US Auto Industry Is Much More Than the Sum of Its Parts

Brian Palmer, a contributor to Slate, has a nice summary of the reasons behind the concentration of car companies in Michigan; basically, historical accident perpetuated by agglomeration economies.

“First, innovators like Henry Ford and Ransom Olds happened to live in Michigan,” Mr. Palmer wrote in an online article published on Feb. 29. “Second, automotive executives in early-20th-century Detroit behaved a lot like Silicon Valley executives today: They regularly switched companies and launched spinoffs and start-ups.

“This culture of cross-pollination spread innovative manufacturing and design ideas among the Detroit manufacturers.”

What he doesn’t say is that there is a close relationship between such stories and the case for the auto bailout.

Agglomeration economies exist because the whole is more than the sum of the parts — because the network of suppliers, the skills, the interchange of knowledge supported by a geographical industry concentration in turn gives firms there an advantage over firms elsewhere. I have written a bit about this sort of thing over the years.

Now, the existence of important agglomeration economies immediately implies that there are social consequences to the success or failure of an individual firm that aren’t captured by the profit and loss statement of that firm alone.

Let General Motors fail, and the resulting collapse of its suppliers will hurt other firms too, possibly driving them out of business too.

You don’t want to overuse this sort of argument; it can all too easily be used to justify any and all industrial interventions.

But it was surely a major consideration for the auto bailout — and a reason why hardline opposition to any such action was bad economics.

Equality of Opportunity? Never Mind

David Firestone, a commentator at The New York Times, recently caught Mitt Romney denying any public responsibility for helping less-fortunate Americans get an education.

In an online post published March 5, Mr. Firestone quoted Mr. Romney at a town-hall meeting in Ohio, where he gave some advice to a high school student who was concerned about the rising costs of higher education: “ ‘It would be popular for me to stand up and say I’m going to give you government money to pay for your college, but I’m not going to promise that,’ [Mr. Romney] said, to sustained applause from the crowd at a high-tech metals assembly factory here. ‘Don’t just go to one that has the highest price. Go to one that has a little lower price where you can get a good education. And hopefully you’ll find that. And don’t expect the government to forgive the debt that you take on.’ ”

Just the other day, Mr. Romney was telling us that he, not President Obama, was the true heir to Teddy Roosevelt, because he favored equality of opportunity, not equality of results. His claims about Mr. Obama

were, of course, completely false; so, it turns out, were his claims about himself.

Just a reminder of how unequal access to higher education already is: low-income students with high test scores are less likely to finish college than high-income students with low test scores, according to data from the Economic Policy Institute.

And Mr. Romney proposes making it even more unequal.

But hey, he personally made it the hard way, getting through college with no income except from selling the stocks his father gave him.

Paul Krugman joined The New York Times in 1999 as a columnist on the Op-Ed page and continues as a professor of economics and international affairs at Princeton University. He was awarded the Nobel in economic science in 2008.

Mr Krugman is the author or editor of 20 books and more than 200 papers in professional journals and edited volumes, including “The Return of Depression Economics” (2008) and “The Conscience of a Liberal” (2007). Copyright 2011 The New York Times.