Monday, December 8, 2008

Krugman: Detroit auto industry will likely disappear

Nobel Prize–winning economist Paul Krugman says the U.S. Detroit auto industry will likely disappear:
Nobel economics prize winner Paul Krugman said Sunday that the beleaguered U.S. auto industry will likely disappear.

"It will do so because of the geographical forces that me and my colleagues have discussed," the Princeton University professor and New York Times columnist told reporters in Stockholm. "It is no longer sustained by the current economy."

Krugman won the 10 million kronor (US$1.4 million) Nobel Memorial Prize in economics for his work on international trade patterns. Some of his research on economic geography seeks to explain why production resources are concentrated in certain locations.

Speaking to reporters three days ahead of the Nobel Prize ceremony, Krugman said plans by U.S. lawmakers to bail out the Big Three automakers were a short-term solution, resulting from a "lack of willingness to accept the failure of a large industry in the midst of an economic crisis."
I'd say that's only true if you don't count the foreign-owned auto manufacturing plants in the southern U.S. to be part of the U.S. auto industry. This raises the question: If they employ 113,000 workers, does it really matter if the auto plants are foreign owned?

Krugman's comments also raise another question: If the big three automakers are going to go away anyhow, should politicians really be handing them tens of billions of your tax dollars?

Hat tip: Greg Mankiw.

Update: Paul Krugman says his words were misreported. It's the Detroit auto industry that will disappear, not the U.S. auto industry. This makes much more sense.


  1. I wish Professor Krugman had confirmed. It makes sense to restructure the economy towards less car less oil. Let's invest in something else. I really wish the car industry would disappear, around Europe as well. Think for a moment how it would be without private cars. If you cannot imagine a world without private cars just imagine one with small and fuel efficient ones, trains, public transport, car-sharing, car renting, etc.
    M.G. in Progress

  2. When I was in college, I had to ride the bus to go anywhere. I don't want to go back to that.

    The big downside to public transportation—besides the fact that the guy next to you might not have showered recently—is that the many intermediate stops the bus/train has to make really increases the travel time to your destination. For short trips, the wait at the bus stop/train station can be as long as the ride itself.

    Also, public transportation requires a critical mass of travelers in order to be successful. Therefore, it will always fail in rural areas.