Do We Need a Domestic Auto Industry?

A reader asks for my comments on this discussion at the NY Times website, particularly Mark Thoma's contribution. I'll give my general comments first and then specifically comment on Mark's bit.

First, there is some truth to Tyler Cowen's assertion that we should not care where the auto companies are based, after all a job in the US is a job, but he is deliberately narrow minded. To the extent to which the high value added activities of engineering, designing and upper management of the companies happens elsewhere, we are loosing that part of GDP. However, I think the 'these are good jobs and must be protected' attitude of some of the commenters is misguided. The shrinking middle class (or perhaps the declining relative position of the working class) is more about what is happening in the upper parts of the income distribution than what is not in the middle parts. I am not sure protecting and preserving one specific industry is the remedy.

Now to Thoma's argument: that national security considerations mean that we should preserve the auto industry. I was immediately amused, for as an undergrad it he late eighties, I had precisely this debate (then it was about how Japan would soon make everything and us nothing). Well it made little sense to me then and less to me now. To imagine a industrialized war that lasts years and is on a global scale such that we can't get heavy manufactures for elsewhere is wrongheaded. Even if we could make stuff (and I can't see why we could not tool up for such a task) where would the raw materials come from, or more specifically where would the fuel we need come from? The point is that I am no political scientist, but it is hard to imagine a WWII scenario again which is where this attitude comes from, and if such a situation were to arise where we had to be self-sufficient, we have more problems than a lack of auto plants.

My take is that there is no reason we can't be competitive in cars and that management and the US education and technological infrastructure are causing the auto industry to suffer. I think the incentives of top management in US corporations has become far too heavily weighted in short-term performance than long-term and this has seen disastrous results in cars and banking. But the lack of skilled workers and investment in research and development of new technology does bode badly for the future of the US economy. It is not a zero sum game but we want to be at the forefront of the high value added industries and that requires public investment. Transportation is always going to be a top need of humanity and the challenge of the 21st century is to figure out how to do it more efficiently and less harmfully to the earth. The countries that are at the forefront of this new 'auto' industry are poised to reap large rewards - and help humanity in general.

UPDATE: A nice article on the future of the US auto industry can be found in the April 27th New Yorker. (Subscription is required to read the whole thing)