Illegal. Illiberal. Ill-Fated.

Why Washington shouldn't run Detroit

Jacob Sullum, Matt Welch & Ronald Bailey from the August/September 2009 issue

(Page 3 of 5)

June 1, 2009: In a deal orchestrated by the Obama administration, General Motors files for the second largest bankruptcy in U.S. history. Taxpayers are on the hook for another $30 billion, in exchange for owning 60 percent of the new company. Obama says, “We are acting as reluctant shareholders.” Members of Congress who stood by as two presidents snatched the power of the purse and illegally diverted funds to the automaker bailout are outraged by bankruptcy-driven plans to shut down an estimated 2,400 G.M. and Chrysler dealerships.

In December 2007, Barack Obama proudly told The Boston Globe, “I reject the view…that the president may do whatever he deems necessary to protect national security.” A year later, he welcomed George W. Bush’s unauthorized loans to Chrysler and General Motors because he deemed them “necessary” to protect economic security. And as president he has not even bothered to ask a Congress firmly controlled by his own party to approve his taxpayer-funded reorganization of the auto industry. Obama supporters who argued that he would help restore the balance among the three branches of the federal government have a choice to make: They can condemn this abuse of executive power, or they can admit that it was just Bush’s policies, and not his unconstitutional methods of implementing them, to which they objected all along.

Senior Editor Jacob Sullum ([e-mail]) is a nationally syndicated columnist.

 

 

Illiberal: Corporate welfare for Detroit flouts traditional Democratic notions of fairness. By Matt Welch.

Free marketeers and constitutional originalists are not the only people to note that the ongoing bailout of Chrysler, General Motors, and their suppliers flouts the rule of law. 

“The government-led restructuring of Chrysler and General Motors has been twice delegated—first by Congress to the Executive, and then by the President to a task force,” one critic complained in an open letter to Sen. Chris Dodd (D-Conn.) and Rep. Barney Frank (D-Mass.) in May. “Formally made up of cabinet officials and high-level political appointees, control over the process has in fact been delegated, without adequate standards, to a handful of special advisers. Thus has the future of a centerpiece of American manufacturing capacity been delegated to a small unelected and largely unaccountable group arranged to avoid the Federal Advisory Committee Act.”

That naysayer was none other than the legendary consumer advocate Ralph Nader, a man who burst onto the national stage by tangling with General Motors over the safety of the Chevrolet Corvair. Nader’s long history of antagonism with G.M.—the company once sent a private investigator to dig up dirt on the monastic crusader’s personal life and paid Nader $425,000 to settle the ensuing lawsuit-- underscores an awkward political constraint on President Barack Obama: Self-described liberals and progressives tend to distrust and even despise giant corporations. (“The evolving multinational corporatism is a gigantic control machine,” Nader says in a typical passage from his 2004 book The Good Fight.) And few categories of corporations have incurred as much liberal wrath over the years as Detroit automakers. Handing out $100 billion and counting in corporate welfare to pollution-generating, out-of-touch fat cats is an outrage to traditional liberal notions of fair play.

In May, The Nation’s John Nichols called the auto bailout the “most wrongheaded expenditure of federal dollars since, well, the bank bailout of last fall.” Robert Reich, Bill Clinton’s secretary of labor, wrote the same month that “there’s no point spending tens of billions of taxpayer dollars for an auto industry that’s a tiny fragment of what it was before. We could achieve that objective by doing nothing.” And documentary filmmaker Michael Moore, whose career-making debut film Roger & Me was a cri de coeur about how G.M. helped destroy his native Flint, Michigan, wrote in December, “Let me just state the obvious: Every single dollar Congress gives these three companies will be flushed right down the toilet.”

It’s not just the price tag. It’s how the money is being spent. A critical component of Obama’s hands-on strategy for auto manufacturers is incentives, credits, and subsidies for U.S.-owned carmakers to “plan for a future in which they are building the cars of the 21st century.” The Department of Energy ponied up $25 billion in loans toward that end in 2007. The stimulus bill in 2009 provided $25 billion more, and a cap-and-trade bill being discussed at press time included yet another $50 billion to help automakers meet the stricter fuel efficiency standards that Obama unveiled in May.

But presidents have been throwing money down that exact same rabbit hole for decades, to a chorus of mostly boos from lefty commentators. Though many libertarians and conservatives might find it hard to believe now, Ralph Nader and other progressives in the 1990s were especially bitter about the role played in these Detroit clean-energy boondoggles by none other than Al Gore.

“Clearly, the Gore who wrote in the book Earth in the Balance (1992) that the internal combustion engine was a major threat to the world’s environment was different from the Vice President Gore who helped combine a billion-dollar taxpayer subsidy to G.M., Ford, and Chrysler over a clean engine project that produced nothing in eight years other than federal regulatory abdication of fuel efficiency improvements,” Nader wrote in his 2002 book Crashing the Party.

It’s not that liberals are more likely to oppose Obama’s micromanagement of the auto industry. To the contrary. Rasmussen Reports polling from May showed that 59 percent of Democrats opposed further bailouts of G.M. and Chrysler, compared to 81 percent of Republicans and 74 percent of independents. Liberal economist Paul Krugman supported the original bailout of the auto companies in late 2008 on the grounds that bankruptcy proceedings during the height of the credit crunch would have led to devastating liquidation instead of necessary reorganization. Economic populists such as Nader are upset that Obama’s restructuring plans cut too many unionized U.S. manufacturing jobs while allowing automakers to continue building plants in authoritarian countries such as China. Michael Moore wants no part of a bailout, but he thinks the feds should just buy the Big Three outright and retool the factories to build clean-energy light rail cars and the like.

The president has navigated this inchoate and frequently innumerate mix of economic impulses by promising all things to all people. The “uncontrolled bankruptcy” that was so offlimits in the fall became a more palatable and controlled series of bankruptcies by spring, with unions receiving a sweetheart deal at the expense of Wall Street creditors. To environmental dreamers Obama continued to promise millions of new “green jobs” through fuel efficiency mandates, tax rebates for plug-in vehicles, and a cap-and-trade scheme. And economic nationalists were continually told, though not quite reassured, that America would lead the world in making the cars of tomorrow. “The fact is, everyone wins,” Obama said when announcing the new fuel efficiency standards.

Comments

|7.13.09 @ 5:11PM|#

And why Al Gore shouldn't run the world:

Gore: U.S. Climate Bill Will Help Bring About 'Global Governance'

http://www.climatedepot.com/a/1893/Gore-US-Climate-Bill-Will-Help-Bring-About-Global-Governance

THE CAT IS OUTTA THE BAG!

Paul|7.13.09 @ 5:20PM|#

a company created and owned by Fiat, the United Auto Workers, and the U.S. and Canadian governments.

Could there be a combination of words put into one sentence that would be more laughable and inspire less confidence than the ones quoted above?

MNG|7.13.09 @ 5:20PM|#

Because only the private sector could run car companies well!

Er, that is...

MNG|7.13.09 @ 5:22PM|#

Paul
How about a company created and owned by profit motivated individuals and rational self-interested investors? Because the GM and Chrysler that were run into the ground were examples of that...

Timmy|7.13.09 @ 5:28PM|#

MNG, don't you ever get tired of sucking union dick?

MNG|7.13.09 @ 5:30PM|#

Timmy
Your mom and I have the same color eyes, but please don't confuse us!

|7.13.09 @ 5:35PM|#

How about a company created and owned by profit motivated individuals and rational self-interested investors? Because the GM and Chrysler that were run into the ground were examples of that...

Sure. Thousands of businesses fail every year.

Your point, MNG?

|7.13.09 @ 5:38PM|#

Because only the private sector could run car companies well!

Government doesn't do anything "well" ya moron.

Yeah, like MNG says, the only possible way to run a car company is with a "Five Year Plan" designed by people who's main success in life is similar to "American Idol", that will work.

How about a company created and owned by profit motivated individuals and rational self-interested investors? Because the GM and Chrysler that were run into the ground were examples of that...

A typical absurdity, Toyota, Honda and Kia seem to be doing OK, in spite of government subsidies to their competition. Probably something to do with their freedom not to be owned by their employees?

And Timmy, in answer to your question, no.

Timmy|7.13.09 @ 5:40PM|#

MNG, you have miles to go before you come close to equally joe's in regards to mother/sister jokes.

Don't bother.

kinnath|7.13.09 @ 5:44PM|#

After decades of watching the US government pressure European companies to divest their interests in car and airplane companies to allow free and fair competition, we know have the US government taking major ownership positions in two of the three American brands.

Even if you assumed that the government could actually make GM and Chrysler run better, the conflicts of interest between owner and regulator of a major industry like manufacturing cars will poison the entire US, if not global, market.

God Fearing Atheist|7.13.09 @ 5:48PM|#

Scores:

Sullum: A
Welch: C-
Bailey: B

for their attempts to effectively make their respective points.

For the record I agree with all 3 points but some were better illustrated than others.

LibertarianBlue|7.13.09 @ 6:01PM|#

Im glad I drive a Ford now.

Tricky Prickears|7.13.09 @ 6:09PM|#

...Toyota, Honda and Kia seem to be doing OK,...

I was under the impression Toyota and Honda are not doing OK, and are receiving subsidies from their government. But here we are. In essence, defending companies of foreign countries, that come into the US to set up their own factories, to directly compete with American manufacturers. Is there an irony in this? It seems most of the hoopla is coming from the states that allowed these foreign manufacturers into their states. So, here we have American politicians, defending these companies, and their governments, against American companies. Is this what manufacturing in general, in this country, destined to become? Really. What other car manufacturers are there? It's not like government intervention into GM and Chrystler is going to have any adverse effects on any other small or medium size car manufacturers, because there aren't any (unless you include DeLorean). And Ford isn't exactly clear yet either. Now, when you start talking about propping up big banks, to the detriment of smaller community banks, that's a different story. I despise Corporatism and Neo-Corporatism, but I'll be damned if the government should sit back and watch a national pride go down the tubes for the benefit of foreign manufacturers operating here in this country.

kinnath|7.13.09 @ 6:41PM|#

. . . . but I'll be damned if the government should sit back and watch a national pride go down the tubes for the benefit of foreign manufacturers operating here in this country.

I remember when Zenith died. I didn't shed a tear for them then, I won't for GM or Chrysler.

The US government should give a rat's ass for whether or not a poorly run company goes under.

GM sucks union dick too|7.13.09 @ 6:56PM|#

What's "American" about GM, other than the location of their central corporate office? America's parasites are nothing to be proud of! If "foreign" car companies are setting up shop here in America, bringing more efficient and more affordable cars to our shores along with more manufacturing jobs (that don't come attached to anti-American unions like the UAW), I'd say those are the truly American companies, not the home-grown union dick suckers who leech off our nation's credit and credibility to try to push their crappy bailout plan to us.

Speaking of those crappy bailout plans, this recent spoof of one of GM's more retarded recent ads says pretty much all you need to know about parasitic "American" car companies:

http://www.youtube.com/watch?v=ts_fZStHYbA

Jordan|7.13.09 @ 7:00PM|#

So, here we have American politicians, defending these companies, and their governments, against American companies.

Tough shit. You don't seem to mind the government getting involved and propping up companies in the marketplace. Sometimes they pick companies you don't want them to pick. Perhaps they shouldn't be involved at all?

What other car manufacturers are there? It's not like government intervention into GM and Chrystler is going to have any adverse effects on any other small or medium size car manufacturers, because there aren't any (unless you include DeLorean).

And of course propping up these gargantuan losers will only serve to prevent new companies from entering the market.

I despise Corporatism and Neo-Corporatism, but I'll be damned if the government should sit back and watch a national pride go down the tubes for the benefit of foreign manufacturers operating here in this country.

So really what you meant to say was "I don't have a problem with Corporatism and Neo-Corporatism."

General Motors: For Reals This|7.13.09 @ 7:12PM|#

Let's be completely honest... You're an asshole for not buying our cars.

I'm sorry, I didn't mean that.

The American taxpayers gave us 50 billion dollars... and we spent a lot of it on this ad: that shot required a helicopter; cha-ching!

But don't worry about General Motors. From now on, we're going to be so super-good at all that car stuff...

How? Well, here's the game plan in clear, plain English:

Horses.
Space.
Amputees.
Lightning.
Windmills.
Baseball.
Solar panels.
A sad black guy.
Dogs.
Foam hands.
Joe Louis.
And butterflies.

Still concerned? Don't be. Because the only chapter we're focused on... is Chapter 1.

Excuse me, I misread that. I meant Chapter 11.

Y'know... on account of the bankruptcy.

|7.13.09 @ 7:29PM|#

... because the government take over of the auto industry worked so well in England during the late 60s and early 70s.

Tricky Prickears|7.13.09 @ 7:39PM|#

And of course propping up these gargantuan losers will only serve to prevent new companies from entering the market.

Are you kidding? What possible prospects are there for any car manufacturer entering the market?

Perhaps they shouldn't be involved at all?

No, they shouldn't be. Especially when it comes to foreign companies. And OK, I have a soft spot for GM. Call me a sentimental fool.

So really what you meant to say was "I don't have a problem with Corporatism and Neo-Corporatism."

No, I'm calling exception.

Damn, I knew I was going to get into trouble on this one. I let my emotions get the better of me.

Paul|7.13.09 @ 7:41PM|#

How about a company created and owned by profit motivated individuals and rational self-interested investors?

Oops, MNG, you fucked up. You stepped in it, and I'm sorry, but I'ma gonna hafta kick ya while you're down.

You see, in this here libertarian world of ours, the profit motivated individuals and rational self interested investors take a bath when their operation isn't run well. See where I'm going with this? See?

*pausing to make sure you fully grasp where I'm going with this*

Amtrak.

What's that you say? What does that random word have to do with any of this? Amtrak? Wha?

Yes, Amtrak. GM is the next Amtrak. Oooh lookey! Someone else thought of this analogy too!

So your snarky retort, MNG, only serves to bolster the libertarian position. GM is supposed to fail. Chrysler, fail. All of them, FAIL. But the Party of Corporate Welfare just can't seem to let them do it. So in reality, you've offered a non-sequitir as a solution. "Well, if Big Al can't succeed in running a bowling alley properly, then by god, the Obama administration will have to do it."

In case you haven't figured out The Point(tm), the Obama administration has No Fucking Business Running Big Al's Bowling Alley.

|7.13.09 @ 7:56PM|#

Welcome to Italy, 1925.

Attmay|7.13.09 @ 8:23PM|#

Can't wait to drive a GM Trabant.

MNG|7.13.09 @ 9:03PM|#

"A typical absurdity, Toyota, Honda and Kia seem to be doing OK, in spite of government subsidies to their competition."

Yeah, Japan never provided any support for those companies!

|7.13.09 @ 9:35PM|#

Tricky Prick-

But here we are. In essence, defending companies of foreign countries, that come into the US to set up their own factories, to directly compete with American manufacturers. Is there an irony in this?

Given that Ohio is the home of both Wendy's and White Castle, we should obviously prevent McDonald's from ever opening a restaurant here to compete with our "home-grown" businesses...

|7.13.09 @ 9:55PM|#

Could there be a combination of words put into one sentence that would be more laughable and inspire less confidence than the ones quoted above?

I only need two words, British Leyland

B|7.13.09 @ 10:32PM|#

"Why Washington shouldn't run Detroit."

This piece of shit president has shown he isn't fit to run for dog catcher.

johnny john john|7.13.09 @ 10:41PM|#

B:

I bet Obama would make a far better dog catcher than you. Probably whoops your ass in B-ball too.

|7.14.09 @ 3:47AM|#

http://briandeutsch.blogspot.com/2009/07/kia-saves-small-georgia-town.html

Good God, it's yellow fever all over again! UAW protect American automobile industry! You heroes!

Abner MacGillicuddy|7.14.09 @ 6:02AM|#

Really, MNG tell me about how the Japanese Government took over Toyota and screwed its secured creditors to pay off one of its biggest political constributors after they ran it into the ground.

Or did the South Koreans do it to Hyundai?

There are subsidies and subsidies. Reason ran stuff back in the eighties that pretty much showed that Japan's MITI really didn't do much good. In fact Honda grew and thrived in spite of the fact that it got no help from MITI at all in its beginning. It wasn't part of Japan's industrial "legacy". It was started by an upstart outsider.

They should just name it American Leyland. That's what it resembles, not the mildly subsidized Asian companies.

MNG|7.14.09 @ 7:54AM|#

Abner
The Japanese government gave their companies support throughout, though of course never rising to the level of taking them over late in the game, but that's kind of the point...

Barry Loberfeld|7.14.09 @ 10:22AM|#

On Nov. 22 '08, I had an article published on LewRockwell.com in which I wrote: "But the fundamental failing of Buchanan's manufacturers-good/consumers-bad [protectionism] is that it contravenes the primary dictate of sound economics: Focus not on one party in the short run, but on all parties in the long run. We are not all the CEO of GM, but we are all consumers - including GM's CEO."

Well, now "We" really are "all the CEO of GM"!

Then again, maybe Washington isn't really "We" ...

Neu Mejican|7.14.09 @ 10:43AM|#

Government incentives are an important part of the market. Always have been. Always will be. So the question is...is the GM investment different in any significant way from:

Free land for factories
Tax breaks
Partnerships in building factories

Or any of the other incentives that state and local governments use to attract companies to their location?

Is stock ownership more of a problem?
Why?

Is the conflation of ownership and regulation any different than the conflation of regulation with "attracting business to our city."

|7.14.09 @ 11:08AM|#

I don't buy the argument at all. The reason being is that multinational corporations, banks, and insurance companies are so ethically and morally challenged that congress has to legislate laws to keep them from stealing from us. They are so corrupt that we have to have laws to keep them from pilfering our money. It's what we euphemistically call regulation. I would have fired the CEO of GM as well, he was obviously not up to the job. Now if we can just get the President to end corporate personhood, and dissolve the Fed.

|7.14.09 @ 12:24PM|#

Government incentives are an important part of the market. Always have been. Always will be. So the question is...is the GM investment different in any significant way from:

Free land for factories
Tax breaks
Partnerships in building factories

Or any of the other incentives that state and local governments use to attract companies to their location?

Massive direct capital infusions that exceed the market cap of the companies involved and bankruptcies structured and sponsored by the government are different both in kind and in scale than these limited supports for specific projects.

Is stock ownership more of a problem?
Why?

Yes, for two reasons. First, if it is ownership of voting stock (as I believe it is in the restructured GM and Chrysler), then it gives a measure of control over corporate affairs. Second, by giving the government a direct stake in the market value of the stock, it places the government, as the impartial regulator of these companies and their competitors, in a massive conflict of interest.

Is the conflation of ownership and regulation any different than the conflation of regulation with "attracting business to our city."

Yes, it is. The conflict of interest in owning a company and regulating that company and its competitors is different in kind and in scale from the kinds of specific project support that attracting business to a specific location might entail.

Neu Mejican|7.15.09 @ 1:54AM|#

RC Dean,

I don't buy a single one of your counter arguments.

You usually have more to offer.

|7.15.09 @ 4:37AM|#

I currently have one Chrysler Mini Van and one Tahoe, these will be the last cars I purchase from GM or Chrysler.

I refuse to give them even more of my hard earned money. They have had enough. Sorry UAW auto workers, I'm done, next car I buy: anything but you and your compulsory tax payer funded companies.

Geotpf|7.22.09 @ 10:52AM|#

I personally believe that Obama doesn't actually want to run the auto companies-he just doesn't want them to fail now with the economy so bad. He knows they will probably fail later, but he wants to postpone that failure until after the economy in general has recovered.