Entries for January 2008

So the government is on the case. Washington's going to rescue the economy. Sending $150 billion worth of checks to consumers will be just the pick-me-up we need to stay out of recession and continue our free-spending ways.

Uh, maybe. The politicians might already be congratulating themselves for a bipartisan economic bailout, but the notion that the government can push a few buttons and turn around a $14 trillion economy is a dangerous myth. Sure, the government has some control over economic factors, like short-term interest rates and federal spending. But the U.S. economy is vast and complex, and government "stimulus" doesn't always work. Sometimes it even damages the economy. Here's what could go wrong:

General Motors and Toyota both want this story to go away—but it only seems to be intensifying.

Everybody in the auto industry knows that sooner or later, Toyota will unambiguously surpass GM in sales and become the world's biggest automaker. So when it happens, it should be anticlimactic—an iconic moment, sure, marking the end of GM's 77-year reign as the No. 1 carmaker. But then everybody will just go on with the business of building and selling cars.

Rick Wagoner has got to be tired of hearing the question—and it looks as if he'll have to keep answering it a bit longer. For months, people have been asking the General Motors CEO what will happen if Toyota knocks GM out of the No. 1 spot and becomes the world's biggest carmaker. Wagoner usually puts on his game face and insists that GM isn't yielding anything to Toyota. But this has been the most predictable dethroning in all of business.

The two auto giants, however, will apparently share the platform for a spell before Toyota bumps GM to second place. GM says that in 2007 it sold 9,369,524 cars worldwide—9.37 million, if you round up. Toyota also sold 9.37 million vehicles in 2007—and hasn't yet broken out its figures to a full seven digits. So for now they're tied. Let's call in the lawyers and demand a recount.

Who needs oil?

That's clearly going to be the theme among automakers this year as they compete for the green spotlight. General Motors has announced an investment in a company that claims it can make ethanol from garbage and old tires, at half the cost of gasoline. Honda plans to begin leasing a vehicle this summer that's powered by hydrogen. Hybrids will come in more flavors than ever, and you might start to feel like a dinosaur if you don't know what a ZEV is. (It's a zero-emissions vehicle.)

But don't sell your Exxon stock. For all the hype—and the very good reasons to seek alternative fuels—gasoline will still power the vast majority of cars five years from now, and probably 10. True, some alternatives look very promising. Cellulosic ethanol, the kind GM is backing, can be made without imported hydrocarbons, and it generates a lot more energy than is required to produce it. Electric cars could be charged at home for less than gasoline costs. Hydrogen, if ever mass-produced, could be a miracle fuel that provides great mileage with zero emissions.

Here's one trend we may as well get used to: high-visibility foreign investments in U.S. companies, especially banks reeling from the mortgage meltdown. Investors from Singapore, China, and the Middle East have been pouring billions into financial giants like Citibank, Merrill Lynch, Morgan Stanley, and Bear Stearns—and with bank losses mounting rather than abating, more infusions seem to be on the way.

Are foreigners buying America? Hardly. High-profile foreign investments in brand-name U.S. companies may fuel anxiety about the rise of other economic powers and American workers displaced by globalization. And it certainly provides America-first politicians with fodder for scaremongering—much like the 1980s, when a Japanese buying binge fed fears that every real-estate icon in the country would end up in foreign hands.