Nixon's Economy: Booms, Busts, Dollars & Votes

I've been reading a book with the above title and subtitle, by Allen J. Matusow, a professor of history at Rice University.

The book, published by the University Press of Kansas in 1998, makes a number of intriguing points about the period it covers. I'll just quote a bit that fills me with a nothing-ever-changes sort of feeling given recent news from Detroit.

"If the economy really was tottering, the Penn Central Company just might bring it down. In February 1969, the mighty Pennsylvania Railroad had merged with the reluctant New York Central to form the seventh largest corporation in America. It was a bad marriage from the start. By the end of 1969, in a soft economy, the company's railroad operations were losing money, while its real estate subsidiary could not generate nearly enough cash to cover its losses. In 1970, to service its exploding debt, the company intended to roll over $200 million in commercial paper and float a $100 million bond issue. After the company reported big first-quarter losses, the bond issue was doomed. By mid-May, creditors had called in $50 million of the company's commercial paper, with $75 million due on June 30. Because the company did not have the cash, bankruptcy loomed, and the feared chain reaction in the commercial paper market might finally commence."

There's a lot of food for thought there, such as in the quick allusion to the Penn Central's real estate subsidiary. In more recent times, too, there have been many examples of corporations that found that their "operational" lines weren't pulling the load, that their real estate holdings were (and are) the engine of whatever progress they're actually making. (See what I did there? Cute RR metaphor.)

One example of this played out in the lead-up to the K-Mart/Sears merger. It was generally understood both that K-Mart's real estate holdings were the key to its abiluity to drive for such a merger and that Sear's real estate holdings were the main attraction.

But one also has to reflect, in thinking about the Penn Central debacle of 1969-70, on the real problem the railroad (as an operational entity) faced: the post-Eisenhower highway system had made it largely obsolete in the northeast of the country. Railroads in the rest of the country had long-haul commodity delivery as a bread-and-butter business. But the railroads in the northeast were largely a commuter-and-passenger business, and that ceased to be economical with the shift to federally subsidized highways.

I think in this context of Ford Motor Co., which has (commendably IMHO) declined public assistance and which is not facing bankruptcy. That means that it will still bear the sort of burdens that the bankruptcy process will allow a revived Fiat-dominated Chrysler, and a new General Motors, to shed. I hope Ford does well in years to come, but it faces competitors doubly subsidized: directly and indirectly through the bankruptcy process.