The End of the US Piano Industry
Today the highest-price good that people buy besides their houses is their car, and this reality leads people to believe that we can't possibly let the American car industry die. Between 1870 and 1930, the biggest-ticket item on every household budget besides the house itself was its piano. The entire American piano industry rose up, conquered all, and went away, as Japan, Korea, and China took up the task. There was no great calamity. FULL ARTICLE
Comments (64)
Piano Buyer
There has never been a better time to get a piano. Buyers have a huge window of prices and choices from space and cash strapped folks buying electronic piano-keyboards to expensive custom made instruments and everything in between.
Published: December 10, 2008 8:11 AM
Robert Kinnett
Mr. Tucker,
The comparison of pianos to cars is useful in terms of the dollar investment of the purchase, but when you look at the number of cars bought over a lifetime and the necessity of transportation versus a luxury item like a piano, the comparison breaks down.
May I suggest another comparison which better fits our current political climate: Agriculture. The issue about Detroit isn't about what they produce, it is about how many Registered Voters are involved in the production.
In 1929, politicians and economists were not stupid. There was recognition however that Henry Ford's tractors had eliminated the need for tens of millions of field-hands who were potential Registered Voters. The idea of blaming their job losses and financial trauma on foreigners and "taking a bold action" like Smoot-Hawley was a political winner.
Very little is different today. A nonsensical economic decision in Washington makes perfect sense to a politician. The fact that bailing out Detroit will burden all the rest of the taxpayers can easily be explained away as "a national necessity" to a population whose political understanding is incredibly dim.
Is the policy tragic and nonsensical? With that, I couldn't agree more.
My question is, "What difference does it make, if the average Registered Voter lacks all understanding of what they are being told?"
Published: December 10, 2008 9:08 AM
Steve Clay
I'm against the bailout, too, but it's a huge stretch to compare autos to pianos. Maybe large LCD TVs, which are now in huge demand in every household. The difference is people don't require them to get to work, the grocery store, the hospital...
Published: December 10, 2008 9:34 AM
Reality Check
Mr. Tucker:
I very much enjoyed your article, but unfortunately I think you have an error in there. Your economic analysis is right on, but the factor that isn't coming out is what really motivates politicians to do what they do.
The auto industry is not being bailed out. The UAW and their thousands of workers and millions of dollars in campaign donations is what is being bailed out here.
The Unions of this country represent only 12% of the workforce, but their donations to campaign war chests is off the charts. During this election they gave unprecedented amounts of money to politicians, mainly Democrats, but a little to others as well. They have bought and paid for this upcoming Congress and Administration and now they expect a return on their investment; hence the bailout.
The American people sit by idly and stupidly watch the politicians in the logic free zone dance and dodge and give empty speeches and logic free arguments and really don't care. They listen as the politicians tell us that they aren't bailing out the auto industry with tax payer dollars if it will be a waste. They want a plan. That sounds responsible and reasonable to most dense Americans who are asleep at the switch.
However the reality is that in the backroom where the real deal was going down without the press and pundits and empty speeches the Democrats have already made a deal to save the UAW, the donations, and votes. It was a forgone conclusion before any of this circus starting playing out a few weeks ago.
The corruption of our current government has now reached a point where collapse is all but certain as it was in the days of Rome when the barbarians came.
Published: December 10, 2008 9:36 AM
Michael
Great article (as usual Mr. Tucker). Just read the same piece on LewRockwell.com.
A more interesting piece would juxtapose the horse and carriage transportation paradigm before the advent and market adoption of the Ford Model T automobile. Can you fathom Congress bailing out the horse and carriage industry when disruptive market conditions clearly spelled out their imminent collapse? Was the horse and carriage industry *not* too big to fail? Did they not have the fortitude and political virility of the United Horse and Carriage Worker Union behind them?
Maybe they decided to jet-pool...
Published: December 10, 2008 9:37 AM
sam founteas
Mr. Tucker;
My question on the car manufacture issue is. How come all the countries that have a car manufacuring industry are heavily subsidized by their Gov!t. The lexus has a 8 to 12000 subsidy from the japaneese gov!t. All the cars coming into this country have national health care, Even canada. china & japan do every thing they can to help their auto industry. Theres no way the americans can compete if there is no level playing field.
!t.
Published: December 10, 2008 9:43 AM
Steve Clay
Piano Buyer: Have you tried to buy a fully functional acoustic piano lately? A plastic keyboard, even weighted, is NOT a "piano", no matter what's printed on the box. :) What's sad is that the market hasn't brought the Wurlitzer 200A electric piano back into production.
Published: December 10, 2008 9:44 AM
Jeff A. Smith
"]And what happened to the once-beloved and irreplaceable American piano industry? Only Steinway survives to make luxury instruments that few can afford. The rest moved overseas under new ownership or were completely wiped out."
That's not quite accurate. Baldwin, an American company, still makes its higher-end products in Arkansas, although the rest are made in China.
Mason and Hamlin, the only vintage American pianos that rival Steinway in price, are still being made to quite high standards in Boston.
Charles Walter makes highly-regarded vertical and grand pianos in Elkhart, Indiana. They are less expensive than Steinway or Mason and Hamlin.
Samick, although a Korean company, has revived the Knabe name and may soon be making them in Tennessee.
Finally, there are many independent rebuilders of high-end pianos, primarily Steinway and Mason and Hamlin, who are doing very creative things and not merely recreating the past. They almost qualify as piano makers, even though they start with a pre-existing instrument.
The great American pianos have/had a general characteristic sound, based on tonal preferences, not found in either Asian or European instruments. Many still value this option, and the world really would be poorer if it disappeared..
Jeff A. Smith
Piano Technician
Published: December 10, 2008 9:47 AM
Michael
Reality Check,
Good points. Following the money trail is an important component in any of these twisted, backroom, politico deals.
---
Mr. Kinnett,
At one point in American history, pianos were not considered a "luxury" item. In fact, they were commonplace. They proliferated, perhaps because along with transistor radios and playing cards, they were one of few recreational nationalities found in American households in the middle part of the 20th century.
---
Mr. Founteas,
Any form of government subsidy is tantamount to institutionalized theft. Whether it's forced wage garnishment through tax withholding, or inflation tax associated with fiat money, it's still theft. A true "playing field" would be a totally free market whereas the government does not pick and chose market winners and losers through subsidy allocation.
Published: December 10, 2008 9:51 AM
Patrick
I love this site, but this is perhaps one of the most naive articles I've seen here. Pianos are a luxury, cars are required to get to work, grocery stores and schools. In today's society, they are a necessity. Seconly, the tarriffs mentioned DO exist, only they exist against US interests in other countries, not for US interests here in America. In spite of that, the US car companies are profitable in nearly all geographies other than the US!
In a word, the problem with the US auto industry is the UAW. All problems raging from price, to quality, to reliability to the building of SUVs is directly a result of preposterous and unsustainable agreements with the UAW. With those insane labor costs, US automakers were forced to sell large, expensive SUVs with higher profit margins, lest they go out of business. The small, low-profit cars are just not competitive due to excessive labor costs, and their quality & reliability suffered due to this price difference and needing to remain competitively in that market space.
If you look closely at the foreign car companies operating here in the US, they have all received very substancial "incentives" to begin their operations in various states & cities. Those were essentially preemtive "bailouts" before the fact. Where was all the screaming about that? Especially by the same politicians who are now against helping US automakers!? So let's not pretend the playing field is level, when the facts clearly show something else.
Finally, to say that it's not worth saving one of the few remaining manufacturing bases in the US is naive. Who made all of the tanks, bombers and weapons during our wars? Do you think Honda, Toyota and Hyundai will manufacture planes, tanks and bombs for us if we needed them to? No, of course not, they have no national interest in it.
While I don't agree with a "bailout" of the Det-3, whatever that means, I do think a govt-backed, structured Ch11 refinancing makes a good deal of sense. I believe govt involvement here is required to ensure financing is available for this restructuring, given the extraordinary financial situation. The only way for them to be profitable is to be rid of the UAW once and for all. There WAS a time for unions in this country... that time has long since passed, and they are now doing much more harm than good.
It's all mute however, as the "bailout" was destined to happen from the start. The Democrats would never allow bankruptcy and failure of the auto industry, as it would endanger the livelihood of the UAW, and there are just way too many Democratic votes at stake! It is, and always was, a done deal!
Published: December 10, 2008 9:54 AM
Jeffrey Tucker
1. Cars weren't required to get to work in 1900.
2. Nothing is destined to happen.
Published: December 10, 2008 9:57 AM
Patrick
With all due respect Mr Tucker:
1) Spaceships aren't required to get to work in 2008, so what?
2) If you acknowledge that Keynesians are running our country, which clearly they are, then yes, I suppose it really IS destined to happen!
Published: December 10, 2008 10:15 AM
Ken Zahringer
Jeff,
As a piano technician, this subject is near and dear to my heart. Your main point is right on the mark. All I can say is thank goodness the government didn't consider the piano industry worth "saving"; that's probably the main reason it is in as good a shape as it is today.
The story of the decline of the piano industry isn't as simple as a collapse in demand, though. The problems did indeed start in 1930, because of the Depression, a government created situation. In any economic downturn pianos, like other luxury goods, get hit first and recover last. But still, many manufacturers were able to adapt and keep operating at a lower level.
What really killed the industry was WWII. Steel, copper, brass, cast iron, and wood were unavailable for such "frivolities" as pianos; these materials were diverted to the war effort. There were almost no pianos produced in the US from 1941-1946. Most small makers just went away. Some makers mothballed their factories and tried to start up again after the war. Some of the larger ones were able to join the war effort. Steinway made gliders. Baldwin made laminated wood airplane propellers. When the post-war recovery started in the 1950s, production capacity was dramatically reduced and skilled labor was less available (grown old, killed in war, or moved on to something else). That is what gave the Asian manufacturers the opening they needed to enter the market - demand exceeded US makers' ability to supply.
So it's the same old story. If yo want to understand an economic calamity, look at government actions first. Inflation and war always take their toll.
The Japanese makers especially exploited this opportunity masterfully by offering great pianos at good prices. I would rather work on a Yamaha or Kawai than anything else. And don't get me started on post-war US pianos - most of them were horrible.
Some modern market notes: Steinway is not the only US piano maker. Mason & Hamlin was rescued from bankruptcy - by private investors - about 15 years ago and is now going strong. Their pianos are better than they ever have been. Also, not everything made in China is poor (only most of it). If you get a chance to play a Hailun, do so. You'll be pleasantly surprised.
In the end, the US auto makers have to learn an economic lesson that the piano industry, and others, have learned: highly skilled, highly paid labor in developed countries can compete most effectively by making high-end products. The only other course is to keep their labor and other costs down to competitive levels. Ralph Rieland's article yesterday was an excellent illustration of their problems in this area.
The bottom line, as you said, is that ALL economic actors have to adapt to changing conditions and anticipate the future. Failure to do this is utter failure, and no government bailout can change that.
Thanks for a good article.
Published: December 10, 2008 10:18 AM
Jeffrey Tucker
Ken, thank you for your extremely illuminating comments, which really are better than my article. Thank you!
Published: December 10, 2008 10:22 AM
C [the forgotten man]
Mr Zahringer and Mr. Tucker,
This is an amazing and illuminating story. It deserves wider recognition, and should be published in the mainstream press. Smart companies adapt to the economic reality, and survive downturns, despite the govt.
Would the two of you consider collaborating to expand the story of the piano economy through the years, so that it could be published in a MSM magazine or paper? The Atlantic Monthly, or WSJ, or such, might be an excellent forum for putting forward the Austrian view in this fine example.
Published: December 10, 2008 11:13 AM
Chris Jordan
A high percentage of piano tuners are commenting today. Where do they all come from?
sam founteas:
I hear the level playing field argument frequently and I'm not sure what I think. I'm fairly new to the economics scene so help me out. Why do I care about a level playing field? You're saying if a manufacturer can bring his product to market at the same quality as his competitors but at a lower price I should not buy it if he has an unfair cost advantage. This could be because his employees get free health care and mine don't, because his machines are newer, or because his shrimp operation is on the coast and mine is in Nebraska. What is fair? What does fair have to do with production and consumption of goods?
I'm really struggling with this issue as I read Hazlett. Not to put too fine a point on it but how do you outcompete a country that lacks environmental controls? Should you try? Is the onus on the consumer to avoid these products rather than on government-enforced fair-play legislation? Should we simply allow our competitors to destroy themselves? That quickly becomes a morality issue.
Published: December 10, 2008 11:14 AM
Mike Tabony
Sirs,
Sometimes it is hard for a regular guy reading your articles to post a civil comment. It appears to me that you sit in your office and write some of this without even acknowledging that it is only the excess societal capacity of the present and the savings of the past that keep your hands clean.
As to the auto industry and your disgust at a "bailout", I'll be happy to let you know that two of my three grown sons do not own a car and seem to have no desire to get one. (One is also an excellent pianist but has no intention of buying one of those either.) When autos become as rare as US made pianos I'm guessing you won't mind waiting for the train with the rest of us. You can wile away the time remembering the US auto industry.
I'll be as happy on that day as one of the major sources of greenhouse gases (individually-owned and operated internal combustion engines) will be mainly history.
Have a good day,
Mike Tabony
Published: December 10, 2008 11:32 AM
greg
Hey Ken,
The only comparison about pianos and autos is that they both were not produced during the war. After the war, demand for autos increased because of surpressed supplies and the development of the highway system. Demand for pianos was put in check by advances in tech and how entertainment was being distributed to the market.
The US auto industry can survive if the strangle hold the UAW has is removed. With the high legacy cost removed, more money can be spent on productivity and redesigns that meet market demand.
However, I really don't think a loan to Chrysler should be made because I think that company is going under. Nardelli ran Home Depot into the ground and from insiders I talked to, he has been doing the same in Chrysler ever since he took the helm.
Published: December 10, 2008 11:33 AM
Inquisitor
Mike, if you want your beloved US cars, why don't you, and all the rest of the afficionados continue subsidizing the lumbering giants, and leave everyone who'd rather see them die alone? Theft just to keep you happy is immoral, however you may wish to cut it.
It seems people are missing the point of this article. Yes, cars are a "necessity" (i.e. highly valued in general, that is all), but it's not as if other countries do not provide them, so... what is really going on here is the subsidization of a luxury good, that is to say the sentiment of the US having a car industry. I wish the Big Three would go on Judge Judy, to be made idiots of when begging for cash. There is nothing "naive" about this article. If you like an industry and want it to survive despite utterly failing to please most consumers, then subsidize it OUT OF YOUR OWN POCKET.
Published: December 10, 2008 11:44 AM
David Spellman
We need to be careful not to fall into the trap of talking about saving the "American" automotive manufacturing industry. If the "Big Three" shutter their doors, we will still have a large and thriving domestic automotive industry.
Toyota and Honda manufacture their cars right here in America and are having no problems whatsoever with sales. In fact, they have trouble keeping up with demand. We will have plenty of high quality domestic cars made by productively employed members of our own community.
And there is no possibility of bailing out the "Big Three" anyway since the origin of their problem is that they lack customers. Maybe we could create a program for autoworkers like we have for agriculture--pay them to not make cars? Oh, wait, the UAW already has that in place!
Published: December 10, 2008 11:54 AM
Rich Beecher
Many claim that jobs were being transferred overseas because American consumers refuse to pay higher prices for American made goods. The statement is only superficially correct.
Article I, Section 10 of our Federal Constitution prohibits the state governments, without the consent of the Federal Congress, from collecting Tariffs on goods imported into the states. Likewise, Article I, Section 9 prohibited the Federal Congress from assessing tariffs or taxes on goods exported from any state. Section 8 empowered the Federal Congress to regulate trade between the states as well as with foreign nations, but it was intended as a “negative” power, to prevent “the states” from interfering with interstate trade. Revenues for the Federal government were to be collected from excise taxes and tariffs (excise taxes on imported goods). There was no income tax at that time. As Article I, Section 8 didn’t delegate to the Federal Congress the authority to regulate such activities or areas such as labor, the environment, workplace safety, etc., the 10th Amendment clarified that such areas were prohibited to the Federal Government and were within the powers of the state governments. Competition between the states was to provide the motivation for intelligent and effective protections while not being so arbitrary, capricious, or foolish as to damage a state’s (or the nation’s) economy.
Federal Tariffs on goods imported from foreign nations were intended as a source of revenue to the Federal Government. As such, there was no tendency of the Tariffs to stifle domestic production or commerce. The Tariff rates were to be set in moderation, as setting the rates too high (“protectionism”) would lessen revenues as surely as setting the rates too low. Domestic taxes (which at the time were solely “excise” taxes) were looked on as invasive and to be avoided when possible. The “Whiskey Rebellion” demonstrated the dislike of domestic taxes by the people of that era, and Thomas Jefferson properly boasted that, under his administration, the expenses of the Federal Government were paid entirely through Tariffs paid by “the wealthy” buying “imported foreign luxuries”, and that the domestic laborer or craftsman never saw the taxman.
Now, instead of very little domestic taxation, and minimal imposed regulatory cost, a huge tax and regulatory burden has been imposed on domestic production thanks to the income tax and the usurpation of state regulatory functions by the Federal Government. Foreign producers do not have to pay the US income tax, and the Free Traders have reduced or eliminated tariffs, so foreign producers do not share the tax burden imposed on the US producers.
To further worsen the situation, US producers are actually being encouraged to go offshore by such taxpayer funded government agencies as the Overseas Private Investment Corporation (OPIC), the US Trade and Development Agency, and the Export/Import Bank through direct loans, loan guarantees, and investment insurance. The Free Traders and Globalists in Washington DC are using our tax dollars to send our jobs overseas. Has anybody figured out which section of the US Constitution authorizes this insanity?
Published: December 10, 2008 11:58 AM
greg
Let's get one thing straight here, there are no major subsidies going to the US auto companies. These are secured loans, not a bailout which is a term the media has beat to death. What we should all be concerned about is their ability to repay those loans. And the UAW holds the key to their ability to perform.
Published: December 10, 2008 11:59 AM
Michael
Greg,
FANTASTIC! These "bailouts" are loans? And I suppose there's interest on these loans? When do I receive my amortized interest checks? I'm all for it now! Whoo-hoo!
---
Mr. Mike Tabony,
Your sentiment about "waiting for the train" is patently wrong. In fact, there's an obvious domestic demand for automobiles for transportation. They're an inherent (and granted) part of most of our lives. Just because they'll be a dearth of American-marque names, doesn't mean that foreign-marque names like Honda and Toyota will cease manufacturing and selling their products in the United States.
Published: December 10, 2008 12:37 PM
Michael
Greg,
FANTASTIC! These "bailouts" are loans? And I suppose there's interest on these loans? When do I receive my amortized interest checks? I'm all for it now! Whoo-hoo!
---
Mr. Mike Tabony,
Your sentiment about "waiting for the train" is patently wrong. In fact, there's an obvious domestic demand for automobiles for transportation. They're an inherent (and granted) part of most of our lives. Just because they'll be a dearth of American-marque names, doesn't mean that foreign-marque names like Honda and Toyota will cease manufacturing and selling their products in the United States.
Published: December 10, 2008 12:37 PM
Inquisitor
Well then the solution would be to get the government to go drop off a cliff, wouldn't it? Rather than having it providing "secured loans" or whatever nonsense it conjures up on a daily basis. If it wants to blame anyone for "destroying" the US car manufacturers, it has itself to blame. Like pretty much every other problem in the US. Poor little US government.
Published: December 10, 2008 12:39 PM
Bernard Palmer
Seems pretty obvious to me that we are watching the immanent collapse of the world's fiat currencies, starting with the US dollar. Does it really matter how many FRD's are given away and to whom in the mean time?
Published: December 10, 2008 12:44 PM
Michael
David Spellman,
Spot on, as usual. In fact, I have personal experience with the Honda experience. A local Honda dealership had difficulty locating a 2008 Honda Accord for me. Many on the lot were already taken (circa 4/2008). While Toyota and Honda sales figures are off; the "Big Two" are merely victims in the larger macroeconomic malclimate and not suffering from inherent operational flaws, inferior product quality, poor product performance or stratospheric labor costs.
I sometimes wonder what would become of Ford and GM if their government accounts decided to purchase Accords and Camrys and not Crown Victorias and Impalas.
Oh the world may never know!
Published: December 10, 2008 12:48 PM
James
It'd be interesting to know how many people were employed in the piano factory as that is the main excuse used for the auto bailout.
Published: December 10, 2008 1:07 PM
peter helbich
this is vienna austria. where it all began mozart, menger, mises, hayek etc.
send this theorem to all your friends and let it loose in the internet.
it proofes mathematically that the austrian school of economics is right
regards peter helbich
Published: December 10, 2008 1:27 PM
greg
Michael,
By definition, these are loans and there is interest charged which is greater than the current 10 year T-bill rate. You really need to look at the terms of the loans.
If the government takes the $25 billion that was slated for energy efficent car development (which is a subsidy with no requirements to pay back principle or interest) and in turn loan it to the automakers with a chance that it will be paid back with interest, I am for that lessor of two evils.
When this market turns, the automakers will be in the black again and you can bet they will pay off the Government loans as fast as possible because the oversight that Congress will impose will drive these companies nuts.
Published: December 10, 2008 1:36 PM
Horst Muhlmann
Sam Founteas:
The cars manufactured by the Big Three (Toyota, Honda, and Nissan) in the United States do not have socialized medicine as a defacto subsidy, yet their operations here are profitable.
As for the person who asked who will make the tanks when the Little Three close their doors (and they will), the answer is: the same people who make them now. Namely General Dynamics.
Published: December 10, 2008 1:38 PM
Michael
Greg,
So who receives the interest payment again? And what is the source of the capital that is being allocated from Washington to Detroit?
The vehicle subsidy is still a corporatist gambit that's steeped in institutionalized theft. And remember, the "lesser of two evils" strategy gave the American voter a pick between Senators McCain and Obama. And look how that panned out. So that's not a viable answer.
There *are* automakers that in the black. They may not be "GM", "Ford" or "Chrysler" but there are profitable automobile manufacturers. And what oversight would be required? The government knows how to make cars now? Detroit's corporatist thugs already got their gold so this point is moot.
Published: December 10, 2008 1:53 PM
Ira Minor
I can not yet dig out all the cost information, but it seems that the big three and the Japanese builders are both allowing about 10 per cent of all production costs to the cost of labor. Something seems to be wrong in this calculation because the starting pay for auto workers in the Japanese owned US factories is about 50 cents per hour higher than the starting pay for the current Detroit new hires.
Labor seem to be a very small factor in the price of a car.
The Detroit auto makers are using 'Hollywood' accounting methods, i.e. where the actor or the writer can never share in the profit glory because the studio always 'looses' money on every picture.
Published: December 10, 2008 1:57 PM
Eric
One man's luxury is another man's need.
Luxury is a value judgment. Each of us makes their own judgment - and then these are turned into more or less demand. The market then simply connects buyers and sellers. Nobody except the two parties can determine what is a luxury item.
Chris Jordan:
(asks how to out compete a country that has no environmental controls)
How do you out compete a country whose people are willing to work harder, or are smarter, or better looking?
Your remark really has to do with the environment, or you would have likely framed the question differently. And so it seems to me that you are struggling with the concept that one country is polluting the world (i.e. others beyond their borders) without restitution to a harmed party, while the other country suffers. I believe the issue really is one of the commons, i.e. nobody owns the atmosphere or waters.
Thus one country who is harmed (not economically, but environmentally) has no recourse against the polluter. If the pollution does not leave the one country, then they should be free to do with their own country what they wish, provided they do no harm to other countries. Would this change matters for you?
I don't know if Hazzilit covers this, but Rothbard does. I would suggest his Ethics of Liberty. It's online here, and the audio version is free and beautifully done. The key issues with environment and pollution are addressed by Rothbard in a libertarian context. I highly recommend that book.
Published: December 10, 2008 2:15 PM
Enjoy Every Sandwich
In addition to bailing the UAW, one additional "benefit" that proponents of the "bailout" are seeking is government control of the industry in order to push the "green" agenda. This control will be understated so that the fiction of a "free market" can be maintained. This will allow the government to dodge responsibility for the inevitable failure of their plans.
It's like Jay Leno said on Keith Olbermann's show last night: can you imagine a Corvette designed by Nancy Pelosi?
Published: December 10, 2008 2:17 PM
C.J. Webb
Mr. Tucker -
I like the analogy and find it somewhat comforting that there are still thoughtful Americans willing to let something die; however, my opinion on the American auto industry it that its hand have been gnawed to stubs by the UAW. The unions' tactics and demands have finally emptied the Big Three's tanks. Failure of Detroit's Big Three would deal a devastating blow to the UAW. If an American car industry were to reappear it would do so without the "aid" of the unions. Given the size and scope of the American auto market as well as the perfectly useful physical capital available, I find it hard to believe that a new American car industry wouldn't re-emerge--if divested of crippling labor contracts. The triviality of the current debate over the auto industry bailout is a microcosm of America's descent into a "socialist utopia." Where will it end?
Published: December 10, 2008 2:29 PM
Chris Jordan
Thanks Eric. The environmental argument was used against me as an example of an unlevel playing field. I'm still working on my response. I appreciate your help and I'll be sure to add that book to my reading queue.
I think at the heart of it I really don't care about a level playing field. If somebody else is willing to do it cheaper than me (whatever the cost to themselves) then that's one less thing I have to do. This level playing field notion recognizes that there are only so many propeller beanies needed but fails to recognize that there is not a fixed amount of other work to be done. Can't compete with beanie manufacturing? Do something else.
I hope I'm not the only one who finds this stuff challenging. Terribly interesting but challenging.
Published: December 10, 2008 2:52 PM
Cybloo
Love this article! (I was a piano major at one time and am an enthusiastic reader of Austrian Economics articles).
An aside: yes, newer piano models tend have a sharper sound, but one example of remedying this is Yamaha. The newer models have an improved hammer function so that it's not as harsh sounding and the feel is closer to a Steinway than previous models I've played on.
Yah, there is nothing like playing a Steinway but Yamaha is getting close -- at least it's more pleasant to play. :)
Good work!
Published: December 10, 2008 4:44 PM
newson
great article. anyway, the cutting-edge of piano development is now here, in australia. enter the stuart piano...
http://www.stuartandsons.com/index.html
Published: December 10, 2008 5:55 PM
Scott B.
Sorry to be off-topic, but I can't find a thread about the recent audio versions of the Daily Article.
I'd just like to say that I appreciate these so much.
I wish every article by Murray Rothbard or Hayek had an audio version, but I don't want to complain - the ones that you have done stand up to repeated listens and this is one of my favorite features of this always excellent website.
Published: December 10, 2008 6:27 PM
george
Economics is to society as thermodynamics is to physics, inexorable.
Once you tire of rolling the rock endlessly uphill it must come back down.
Published: December 10, 2008 7:01 PM
Eric
Chris:
The level playing field is just socialism - plain and simple. There can be no level playing field, since we all come into the world with different talents and resources.
My response to that red herring is to ask if we should level the playing field in other ways. For example, what should be done about workers living in southern climates that don't have to pay as much for heating oil, or that get more sunlight and don't need to take vitamin D supplements. (It is thought that this can explain why darker skinned people living in the north suffer more from some diseases than those living in more sunlit southern areas.)
If there were a completely level playing field, we would have no need for exchange at all. Why import things from China if one can produce exactly the same things here for the same cost. And simply because China is over there instead of here, they have shipping costs to consider. How could that be made level?
And what goes for world trade goes for trade inside a single country, or territory. Clearly, there is an uneven playing field for fishermen who live near the ocean in New Jersey versus those (foolish) fishermen that live in Nebraska.
I'm sure you can find plenty of other less silly examples. Rothbard explains this in "what has government done to our money". Here is the relevant quote on page 12:
"Why should exchange be so universal among mankind?
Fundamentally, because of the great variety in nature: the
variety in man, and the diversity of location of natural
resources. Every man has a different set of skills and aptitudes,
and every plot of ground has its own unique features,
its own distinctive resources. From this external natural fact
of variety come exchanges; wheat in Kansas for iron in
Minnesota; one man’s medical services for another’s playing
of the violin. Specialization permits each man to
develop his best skill, and allows each region to develop its
own particular resources."
Published: December 10, 2008 7:57 PM
vlad popovic
Greg,
The reason they are called bailouts rather than loans is that no one capable of fogging a mirror believes that they will ever be repaid.
GM sold 9+ million cars last year and lost tens of billions of dollars. How many cars will they need to sell to break even plus repay these loans? Hint: sales will be a lot less than 9 million/yr for the foreseeable future. The economy is not going to "turn around" for them.
Chrysler is deader than disco - it needs more money than Cerberus paid for it (last year) just to stay open for another month. Time to pull the plug. Cerberus will not put another dime of it's own money into Chrysler - why should you or I?
$15B on these literally worthless (negative earnings and negative book values = totally worthless) companies is a down payment on another $15B in six months.
Also, several people here seem to think the cause for Detroit's troubles is the UAW, but based on all the numbers I've seen,they are only part (about half) of the problem. The management of the "big 3" ........well, let's just say I wouldn't call what they do management, and leave it at that.
Published: December 10, 2008 9:26 PM
Jack's Pipe
We're often told that "we" will be big beneficiaries when all these "tough" loans are repaid. But the very fact that the government is making the loans, it seems to me, proves that these are indeed bailouts even if they're called loans. That is, they are loans that no private entity will provide; therefore, the terms of the loan or the fact that the loan is made at all is a handout.
Similarly, one might say that FEMA insurance for people living on the gulf shore is a great deal for the government in those years when no hurricanes hit. But the fact is that this insurance is provided because for-profit insurance companies thinks they're a bad deal, and thus the people getting this insurance are being subsidized.
Published: December 10, 2008 10:25 PM
Fephisto
Holy crap, it seems like "Youtube Comments"iamentus has infected this article.
Jeff, I was reading this article this morning and smile slowly crossed my face in the same fashion as when I first read "The Candlemaker's Petition". Good job.
Published: December 11, 2008 6:45 AM
Craig Farrand
Well, that was a fatuous argument if I've ever read one.
Didn't know pianos were used to get pioneers across the Great Plains in an earlier century -- or carry commuters from the burbs to the cities in the past 75 years.
Pianos may have had the impact of a plasma TV today on a household as a luxury item paid for with disposable income, but clearly it did not have represent the necessity of a horse -- or car.
Sorry, but the analogy falls flat and out of tune...
Nice try, tho...
Published: December 11, 2008 7:34 AM
Massimo GIANNINI - M.G. in Progress
Economics is not the same, particularly if we compare piano, cars and cheese... It depends on the kind of market and industry characteristics. There is not one fits all solution. This is what I tried to explain Here to Prof. Mankiw, who should have been perhaps less emotional in his Parmigiano cheese's post.
Published: December 11, 2008 7:45 AM
Franklin
Patrick, I quibble with your statement, "...cars are required to get to work.... they are a necessity."
For whom? And after you answer with, "Most people," I will reply, "Which people? Who? What are their names?"
And once we get to their names, I will say, "Hey, so-and-so, if a car is a necessity for YOU, then YOU are gonna have to do whatever the hell YOU need to do to make sure YOU get one. And don't ask ME to support the manufacturer of YOUR choice."
My brother-in-law lives in the city. A car, to him, is a nuisance; he will not buy one. When he wants to get to the burbs, he might rent one for a few days. He manages his lifestyle differently than do I who spends a lifetime in a car.
This is not about driving; it's about economics. Moreso, it's about liberty. And adapting to changes without asking (errr, rather, demanding) that our neighbors subsidize our lifestyle decision.
Your other points are well-taken, however.
Regards,
F. (Wish I could afford a Steinway... then again, wish I could play like Andre Previn.)
Published: December 11, 2008 9:24 AM
Franklin
"Sorry, but the analogy falls flat and out of tune..."
I like the pun, Craig. Disagree with the criticism, though. Seems to me that Jeffry's issue is not whether the piano can bus me around (although at 9-feet in length, a Baldwin SD-10 could probably fit a family of four and still have room for the picnic basket and an engine). It's about subsidization of an item that found its way into millions upon millions of households (or garages). Since the American piano industry has faded from its former glory, did the country face massive starvation of piano technicians and laborers? And can I buy a quality piano now since there are very few U.S. piano manufacturers left?
Published: December 11, 2008 9:42 AM
greg
The point I am trying to make is that comparing the auto industry to the piano industry is completely off base and it will not get you any traction in any effort to stop any government involvement. If you take this approach in front of Congress or the American people, it would go no where.
You need to get in and look at the structure of the proposed loans, yes you need to call it for what it is, and go after its weakness. For example, the government is going to take warrents for these loans that will put them ahead of other lenders in case of bankruptcy. If the auto company goes into bankruptcy, odds are that the lendors that the government went in front of will go under too.
Another problem is the loan does not force reorganization which is the root cause of the US auto industry. Union contracts need to be thrown out the window!
All I am saying is spend less time comparing one industry with another in history and spend more time researching the bills and proposals. Then forecast the effects of these on the market.
Published: December 11, 2008 10:19 AM
Erik B
Greg,
Mr. Tucker is performing an economic analogy. He is not arguing in front of Congress. He is doing this as a learning exercise for those of us who are trying to better understand Austrian Economics, and its application to the real world.
As others have pointed out here, the article was well written and informative. It provides and interesting and fun perspective on how the market could work in the auto industry were our government less intrusive. I personally find hope in his example since the piano industry has continued to evolve over all these years, despite the changes in consumer demand and the people who supply the pianos.
Mr. Tucker's analogy holds because demand for cars has shifted, just as demand for pianos did in the past. In addition, the cost of supplying pianos in made in the USA has caused pianos made here to go up in price thus making them less competitive in the market. The same is now happening to the Auto Industry. These economic laws apply to every good, despite what that good is. To use an old econ 101 example, it doesn't matter if you're measuring guns or butter, the laws of supply and demand work the same way... same goes for Piano's and Cars.
Published: December 11, 2008 12:04 PM
Fephisto
I know this is obvious to the regulars here, but:
http://jim.com/econ/chap14p1.html
Published: December 11, 2008 12:19 PM
Franklin
Greg: "If you take this approach in front of Congress or the American people, it would go no where..... Spend less time comparing one industry with another in history and spend more time researching the bills and proposals. Then forecast the effects of these on the market."
I do think this criticism is valid. And I do think Austrians and libertarians miss these opportunities often.
Chris Jordan: "A high percentage of piano tuners are commenting today. Where do they all come from?"
Out of the woodwork. (Ba-dum cha) : )
Finally, as a creature of habit, where would I be every morning without my freshly ground Starbucks coffee, spot by the window, and peter helbich's pall parrot-like contribution. Talk about "where do they come from?..."
But like a crazy uncle we hide from the guests, if it were absent, I suppose I'd miss it.
Cheers.
F.
Published: December 11, 2008 12:44 PM
S. Diering
Very interesting comparison. Shall we use the same metaphor for the American investment bank industry? It, too, has ceased to have a market. Why did we not let that industry expire?
Published: December 11, 2008 12:47 PM
Franklin
S. Diering, I can't speak for "we," but Congress (not we) is attempting to resuscitate a number of firms that work in the investment banking market.
The market cannot expire anymore that communication can expire, or trade can expire. So long as two individuals will exchange promises or goods, the market exists.
Don't equate the health of a corporate entity that benefits moronic limousine liberal CxOs with "the market." Yuh, I know, they all want you to believe that "they" are the "market" so that "we", as you put it, prevent them from expiring.
By the way, anybody hear Donald Trump being interviewed by Greta Van Susteran the other day? What a charlatan. No, not Greta! How sad that he's given the time of day. Goes to show you that you can accumulate wealth beyond a pharaoh and still not have the sense to utter an accurate comment or articulate an novel assessment.
He provided the example of the investment banking industry receiving a government bailout and then using those funds to buy a Chinese bank rather than reorganize its debt. Okay, fair criticism. Next? He just kept reiterating his comment, like an Alzheimer's patient, waving this herring around the room, over and over and over again.
Then he went on to say that "nobody can get credit, not the richest man in the world, not me, not you, you make a good salary, you can't get any credit....."
I must be on Mars. I don't have the wealth of his housekeeper and I just acquired a note for my small business, my brother got a loan for his new car, and my buddy remortgaged his home. A new plaza is being built down the street, and an office building in the next town is being constructed mainly on leveraged capital.
I guess credit means something different when you're building hotels. Then again, he often refers to his hotel bankruptcies as a "success." No kidding.
You're fired, Donald.
Published: December 11, 2008 1:33 PM
Tyler
One argument for the auto bailout is simply this: America needs to have manufacturing capability. One would cite WWII as an example. Ford auto plants were turning out all sorts of military equipment and vehicles to help win the war. The argument continues in saying by letting these firms go, the plants will be sold off or let to rot. Either way our industrial base withers.
Whether you agree or not is not the point. The piano industry (to my knowledge) did not produce tanks and jeeps in our time of need so I'm not buying the FDR bailout comparison.
But I disagree with the national defense argument for saving these companies. We (the U.S.) have many defense firms like General Dynamics who purchased Chrysler Defense. Chrysler designed the M1A1 tank and I would assume similar actions would take place should Ford and GM die. The assets worth saving will be saved.
Published: December 12, 2008 1:19 AM
Gerry Flaychy
Will people buy more cars next year if there is a bailout of the Big 3 than if there is no bailout ?
Will the economy stop going down with a bailout or without it?
Published: December 12, 2008 7:13 PM
Rockne Johnson
"The American piano industry was the greatest in the world, not because the Americans came up with any new and great manufacturing techniques, though there were some innovations..." One such innovation, which some might regard as a great manufacturing technique, was the introduction of the assembly line. This occurred in the piano manufacturing village of Steger, Illinois, a full decade before Henry Ford developed that technique (for the assembly of magnetos in his Model T). The production capacity of the Steger factories surged to a claimed 100 per day.
In 1893 German immigrant John V Steger came to the community then called Columbia Heights, which lay on the line between Cook and Will Counties, bought one of the existing piano factories, paid $400 for the privilege of renaming the village after himself, bought the second factory, and started a third. One of his daughters married piano-tuner Henry G Johnson (my father's double-cousin) and, in due course, Henry became general superintendent of all three factories.
According to a publication of 1912, entitled The Story of Seger, Ill.; A Labor Tragedy, by William Geppert (p. 55) "Henry Johnson organized the Steger factories so that it is possible to use unskilled labor on the class of goods being produced there. Each man does only one thing, one part of a process, and no great amount of practice or skill is required to learn how to do it."
Part of the "tragedy" was that (p. 123) "Steger was one of the first manufacturers in the Middle West to displace native or German-born labor with what is commonly termed 'Guinea [Italian and Greek] labor.'"
Johnson resigned in 1911 after receiving two bullets, through the arm and the back, on a dark October night while walking home. Geppert was found guilty of blackmail and sentenced to 2 years in prison and fined $2000 in 1913. Steger drowned mysteriously in his own factory reservoir on a Sunday afternoon in 1916. His piano business went bankrupt in 1926. The advent of the phonograph and radio was blamed.
Published: December 12, 2008 8:12 PM
Jeff A. Smith
Just in the interest of factual accuracy:
Way up there, I posted about companies besides Steinway still making pianos in the U.S. It seems my information on Baldwin -- a true icon of the American piano industry -- was a few days out of date. It hasn't been widely publicized yet, but they just ceased production at their plant in Arkansas. Baldwin, owned by Gibson Guitars, will now be making all its pianos in China.
http://www.trumanndemocrat.com/story/1484097.html
Published: December 12, 2008 8:45 PM
Chuck Hutcheson
As a recording studio owner and multi-instrumentalist, I've seen the rapid growth and advancements in technology, particularly in the past 10 years, to the point that anyone with a decent computer can purchase a sample library for less than the cost of a cheap electric piano. In playback or recordings, you virtually cannot tell the difference between a "real" piano, and a "sampled" piano, because you ARE listening to a recorded Steinway 'D', or a Bosendorfer, or a Yamaha C7 when you hear a "sampled" library. I'm not a rich man, so why would I spend thousands upon thousands of dollars for ONE piano when I can get the sampled library of (often times) 3 or 4 world class pianos for less than $400?
Of course, who wouldn't want a beautiful grand piano sitting in their living room? The only thing a 'real' piano offers vs. the 'fake' is the actual resonance and vibrations, which are so hard to emulate. Technology is a good thing, but it's also a negative aspect. Times change, and our tools change, but as long as we're making music, and certain traditions are kept alive, that's the important thing.
Published: January 13, 2009 3:06 PM
david
Having worked in the music industry for well over 40 years I was always amazed how this industry always was in reverse of the general economy. In inflationary times our business always went extra strong and we were always working overtime to keep up with the demand.In this present economic downturn something is far different this time and business is down in general across the board.
Executives at Steinway musical have seen fit to treat lifelong workers with contemp and morally bankrupt behavior to try and sustain the bottom line.
As witnessed by what is happening across America ,greed and coruption by corporate executives are contributing to the downfall of this nation.
Published: January 17, 2009 8:06 AM
david
Having worked in the music industry for well over 40 years I was always amazed how this industry always was in reverse of the general economy. In inflationary times our business always went extra strong and we were always working overtime to keep up with the demand.In this present economic downturn something is far different this time and business is down in general across the board.
Executives at Steinway musical have seen fit to treat lifelong workers with contemp and morally bankrupt behavior to try and sustain the bottom line.
As witnessed by what is happening across America ,greed and coruption by corporate executives are contributing to the downfall of this nation.
Published: January 17, 2009 8:08 AM
Fletcher
I did enjoy this article, but I have to say it might be the worst comparison of things that I have come to see. This information could not be more off. I understand that the piano industry was big, but it does not even touch the impact of the automobile and every day life. Just another un-educated article.
Published: April 20, 2009 9:01 PM
George
A piano dealing friend of mine once said that the problem with the piano industry is that you sell a family a piano, then don't see them again for 80 years. They are durable and get "handed down" in families. Lots of used ones still have music left in them, thus selling well in recessions.
The piano, by the way, is as important to musical life as the auto is to everyday life. All non-keyboard majors in music school must study piano in order to understand theory (harmony) on a practical level and be self-sufficient in their score study and preparation when they become singers, choir directors, band directors, etc.
Published: June 6, 2009 1:11 AM