jobs, now is the perfect time for Obama to show real leadership by telling U.S. workers the hard truth about globalization – about how it is here to stay, even if many jobs aren’t.

More often, politicians take the easy way out and try to coddle the American laborer with protectionist rhetoric while offering up countries such as China and India as convenient scapegoats.

So what if Americans are in no mood to compete with foreign workers or even with one another? The contest has been long under way, whether we like it or not. We can lace up our sneakers, or we can forfeit the race.

No matter what candidate Obama said during the campaign, I think President Obama understands that basic principle.

He surely understands now that American workers can’t survive in the international job market as long as they’re in a defensive position demanding that the government cordon them off from the rest of the world. That said, hopefully, we’ve heard the last echo of protectionism from this administration.

Instead, we could use more of the accountability we saw this week in how the Obama administration handled the fate of General Motors Chief Executive Rick Wagoner.

In an extraordinary but easily justifiable move, it forced Wagoner’s resignation as part of the bailout plan for the ailing automaker. In a statement posted on the GM Web site, Wagoner acknowledged that Obama administration officials had asked that he “step aside” as CEO and that he complied.

The government has loaned GM a staggering $13.4 billion, and it plans to dish out billions more. Yet, the automaker hasn’t improved.

The Obama administration this week gave GM – and Chrysler – failing grades for their efforts to turn themselves around and threatened extensive overhauls of both companies.

Don’t feel bad for Wagoner, who still could walk away with a retirement package worth more than $20 million, although some officials are trying to block that compensation. If Wagoner ends up with the money, you can expect more public outrage from American taxpayers. What happened to reserving the rewards for those who succeed?

Meanwhile, what some Americans are most worried about is the government taking the unusual step of pushing out the CEO of a private company.

But GM stopped being purely private when it accepted billions in bailout money. With taxpayer funding comes the strings. You can’t have one without the other.

That’s another important message that Americans need to hear right about now. And who better to convey it than the president of the United States?

Ruben Navarrette Jr. is a columnist and editorial board member of The San Diego Union-Tribune. E-mail: ruben.navarrette@uniontrib.com

The Geithner plan to improve the balance sheets of banks may work.

It is, nevertheless, a bad idea and shouldn’t be necessary.

This plan by the Treasury secretary, and much of the frenzied monetary expansion being conducted by the Fed, is based upon a dubious premise: that the credit markets are frozen and need to be unclogged.

This assumes that there is a significant excessive of demand for credit compared to its supply. While there are undoubtedly companies that want credit that are having difficulty obtaining it, if this were generally true, interest rates would be rising sharply.

They aren’t. In fact, they are at historically low levels.

The economic slowdown has reduced the demand for credit. Nevertheless, business debt increased 4.8 percent last year, indicating that credit markets are not truly frozen.

The Geithner plan involves the federal government creating joint ventures with private companies to buy bank loans and collateralized debt obligations, mostly mortgage-backed securities.

Private investors will put up some capital, the government will put up some capital, and the government will provide additional capital through subsidized loans. The joint ventures will then buy loans and securities the banks want to sell.

These are favorable enough terms that some private investors will probably be willing to play.

But step back a minute and consider this: The only reason they will be willing to play is if they have a high degree of confidence that they will be buying bank assets that are worth more than they will pay. And on the other side of the transaction, the banks will be giving up something worth more than they are getting.

The banks may be willing to do so, because what they will be getting will be of more certain value than what they are giving, and that may be advantageous to meet their regulatory requirements.

But a regulatory scheme that assumes that banks are healthier when they give up something everyone assumes is of more value for something that everyone assumes is of lesser value is self-evidently perverse.

There is, of course, nothing that legally prevents these loans and securities from being traded today. This, however, is a market that has been frozen because of uncertainty about what the federal government would do. No one wants to go into competition with the big gorilla that sets the rules.

On the securities side, the Geithner plan limits competition for bank CDOs, which will further depress their value.

The government will choose a limited number of private partners to create joint ventures to purchase these securities. Treasury’s white paper suggests probably around five.

These favored partners will then get access to government capital and favorable financing not available to other potential purchasers.

The Treasury will provide capital for both the loan and securities purchase programs. For the loan purchase program, FDIC will provide financing guarantees. For the securities program, private partners will be able to borrow from the Fed.

Of course, none of these governmental entities actually have any money. So, all the money the federal government is throwing in will either be borrowed or, in the case of the Fed, created out of thin air.

A better approach would be for the federal government to create a better environment for recapitalizing banks with purely private funds.

Banks are a bargain right now. If the federal government provided more certainty to the value of bank-owned CDOs, either through more realistic regulatory treatment or a direct guarantee of a portion of their worth, and exempted new bank investments from the capital gains tax for a while, private capital could probably do the job.

But the Obama administration, like the Bush administration before it, apparently thinks markets are incapable of sorting through these things without the guidance and extensive participation of the government.

The Geithner plan, while far from optimal, is less ham-fisted than the efforts that have preceded it.

Robert Robb, an Arizona Republic columnist, writes about public policy and politics in Arizona. E-mail: robert.robb@arizonarepublic.com

Our supposedly construction-addicted state is faring better than more diversified economies

Thousands of Tucsonans line up at a job fair at Tucson Convention Center in January. Arizona has been hit hard by the burst of the housing bubble, but the state's unemployment rate compares favorably to other states' rates.

One of the most firmly held beliefs about the Arizona economy is that it is too dependent on housing.

This goes beyond the indisputable point that housing is a big part of the Arizona economy. The assertion, almost universally accepted, is that housing drives the rest of the Arizona economy.

The housing sector in Arizona has certainly been hammered. The Case-Shiller Home Price Index tracks home values in 20 large metro areas. According to the index, home values in the Phoenix area peaked in June 2006. Since then, they have declined by 46 percent.

This is the largest decline of any metro area in the index, and nearly twice as much as the index average of 27 percent.

According to the Arizona State University department of Realty Studies, residential building permits in Arizona have declined 73 percent since the housing peak.

So, Arizona’s housing sector has suffered a sharper decline than probably anyplace else in the country. If the rest of Arizona’s economy is dependent on housing, then why does Arizona have a lower unemployment rate than the rest of the country?

January is the most recent month for which comparative figures are available from the Bureau of Labor Statistics. During January, the country had an unemployment rate of 7.6 percent. Arizona’s rate was 7.0 percent.

The paradox is even starker when looking at major metro areas. The Phoenix area’s jobless rate was 6.7 percent. Only one metro area in the Case-Shiller group had a lower unemployment rate: Washington D.C., which has an economy clearly driven by government. The average unemployment rate for the 20 major metro areas was 8.4 percent.

According to BLS, of the 49 metro areas in the country with a population in excess of 1 million, Phoenix had the seventh-lowest unemployment rate.

Phoenix has done much better than many metro areas alleged to be our economic betters. San Diego, the proclaimed bioscience leader, had an unemployment rate of 8.6 percent. Charlotte, in North Carolina that supposedly does right in education what Arizona does wrong, was at 10.5 percent. Portland, the antithesis of an economy driven by housing, was at 9.8 percent. Seattle, which has the big companies we supposedly can’t attract, was at 7.5 percent.

So, most large metro areas have unemployment rates substantially above the national average while Phoenix, whose housing sector has been hit the hardest, has an unemployment rate substantially below the national average.

What gives?

Arizona has suffered large job losses during the housing decline. Construction employment in Arizona also peaked in June, 2006. Since then, Arizona has lost 88,000 construction jobs, a decline of 36 percent from the peak. Nationally, construction jobs declined by 13 percent.

Construction represented two-thirds of all jobs lost in Arizona. Outside of construction, the job loss in Arizona was less than 2 percent.

It’s rather clear that a lot of Arizona’s residential construction work force was itinerant. And much of it also was illegal.

All of this unveils what should have been obvious all along. Housing does not create its own demand. Something else has to draw people to an area, which in turn creates the demand for housing.

Arizona has a fundamentally solid underlying economy that benefits from, but is not dependent on, housing. And it has a frothy real estate sector that depends on growth generated primarily by other factors.

The real estate sector is oversized. But that is inevitable in a place that is growing faster than other places. That’s not the same as the rest of the economy being dependent on housing.

These days, various advocates of various dubious schemes to “diversify” Arizona’s economy frequently assert that housing is to Phoenix what cars are to Detroit.

If that’s true, why does Detroit have an unemployment rate nearly twice as high as Phoenix’s?

HOUSING MYTH

The Associated Press

Robert Robb, an Arizona Republic columnist, writes about public policy and politics in Arizona. E-mail: robert.robb@arizonarepublic.com

You wouldn’t expect the makeup aisle of a Walgreens to show evidence of the economic downturn, but it’s right there, in the choice between regular or waterproof mascara.

It’s also in the quicker lines at coffee shops and in the Arizona Daily Wildcat police log, which recently described how police officers found a woman lying face down in a grassy area at the University of Arizona sobbing because she’d been laid off from her job at the Student Union.

One can’t escape the barrage of daily bad economic news, a litany of the recession provided by the media, the tick-tock of people’s lives falling apart as businesses collapse, the stock market hurling itself off a cliff and bankruptcy becoming commonplace.

Like most reporters, I’m somewhat numb to bad news, trained by the newsroom police radio crackling out misery all day, but my sensitivity was heightened in January when notice of the Tucson Citizen’s likely closure provided my own personal recession experience.

Since then, I’ve noticed that little things illustrate the contracting economy more clearly than the big numbers.

For instance, there are the 17 audio résumés Cory Poindexter-Ramirez has sent across the country trying to land a job in broadcast journalism.

Poindexter-Ramirez graduated in December from UA and works part-time in promotions for Journal Broadcast Group. He spends his off hours with a laptop searching online for reporting jobs that, I hated to tell him, probably don’t exist.

“I know,” he said, “but I’m not giving up. And I’m not going to work at the post office.”

The post office is his mother’s idea.

“I want to be a TV reporter and that’s not a normal job to her, not secure,” he said. “She said there’s always good jobs at the post office.”

Then Poindexter-Ramirez related how another journalism graduate sent out 100 résumés before finally landing a job. He beamed saying this, then got busy applying to a TV station in Anchorage.

Kids. You gotta love ‘em.

Not perking up

Danny Mannheim opened the Espresso Art coffee shop about five years ago in the Main Gate Square adjacent to UA. He said my view of coffee lines as economic indicators was accurate.

“There a lot less expensive drinks being ordered,” he said. “The lines move faster.” After all, a drip coffee takes a few seconds to pour; a latte a few minutes to make.

Mannheim said talk around Main Gate was that business revenues are down between 20 percent and 30 percent.

Interestingly, tips aren’t down, he said. I didn’t admit my looming layoff had affected my willingness to feed the tip jar when I stop by.

Neither did I make that confession to Michael Foster – who opened Caffé Lucé about 20 months ago – when he said tips at his shop remain unaffected.

Lucé became my regular morning watering hole about six months ago, so I think Foster might be wearing blinders where the tip jar is concerned. The green in that glass is definitely less now than it was in the fall.

Maybe Foster needs to see the glass half full because, like Mannheim, he’s losing money as people buy fewer lattes, mochas and frozen drinks. He said there’s been a 30 percent to 35 percent shift toward drip coffee among his regular customers.

“You know, just between Tucson and Phoenix, 17 coffee shops have gone under since last April,” he said. “It’s pretty bad.”

Buy waterproof mascara

It’s pretty bad in the newspaper industry too, which brings us back to the makeup aisle of Walgreens.

I used to wear regular mascara because I didn’t trust whatever compound was in the waterproof kind that guaranteed it wouldn’t run down your face even if you were in a tsunami.

But now, I actually am in a tsunami, and it’s worse than I imagined. I’ve found, like the woman sobbing at UA last month, that regular mascara doesn’t hold up through the tears.

Contact Renée Schafer Horton at 573-4589 or at rshorton@tucsoncitizen.com

President Obama gestures while speaking at Dobson High School in Mesa on Wednesday regarding the housing foreclosure problem.

From the political notebook:

• President Obama and congressional Democrats seem intent on permitting bankruptcy judges to modify mortgages on primary residences. They can probably garner enough Republican support to get it through.

There has never been a case, however, in which the unintended consequences have been clearer in advance.

The Democratic pitch is basically this: bankruptcy judges can modify other credit agreements, including for second homes and other luxury goods purchased by the rich. Why not for the only home of average Jacks and Jills?

Primary residences are treated differently in bankruptcies in a number of ways. Other creditors cannot go after your home; as long as you remain current, you get to keep it. Your home mortgage lender cannot go after your other assets for payment.

The Democratic narrative is also misleading about what goes on in bankruptcies regarding luxury goods, such as second homes. Bankruptcy petitioners don’t get to keep them and just pay less for them. They are disposed of to partially pay the claims of creditors.

Current bankruptcy laws do provide some leeway on primary residences. A Chapter 13 filing stays any foreclosure, and the homeowner is given three to five years to make up any arrears.

In an ordinary market, in which home values are rising, home lending is a low-risk business, given existing bankruptcy laws. In the event of default, the lender can get back the home, which is usually worth more than what is owed. No loss.

If lenders, however, have to assume the risk that a bankruptcy judge can impose a loss, they will charge for that additional risk.

This will be reflected partly in higher mortgage rates. The Mortgage Bankers Association projects that mortgage rates would increase 1.5 percentage points.

The larger impact will be much tighter underwriting: much larger down payments, sharper limits on payment-to-income ratios, and rigorous verification of income.

Now, the result might be good for the economy. Lax mortgage underwriting is a proximate cause of the current economic difficulties. Putting lenders at greater risk might be beneficial.

But the result will be that buying a home will be more difficult and take more time. Fewer people will be able to buy homes. Those who can buy will pay more for less.

The consequences will fall particularly on young people, who will probably have to remain renters longer.

This isn’t what Democrats intend. But it is what will happen.

• In a mostly bleak world, there are some hopeful signs regarding governance in Muslim countries.

One of the sources of global tension is the lack of secular, democratic governance and pluralism in Muslim countries. Islam has not been reconciled to the separation of mosque and state.

Such reconciliation did not come easily nor peacefully in the Christian world.

The assumption of many has been that the introduction of democracy in Muslim countries would lead to the rise of Islamist parties and theocratic rule. That risk remains large.

However, there are some counter-indications. In the first elections in Iraq, voting was along sectarian lines and mostly for religiously-oriented parties. In the recent provincial elections, voter sentiment shifted to secularists promising good governance.

Voter sentiment seems to have similarly shifted in Indonesia, where Islamist parties are polling at about half the support they received in the 2004 election, and currently at below 10 percent.

The most hopeful development is occurring in Turkey, where a democratically-elected, Islamist party has ruled for six years.

The only religiously-oriented moves it has made have been in favor of things we would regard as exercising the right of religious expression, such as permitting women to wear head scarves in government buildings. It has instituted more free-market and liberal reforms than its ardently secularist predecessors.

What’s happening in Iraq, Indonesia and Turkey may be the beginning of something extraordinarily important.

Robert Robb, an Arizona Republic columnist, writes about public policy and politics in Arizona. E-mail: robert.robb@arizonarepublic.com

Assuming government officials can fix housing assumes that they know how many homes should be bought and built and what they should cost. They don't. No one does. That's why there are markets.

Well, at least President Obama’s housing plan isn’t as bad as his stimulus plan.

It is, nevertheless, unnecessarily costly and cumbersome.

The common refrain that the economy won’t be fixed until housing is fixed has some validity. But it doesn’t offer much useful guidance for policymakers.

Assuming government officials can fix housing assumes that they know how many homes should be bought and built and what they should cost. They don’t. No one does. That’s why there are markets.

Instead, federal policy regarding housing is best seen as a welfare program, using the term descriptively, not pejoratively. The question is what government should do to help people cope with the stress the burst of the housing bubble and the economic contraction have put on mortgages.

There are three categories of people who could use assistance:

• Those who bought more home than they could afford, assuming that rising values would permit a later refinancing;

• Those who are having trouble making payments due to a loss of family income;

• And those who want to sell their homes but can’t because their homes are now worth less than they owe and they cannot afford the loss.

Obama spoke, as did President Bush before him, about separating the deserving from the undeserving in any assistance program.

But that’s impossible. An assistance program can, and should, be limited to primary residences. But beyond that, aid will fall on the just and the unjust alike.

Obama proposes that Fannie Mae and Freddie Mac refinance loans they own or guarantee up to 105 percent of current value.

He also proposes that other lenders write down the loans of borrowers who cannot afford their mortgages. Lenders would eat whatever reduction would get mortgage payments down to 38 percent of the borrower’s income. The federal government would then subsidize a further write down to 31 percent of income.

This is very costly. The program would require another $275 billion federal outlay to provide Fannie and Freddie additional public capital and subsidize loan write downs.

It’s also of limited reach and relief. Underwater mortgages not owned or guaranteed by Fannie and Freddie would be ineligible for refinancing under that part of the program.

And the write-down relief is good for only five years. After that, payments can pop back up. Unless home values or family incomes have sharply rebounded, the same affordability problem reappears.

There’s a better solution that’s both broader and less costly. It’s grounded in two realities: (1) the default rate on mortgages that are underwritten for income is very small; and (2) the market power of a government guarantee.

Here’s the proposal: For a short period of time, say two years, the federal government will guarantee the refinancing of any mortgage on any primary residence so long as the monthly payments don’t exceed 31 percent of family income. It doesn’t matter what the home is worth or how long the payment term has to be, even if it exceeds 30 years.

This would be at the option of the homeowner. Existing lenders don’t have to take a hair cut or consent. They are paid off.

The guarantees would work the same way as the existing Fannie and Freddie guarantees work. They would buy qualifying refinanced mortgages and then resell them with a guarantee, for a fee.

This part of the Fannie and Freddie business model was working fine. They were brought down by the subprime mortgage-backed securities generated by others that they bought for investment.

A federal guarantee should lubricate the private market to originate such loans and buy them in the secondary market. Federal losses, given the income underwriting, should be minimal and covered by the fees.

Since September, the federal government has been guaranteeing, for a fee, money-market funds. There have been no losses and the government has collected over $800 million in fees.

A housing plan based upon refinancing guarantees, not outlays and hair cuts, would do more and cost less.

Robert Robb, an Arizona Republic columnist, writes about public policy and politics in Arizona. E-mail: robert.robb@arizonarepublic.com

Denny's served up 2 million free breakfasts last week.

John Thain, meet Nelson Marchioli.

Thain, if you haven’t kept up, is the former Merrill Lynch chief executive who paid billions in bonuses to executives of that troubled firm as it was posting a $15 billion loss, shortly before being acquired by Bank of America.

Thain has become a poster child for Wall Street’s excesses. As Merrill Lynch’s losses piled up, he spent $1.2 million decorating his office.

He doled out $87,000 for an area rug, $35,000 for a commode, and $1,400 for a trash can. No, that’s not a typo. Thain spent $1,400 on a trash can.

In a time of corporate greed run amok, Thain is the real-life manifestation of Gordon Gekko, the ruthless corporate raider in the 1987 movie “Wall Street” who proclaimed that, “greed, for lack of a better word, is good.”

Marchioli is a corporate boss of another sort. He’s the CEO of Denny’s, which used to be one of the nation’s top breakfast restaurants but now trails behind McDonald’s, Starbucks, Dunkin’ Donuts, Burger King and IHOP.

Instead of raiding his company’s coffers for unearned bonuses and the cost of a pricey toilet, Marchioli hatched an innovative plan to boost Denny’s market share. He served free breakfast to 2 million people two days after the Super Bowl.

The giveaway, announced in an ad that aired during the game, cost Denny’s $5 million. But get this: It got the company an estimated $50 million worth of free media coverage. And it produced enough profit from selling drinks with the free meals to enable Denny’s “to do better than break-even” on the day, Marchioli told USA TODAY.

How about that for corporate ingenuity?

I don’t know if the Denny’s giveaway will boost the company back into the top ranks of breakfast restaurant chains. But it sets a great example in a business environment dogged by reports of corporate executives who pad their pockets while seeking billions of taxpayer dollars to keep their firms out of bankruptcy.

“This is America. We don’t disparage wealth,” President Barack Obama said in announcing a $500,000 cap on the pay of executives seeking government aid.

“But what gets people upset — and rightfully so — are executives being rewarded for failure, especially when those rewards are subsidized by U.S. taxpayers, many of whom are having a tough time themselves.”

Those stumbling, bumbling corporate executives have gotten a lot of media attention as the federal government has been forced to dig into the Treasury for hundreds of billions to bail out troubled businesses.

The resulting rage among taxpayers pushed Obama to order the pay cap for executives getting what he calls “extraordinary help” from the government.

Obama also is requiring those firms to disclose “all the perks and luxuries” given top managers — the kind of public revelation that might have kept a $35,000 toilet out of Thain’s executive bathroom.

“We’re asking these firms to take responsibility, to recognize the nature of this crisis and their role in it,” Obama said.

I’d like to see a lot more corporate bigwigs with Marchioli’s smarts — and a lot fewer with Thain’s gall.

It’s going to take a lot more than a financial bailout to rescue American businesses from the recession engulfing this nation. What is needed are corporate leaders smart enough to make a profit on a $5 million giveaway — without help from the Treasury.

DeWayne Wickham is a Maryland-based columnist who wriites for USA TODAY. E-mail: DeWayneWickham@aol.com.

Senate Majority Leader Harry Reid, D-Nev.: Democrats are going to use the economic crisis to try and take care of the labor unions that take care of them.

The American people are right to react to the ongoing debate over an economic stimulus package with mixed feelings and a profound sense of frustration.

A recent USA TODAY/ Gallup poll found that most Americans overwhelmingly want Congress to pass the stimulus bill, but they’re not hopeful that the final product will help their families or turn the economy around.

Normally, we would applaud decisive action by our leaders in response to a crisis. But the quick work that House Democrats made of their $819 billion stimulus bill reminds us that haste often makes wasteful spending – especially when it goes to fund a party’s pet causes.

Having been taught that our financial system is broken, we are once again reminded that our political system is not exactly humming along, either. Lawmakers have a tendency to produce monstrously large, 600-page bills and then pass them in a rush before the media have had time to see what’s in the sausage.

Dwelling over which company paid out how much in bonuses or which executive spent lavishly to remodel his office or whether the spending package will benefit Main Street as opposed to Wall Street ignores the more important questions.

What we really need to decide is whether President Obama is right that Congress needs to act “swiftly” and shouldn’t let what he calls “very modest differences” between Democrats and Republicans get in the way, or whether Senate Republicans are right that the $819 billion House bill is a monstrosity that needs taming with more tax cuts and less spending.

It would be better if we could have both decisive action and still wind up with the right course of action. But, at the moment, that doesn’t seem likely. It is better to take the time to get it right.

This week, Republicans in the Senate drafted their own $713 billion stimulus bill with much different priorities than House Democrats had spelled out.

The Republicans want to spend $114 billion on infrastructure projects – which, ironically, the administration said were supposed to be the major points of the stimulus before Democratic lawmakers went astray funding everything from tax breaks for movie producers to child care on military bases.

Republicans also would spend $138 billion to extend unemployment benefits and $31 billion to help alleviate the housing crisis. Of course, the Republicans saved the real money for tax cuts – $430 billion worth.

One of the tenets of the business world is that chaos creates opportunity. But in politics, the phrase takes on a whole new meaning. In Washington, chaos presents an opportunity for lawmakers in both parties to selfishly put their own interests before those of the country.

Naturally, Democrats are going to use the economic crisis to try and take care of the labor unions that take care of them. The “Buy American” provision in the House bill would, for the most part, bar foreign steel and iron from public-funded infrastructure projects.

Senate Democrats want to require, with few exceptions, that any stimulus-funded project use only American-made products and equipment.

Meanwhile, Republicans can be counted on to push for hundreds of billions of dollars in tax cuts, despite the fact that the Bush tax cuts didn’t stimulate much of anything.

And even with economists saying that in bad times like these, people are more likely to save money or use it to pay down debt than to spend it, the GOP can’t help itself. It is just as eager as the opposition to use a crisis to advance an agenda item or reward supporters.

President Obama erred in trusting Democrats in Congress to put aside politics and find solutions. Democratic leaders on Capitol Hill will continue to give the president headaches by pursuing their own agendas.

But Americans made a bigger mistake in expecting government to come to the rescue with a quick fix to an economic collapse that did not happen overnight and thus will not be repaired overnight.

What were we thinking? Congress is going to do what it wants to do for the reasons it wants to do it. And still, in the end, whatever it does might not help all that much.

So, in making the kinds of decisions that impact their economic health and that of their families, Americans are going to have to continue to look out for themselves.

Ruben Navarrette Jr. is a columnist and editorial board member of The San Diego Union-Tribune. E-mail: ruben.navarrette@uniontrib.com

The sight of people waiting for shops to open after Christmas . . . will hearten retailers who fear their very existence is imperilled by the credit crunch.

But even the most optimistic forecasts indicate that times will get tougher for most people in 2009 before a recovery comes into sight. So there is something peculiar, unreal even, in images of avid shoppers bingeing on bargains after a period of enforced abstinence.

It is possible that they are motivated by patriotic duty, reluctantly forcing themselves to spend for the greater good of the national economy. Of course, if everyone stopped shopping completely, the economy would be in even more serious trouble. But it is an awkward state of affairs when, in order to avert further catastrophe, we need – for a time being at least – to engage in just the sort of behavior that got us into trouble in the first place. The Associated Press distributed these excerpts

Robert Barden

If you’re not part of the solution, you’re part of the problem, the saying goes.

The auto industry’s crisis has revealed which part the United Auto Workers union is choosing.

And closer to home, the part to be played by the American Federation of State, County and Municipal Employees remains to be seen.

Tucson City Councilman Steve Leal recently proposed that the city could save $4 million a year if city employees take four unpaid days off at Christmas and Thanksgiving.

“The union is very concerned about cuts to the city work force in these tough economic times,” reports Kenneth Riley, executive director of the local chapter of the AFSCME.

Fair enough. Mr. Riley is paid to be concerned for the welfare of the employees he represents, the same stance taken by UAW.

That’s what labor unions do. They look out for the best interests of the workers they represent. It’s the nature of their existence.

But while that’s understandable, so is the message in Aesop’s fable of the frog and the scorpion.

The scorpion delivers a fatal sting to the frog ferrying him across the river, reasoning, “I’m a scorpion; it’s in my nature.”

This lesson of self-destructive behavior seems to be lost on the leaders of today’s labor unions, however.

They seem to find solace perched high in the crow’s nest of a sinking ship.

Regardless of their lofty position, though, labor unions are still in the same boat as employers and employees.

Unions become part of the problem when they fail to adapt their behavior to current conditions, especially in a time of crisis.

Similar to Aesop’s scorpion, they often fail to adapt even when their own survival is threatened.

Perhaps Riley’s response was just a canned statement taken from some labor union public relations manual.

But these are extraordinary times, and he could have adapted his response to fit the times.

Perhaps a more fitting response would be, “The union commends Councilman Leal for thinking outside of the box. We’re very optimistic that his proposal may be able to achieve necessary spending cuts without laying off city employees in these tough economic times.”

This would have been an appropriate and refreshing comment from a labor union.

If Leal’s proposal would save the city $4 million, he should be commended for his approach. After all, how many city employees would have to be laid off to achieve this same result?

Of course, Riley may suggest the cuts be found elsewhere, because that’s what labor unions do.

But extraordinary times call for extraordinary measures. And when the time comes to sit at the table to discuss Leal’s idea, perhaps Riley will step up to the plate and become part of the solution.

Robert Barden owns a Tucson software development company specializing in custom accounting systems.

Hi Corbett Field needs to be made more accessible to handicapped people.

I cannot believe the uproar about baseball and sports in Tucson.

The city of Tucson has 500,000-plus residents with about 1 million living in Pima County. Compare that to the city of Pittsburgh, which has just over 300,000 people.

Pittsburgh has pro baseball, hockey and football teams and Penn State University. What does Tucson have? The Tucson Toros, an independent league team, and the University of Arizona.

It is time the City Council realizes Tucson is no longer a small town where you come to die. We need professional companies, not call centers, and professional sports teams from Major League Baseball, the National Football League, the National Basketball Association and the National Hockey League.

The only reason Honeywell is here is because an airline company paid Honeywell to stay in Tucson. Otherwise it would have moved to Phoenix.

It is time for the City Council to open its eyes and realize that Tucson may have 1.5 million people by 2012. It needs to quit relying on Raytheon Missile Systems and Davis-Monthan Air Force Base and bring in companies such as Motorola, Sony and other types of industries.

We need a City Council that is visionary enough to see this and start making the necessary moves to do this.

One of the first is to make Hi Corbett Field more accessible to handicapped people by enclosing the ballpark. That would eliminate the direct sunlight and lack of shade for people with medical conditions.

Right now, handicapped people are seated in front of the bleachers. For my wife to go to Hi Corbett, I would have to put a shade cover over her scooter and make a misting system that would make it difficult for fans sitting in the first three rows to see.

At least at Tucson Electric Park the sun was blocked by the building. The smartest thing would have been to enclose TEP, and the Sidewinders would have been profitable because it would have been 75 to 80 degrees instead of over 100 degrees.

It is time for change and smart thinking, not the attitude that we are a small town anymore. We can be better than Phoenix and larger. We are a big city. Get over it.

Mark Walton is an electronics technician who has lived in Tucson since 1973.

Mark Walton

Ability to attract people like bears to honey has sticking point: economy

A Paradise Valley subdivision. Steep declines in home values may keep people from pulling up stakes and moving to Arizona.

At both the state and national levels, pitches are being made for huge expenditures on public works projects as an economic stimulus.

In Arizona, the pitch comes with a local twist: The state has a rapidly growing population. The additional infrastructure will ultimately be needed anyway. So, why not build it now, when the economy could use a boost?

The efficacy of public works spending as an economic stimulus is debatable. And there are major questions about how much idle heavy and commercial construction capacity really exists and how quickly additional capacity can be developed.

But put those issues aside for now. Let’s examine the underlying Arizona twist on the pitch: The population growth is coming anyway, so let’s build to accommodate it now.

Arizona has certainly been one of the fastest-growing states for some time. Although official statistics don’t reflect it yet, the widespread belief is that population growth in Arizona has slowed.

It’s also widely believed that this is a temporary phenomenon, that when the national economy recovers, Arizona will get back to attracting people like bears to honey.

Based upon history, that would certainly seem to be a safe bet. But, as George Will says, history repeats itself until it doesn’t. And there are reasons to be cautious about assumptions regarding what Arizona’s future holds when the current economic malaise clears.

The future-will-be-the-same argument assumes that population migration to Arizona is being suppressed by the inability of people to sell homes in other places and uncertain job prospects here. Once the housing market stabilizes and the job market perks up, the moving vans will resume their rumble.

However, economic policy choices (including a return to lax monetary policy and mammoth borrowing to fund bailouts and stimuli) may lead to a prolonged period of economic stagnation.

That, in and of itself, wouldn’t necessarily mean that migration to Arizona wouldn’t resume. Arizona grew at a very quick clip during the 1970s, the last period of prolonged national economic stagnation.

However, this downturn may be different. From the double-whammy of steep housing and stock declines, many Americans have seen their net worth shrink by a quarter or a third.

That’s a sobering development whose long-term implications cannot begin to be grasped at this point.

For a while, Americans may become a much more economically cautious people. Families may start living below their means again. Nest eggs may become more important. Savings from current income may become a larger part of building them, rather than relying on appreciation of already owned assets.

There’s a certain amount of risk-taking in moving. Some people move to take a specific job. But confidence in the longevity of any job has been shaken. People may become reluctant to give up networks they have developed where they currently live that can be accessed to find a new job should the need arise.

From the 1950s on, Americans increasingly moved to places they wanted to live without having a job in hand, confident in landing something once there. That sort of risk-taking may abate.

Then there is the issue of illegal immigration, which clouds any crystal ball.

Foreign immigration has driven a significant part of Arizona’s population growth. Since 1990, Arizona has added 650,000 foreign-born residents. In fact, foreign immigration has accounted for about a quarter of Arizona’s overall population growth.

And much of that foreign immigration has been illegal – according to most estimates, about 60 percent of it.

Illegal immigration is also believed to be down, but there are disputes as to the reasons why – a poor economy or increased enforcement activity. Which is the case won’t be known until the economy and the housing market recovers.

And if it proves to be enforcement, the effect of losing the construction labor previously supplied by illegal immigrants is another economic unknown.

Arizona doesn’t have a birthright to be one of the fastest-growing states in the union. That’s a function of the willingness of others to take moving risks and economic conditions nationally and locally – all huge imponderables right now.

This is, in short, a time for Arizona governments to be hunkering down, trying to manage their way through tight revenues.

It’s not a time to be making big expenditure commitments based upon the assumption that the future will be like the past.

Robert Robb, an Arizona Republic columnist, writes about public policy and politics in Arizona. E-mail: robert.robb@arizonarepublic.com

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Arizona’s population by decade

1900: 122,931

1910: 204,354

1920: 334,162

1930: 435,573

1940: 499,261

1950: 749,587

1960: 1,302,161

1970: 1,770,900

1980: 2,718,215

1990: 3,665,228

2000: 5,130,632

2007: 6,338,755

Paul Volcker (left) will be a key economic adviser to President-elect Obama. In the 1980s, Volcker, then chairman of the Federal Reserve Board, led the U.S. into a period of prosperity: His raising of interest rates and reining in of inflation has been called "the single most beneficial act of economic policy in the past half century."

During this economic malaise, references to the Great Depression have become ubiquitous.

It is commonly stated that these are the worst economic times since the Great Depression. The 1930s are plumbed about what happened and how to prevent it.

This has always struck me as misplaced. The things that caused the Great Depression – a contracting money supply, tax increases and protectionist tariffs – aren’t present in the current downturn, at least not yet.

Unemployment hit 25 percent in the 1930s and never really got below 10 percent. Unemployment is rising today, but has a long way to go to reach the level or chronicity of the Great Depression.

Moreover, there was an intervening economic event that is usually overlooked. Economic journalist Robert Samuelson does a good job of chronicling it and giving it a name in his recent book, “The Great Inflation.”

Samuelson dates the Great Inflation as the period from the late 1960s to the early 1980s. During that period, inflation climbed from low single-digits to more than 13 percent.

In the 14 years from 1968 through 1982, the economy experienced four recessions. During that 168-month span, the economy was contracting for 49 months – or for more than four years.

In the 300 months of the next 25 years, the economy would be in recession for only 16 months.

Samuelson, in his other writings and public comments, seems to be willing to cut current policymakers some slack in their response to the current economic downturn, since it finds its roots partly in the financial system. The need for government to keep the financial system operating is one of the lessons of the Great Depression.

I, however, find the response to the current economic downturn to have worrisome parallels with the Great Inflation and fear that policymakers are ignoring some of the lessons learned in its taming.

Samuelson attributes the Great Inflation to the conceit by policymakers that they could manage the business cycle through fiscal and particularly monetary policy.

There was a belief that there is a tradeoff between unemployment and inflation. If unemployment was rising to troublesome levels, a little monetary expansion would cure it.

However, that tradeoff proved illusory. Inflation injects uncertainty and uncertainty dampens economic activity, including employment.

Moreover, the monetary tools available were too imprecise to fine-tune business cycles in that way. And once monetary policy was to be deployed for something other than price stability, the political pressure to keep the spigots open was difficult to resist.

The Great Inflation was brought to an end by shock therapy delivered by then Fed Chairman Paul Volcker, with indispensible political backing by Ronald Reagan.

Volcker hiked interest rates and put the brakes on monetary expansion. The country experienced a severe recession, with unemployment reaching nearly 11 percent. But, by 1984, Reagan could run for re-election on the theme that it was morning again in America.

Samuelson calls the Volcker-Reagan fortitude “the single most beneficial act of economic policy in the past half century.”

Today, the country is undergoing two major corrections, from an overinvestment in housing and from overborrowing in general.

The interventions that are occurring go well beyond stopping runs on the banks and keeping the financial system operating.

Current Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson are clearly also trying to manage the corrections – to keep lending rates below what they otherwise would be and stop housing prices from falling as low as they otherwise would.

This may seem to be a strange time to be worrying about inflation. But the Fed is pursuing an extraordinarily expansive monetary policy whose effects cannot be forever masked or contained.

The notion that the Fed can precisely time its unwinding to match economic recovery defies the historical record.

The lessons of the Great Inflation are that the government cannot manage the business cycle and sometimes big corrections need to run their course.

Those are lessons that, if applicable to today’s circumstances, are certainly being ignored.

Robert Robb, an Arizona Republic columnist, writes about public policy and politics in Arizona. E-mail: robert.robb@arizonarepublic.com