Conservatives frequently claim that President Obama is leading us down the path that Europe blazed decades ago. But that is unfair. To Europe. The European governments socialized their economies by taking over more or less competitive industries and only then running them into the ground.
President Obama has decided to do an end run around decades of mismanagement and sink billions of tax payer dollars into corporations that are already on life support. I can't tell the story better than the Washington Post can. Well, maybe I could, but it's a lot more fun coming from the Post.
IN MARCH, we cheered President Obama when he extended a federal lifeline to General Motors and Chrysler. He was risking a fair bit of tax dollars -- $6 billion, on top of $17.5 billion in emergency loans tendered since December -- but he said he was setting tough conditions for anything beyond that. "We cannot make the survival of our auto industry dependent on an unending flow of taxpayer dollars," he said. "These companies -- and this industry -- must ultimately stand on their own, not as wards of the state."
So how did we get from there to here? Here, according to media accounts this week, is an imminent transformation of General Motors into a government-owned company, infused with upward of $50 billion in federal money. The United States will accept stock in lieu of the cash the company owes, and Washington -- that is, you, the taxpayer -- will become the owner of 70 percent of the new GM. When might the company stand on its own, to paraphrase Mr. Obama? When would the government exit the stage? The Post reports today that administration officials hope to depart within five years, but the truth is that nobody knows when or whether taxpayers would recover their investment. If you think the federal government is well equipped to manage a failing automobile manufacturer into profitability, you should jump at this deal.
I would like to say that the Post is shocked, shocked that the President has put us in this position. But that's what you say when someone isn't shocked at all. In fact, the Washington Post seems really bewildered that the President is sinking billions in public money into a corporation that has no realistic prospect of returning to economic viability.
So why is Obama doing something so obviously ill-advised that it is even obvious to the WaPo? As the WaPo points out, there was some reason behind the auto-bailout originally, when the collapse of the industry might have turned a developing recession into something much worse. But now, surely, we have reached the point where that policy pays diminishing returns. Keeping zombie corporations walking decreases confidence in the economy as a whole. The real threat to our economic future is much bigger now than the auto industry. Around the world the Money is now thinking, for the first time, that the U.S. is a bad investment. Trying to get out of the quicksand while carrying a bunch of Buick Enclaves might not be the way to reassure everyone.
The Washington Post answers the question:
Is a massive, unbounded federal commitment to a company that evidently still can attract no private capital really the only option? It doesn't take much imagination to forecast the political pressures that will buffet the government-as-auto-executive. We've seen one effect already in the preferential treatment of the autoworkers' union at the expense of private creditors.
The government sweetened its offer to creditors in the past couple of days, but they're still getting less return on their debt than the union is. Meanwhile, the union can boast that it has been promised no loss in "base hourly pay, no reduction in . . . health care, and no reduction in pensions." Influential members of Congress will insist on jobs in their districts; environmentalists will want electric cars; overseas sourcing will be frowned upon. How such decisions affect profits could become secondary.
President Obama is putting this weight on the shoulders of our children and grandchildren and great grandchildren so that, right now, the Union can boast to its membership that it hasn't given up anything.
This is nuts. We'd be better off dissolving GM and putting every union member up in a high priced hotel for the rest of his or her life. Of course GM may miraculously turn around. Its stock may soar. People might suddenly want to buy its cars. But one of the reasons it went into the ground was the union contracts, and President Obama is making sure that that problem won't get fixed. This isn't a long run solution for the workers anymore than it is for the rest of us.
The Washington Post is shocked. I am not. I never thought the President had any idea what he was doing.