Pajamas Media » Kelo, GM, and the Stimulus: Three Examples of Government-Induced Failure

Kelo, GM, and the Stimulus: Three Examples of Government-Induced Failure

Government-managed economic projects rarely deliver.

November 20, 2009 - by Tom Blumer

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Recent weeks have not been good to those who bitterly cling to the notion that governments can manage economic initiatives. Three of them — one in real estate, a larger one in manufacturing, and a colossal enterprise supposedly intended to revive a downward-spiraling economy — have all either failed miserably or foundered badly.

On November 9, pharmaceutical giant Pfizer announced that it would abandon its eight-year-old research and development facility in New London, Connecticut. That decision effectively ended the chances of any additional development taking place in the city’s Fort Trumbull area, the subject of June 2005’s infamous Kelo v. New London Supreme Court decision.

Citing what Justice John Paul Stevens called a “carefully formulated … development plan,” the Court’s decision allowed the city to condemn and bulldoze dozens of houses. Today, the area, except for the politically connected Italian Dramatic Club, is a vacant wasteland.

Hopes for anything substantive were already on life support. But Pfizer, whose 2011 departure coincides with the end of ten years of tax abatement originally granted by the city, applied the fatal blow.

Then on Monday, government majority-owned General Motors issued its first post-bankruptcy clump of financial information.

Calling GM’s release a “financial report” would be an insult to financial, private industry, and regulatory officials who have worked for decades to create uniform and credible accounting and reporting standards. Instead of following generally accepted accounting principles, GM pulled terms like “managerial income” and “structural costs” out of thin air, and backhandedly warned us in a separate Word document that the unaudited numbers really don’t mean anything:

Management believes these adjusted financial measures provide meaningful supplemental information regarding GM’s operating results because they exclude amounts that GM management does not consider part of operating results when assessing and measuring the operational and financial performance of the organization.

My translation: “We took out the stuff we didn’t like.”

Even after doing so, and even after washing away over $80 billion in past problems through bailouts and bankruptcy, assisted by government favoritism and intimidation, the company reported a loss — er, “managerial net loss” — of $1.2 billion.

Finally, in more recent days the $800 billion-plus economic stimulus package passed by Congress in February has crossed a credibility-destroying threshold that even vocal opponents probably never thought would be breached.

For several weeks, evidence of the effort’s ineffectiveness has mounted while the overall unemployment rate has accelerated. In city after city, state after state, reports of skimpy numbers of jobs “created or saved” despite billions in spending have multiplied faster than well-fed cancer cells in a Petri dish.

But at least those projects were carried out in real places. Now we have learned from Watchdog.org that, “according to data retrieved from Recovery.gov, nearly $6.4 billion was used to ‘create or save’ just under 30,000 jobs in [440] phantom congressional districts — almost $225,000 per job.” Further, the chairman of the government’s Recovery Accountability and Transparency Board has told lawmakers that he cannot “certify that the number of jobs reported as created/saved on Recovery.gov is accurate and auditable.” What is transparent is that these people don’t know what the heck they’re doing and that the mother of all boondoggles looms on the horizon.

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Tom Blumer owns a training and development company based in Mason, Ohio, outside of Cincinnati. He presents personal finance-related workshops and speeches at companies, and runs BizzyBlog.com.

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28 Comments

1. Samizdat:

I can think of a few Democrat Congress persons who have a grasp of economics and the importance of private property and capital. Kent Conrad and Ben Nelson demonstrate a working knowledge of economics. The overwhelming majority of them don’t seem to have any education in how capitalism and free enterprise work to advance society. These uneducated people have a pernicious perspective on our economy born of ignorance and miseducation. I am constantly amazed at how uninformed they are and how much power they have.

The bailout of GM/Chrysler and the “stimulus” are monuments to the stupidity of liberal policy. Each is a naked payoff of a constituency, organised labor. Each embraces Keynesian economics, a demonstrably failed theory that continues to be troted out by leftists every time the economy turns down.

Previously I have considered purchasing automobiles from both of the now government owned automobile companies. Never again. I just purchased a new car, a VW which sits in our driveway with our Ford. I won’t even rent a product from the Government owned car companies.

This country will continue to decline as long as the majority party favors the SEIU and UAW more than the companies that actually employ people.

Nov 20, 2009 - 4:34 am 2. David Thomson:

“But it’s much more probable that most of them have learned and simply don’t care. They would prefer having more power and control over a situation involving mediocrity and malaise to having less control over one of growth and prosperity.”

They also take for granted that their affluent lifestyles are not in jeopardy. The current health care proposals, for instance, have zilch to do with them. These “elites” will continue to receive the best medical attention on this planet. The rest of us will be paying the price. Progressive ideology allows the favored ones to pretend they are looking out for the poor and disenfranchised. This is nothing more than pure self delusion. The elites are worrying about themselves, first, last, and foremost. At the moment, they are willing to pursue soft totalitarian tactics. But that won’t last—if they perceive the common citizenry dares to oppose their power grab.

Nov 20, 2009 - 5:05 am 3. Jack:

The reason that the statists in Congress are unable to recognize failure when they see it is because they are lawyers. They are trained to make an argument. They are not trained to recognize the truth. Facts are there to be manipulated, or left out, if possible.

Nov 20, 2009 - 5:40 am 4. michelle from ny:

Jack, (3) you write: “Lawyers are trained to make an argument. They are not trained to recognize the truth. Facts are there to be manipulated, or left out, if possible.”

Jack, I agree with you, with one addendum.

It’s something no one’s said, and the result of my trying to connect all dots. Here goes. Because of Obama’s actions over the last ten months,
I am forced to conclude that he is purposefully trying to destroy this country as we know it, to bankrupt it, shred its constitution, turn it
into something foreign, something unAmerican. What do you call someone out to destroy the United States of America?

Nov 20, 2009 - 6:47 am 5. Tom Nally:

Economic ignorance is pervasive, and it’s not an accident. The elected class has a vested interest in keeping the citizenry in a perpetual state of economic ignorance.

Citizens who are ambitious and self-reliant have less need for government. In fact, those citizens cringe at the thought that government might interfere with their pursuit of prosperity. The knowledgeable and self-reliant don’t want Congress to “fix” the economy. Rather, we want them to undo all the other false fixes that they have concocted over the last 20 years.

Economic ignorance is pervasive because education is primarily a government-controlled activity. If the education industry were to raise a generation of self-reliant free marketers, that would serve to disempower the elected class.

The elected class will never do that.

Nov 20, 2009 - 7:05 am 6. anonymous:

“…GM should have been allowed to fail….”

Who said that?
Tom Blumer.
Tom Blumer? Who’s Tom Blumer?
I dunno. Some guy.

Nov 20, 2009 - 7:50 am 7. David Thomson:

“Tom Blumer? Who’s Tom Blumer?”

What is your point? The only thing that matters is whether his point is accurate. Can you provide an argument why we should not have allowed GM to go bankrupt? If you can’t—could you please remain quiet? You are simply wasting our time.

Nov 20, 2009 - 8:12 am 8. myth buster:

4. An enemy.

6. And if John McCain had said that along with allowing all the investment banks to fail, he’d be President right now.

Nov 20, 2009 - 8:16 am 9. Tom Blumer:

#6, the substantive weight of your argument is overwhelming. (/sarc)

Nov 20, 2009 - 8:20 am 10. Sebastian Shaw:

The statists believe arrogantly that past statists have done something wrong in acting their ideology; however, the truth is Statism is a failure & will always fail. Yet the statists never see the truth. I believe they are blinded by their ideology & awful all consuming power lust. For instance, the Porkulus has been shown to be an abject absolute failure, yet the insular, arrogant boobs in Washington DC want another “stimulus” bill to cover their naked rear-ends for the 2010 elections. The second proposed “stimulus” is a band-aid to cover up Porkulus’ failure & give cover to the Democrats for the 2010 elections. The problem remains the general public did not want the first “stimulus” & does not want a second one. The Democrats are blithely playing with fire & headlong into political suicide. The worst is that the politicians cannot see themselves they are headed over a cliff in 2010…

Nov 20, 2009 - 8:35 am 11. Barrett:

If we did the opposite of everything Obama, Pelosi, Reid and the left has proposed, we would have a chance.

These people have placed us (America) on the path of destruction. The national debt has gone from $3 trillion in the mid-1990s to $6 trillion in 2002 to $12 trillion in 2009 and will be over $14 trillion in 2010. This is an exponential curve that is unsustainable. The increase in the price of gold is in USD only, reflecting a currency that is being debauched by Bernanke and Obama. If interest rates go to 10%, then roughly 70% of tax receipts will go to interest alone and the deficit will accelerate. (I know where rates are today and there are many factors, including the symbiotic and economically dysfunctional relationship with China, that would go into such a scenario.)

The collapse of the USD will result in a severe depression will have people trade freedom for bread and a reordering of the world order.

If you think I am crazy, Société Générale recently advised clients to be ready for a possible “global economic collapse” over the next two years. (See: http://www.telegraph.co.uk/finance/economics/6599281/Societe-Generale-tells-clients-how-to-prepare-for-global-collapse.html)

The absence of government is anarchy. Think of tribal societies if you want to think about life, the lack of prosperity and absence of freedom when anarchy rules. Totalitarian forms of government, including monarchies to fascism to communism, ultimately turn the citizenry in to indentured servants to a political class. The founders understood all of this. The limited government established in our Constitution and Bill of Rights was designed to give people the best opportunity to pursue life, liberty and happiness. It was not designed to remove every risk from everyone’s life (i.e. the unattainable goal of the nanny state). It was designed around individual freedom and responsibility and the ability to keep the fruits of one’s labor (whatever that may be). As a result, our form of government produced the greatest, most prosperous and freest society in history.

Failure has been a key to the success of America. Through failure, excesses are purged, assets move into the hands of competent managers, jobs are lost but more are gained and the poor become rich and the rich become poor via entrepreneurial initiative. It’s called creative destruction. Today, we have institutionalized failure with the bailouts and in doing so set the stage for own demise.

Working through failure can be painful for both individuals and societies. However, we can recover. The elections of 2010 are the first step of many in stopping the concentration of power in Washington and starting down the path that we return America to limited government. Freedom burns in the hearts of most people. I hope that the events that have brought us to today will motivate people to take up the cause of freedom, to not forget the cost of freedom borne by those who came before us and to pay the cost necessary to stay free.

Best wishes to everyone.

Nov 20, 2009 - 9:20 am 12. Mike G.:

Well summarized. A prior PJTV post had two numbers that have stuck in my mind and should be formed into some sort of rallying cry. Medicare wastes $60 billion of taxpayer money each year to fraud (never mind those amounts spent legitimately but inefficiently and unnecessarily). Compare this with $8.3 Billion that represents the total profits of the ten largest private health care providers – those evil, greedy inefficient companies targeted by Obamacare proponents. How can this all be happening? Where are the adults in charge?

Nov 20, 2009 - 9:45 am 13. Larry J:

If someone were intent on destroying America as we know it, what exactly would they do differently than what Obama, Pelosi, Reid, and company are doing right now?

Nov 20, 2009 - 9:49 am 14. Robert F:

“Tis better to rule in Hell than to serve in Heaven.”
-John Milton

That is the essence of the liberal bureaucrats’ perspective.

Always has been. Unfortunately, they are now leading us into hell at an astonishing rate.

Nov 20, 2009 - 10:48 am 15. JED:

In order for Obama to be the world’s first post-American president he has to do exactly what he is doing, while Pelosi and Reid have to cling to his coattails. Admitting defeat now would be disasterous after having doubled down.
The purpose of the government is to be the police and referee. Now government is the player and competitor. It can only succeed by failing as long as it can rewrite the rules. “When in the course of human events. . .” begins the next chapter.

Nov 20, 2009 - 11:48 am 16. Mike K:

There is an article that I have quoted so many times the past couple of months that I have saved it. It compares Obama to Gorbachev and ruminates that both will see the destruction of their respective nations.

Both men have been praised for their wonderful temperaments, and their ability to remain unperturbed by approaching catastrophe. But again, the substance is different, for Gorbachev’s temperament was that of a survivor of many previous catastrophes.

Yet they do have one major thing in common, and that is the belief that, regardless of what the ruler does, the polity he rules must necessarily continue. This is perhaps the most essential, if seldom acknowledged, insight of the post-modern “liberal” mind: that if you take the pillars away, the roof will continue to hover in the air.

Kelo, GM, and the Stimulus: Three Examples of Government-Induced Failure

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