The Democrats want GWB to support a bailout of Detroit, twitching aside the outgoing President’s effort to trade it in exchange for support of a free trade deal with Colombia. The NYT reports that “Mr. Obama went into his post-election meeting with Mr. Bush on Monday primed to urge him to support emergency aid to the auto industry, advisers to Mr. Obama said. But Democrats also indicate that neither Mr. Obama nor Congressional leaders are inclined to concede the Colombia pact to Mr. Bush, and may decide to wait until Mr. Obama assumes power on Jan. 20.”
Mr. Obama has been far more receptive than Mr. Bush to having the government intervene to rescue another major sector of the economy. He called automakers “the backbone of American manufacturing” in his first post-election press conference last Friday, and many thousands of their employees belong to unions that are part of the Democratic Party’s base.
But Mr. Obama’s stance raises the question, with the country in a worsening economic situation, where would the Democrat draw the line as president?
In the heavens. The corporate heavens, that is. David Brooks suggests that the biggest change in attitudes between the old America and the new one is a widespread belief in the virtues of corporate immortality.
Not so long ago, corporate giants with names like PanAm, ITT and Montgomery Ward roamed the earth. They faded and were replaced by new companies with names like Microsoft, Southwest Airlines and Target. The U.S. became famous for this pattern of decay and new growth. Over time, American government built a bigger safety net so workers could survive the vicissitudes of this creative destruction — with unemployment insurance and soon, one hopes, health care security. But the government has generally not interfered in the dynamic process itself, which is the source of the country’s prosperity.
But this, apparently, is about to change. Democrats from Barack Obama to Nancy Pelosi want to grant immortality to General Motors, Chrysler and Ford. They have decided to follow an earlier $25 billion loan with a $50 billion bailout, which would inevitably be followed by more billions later, because if these companies are not permitted to go bankrupt now, they never will be. …
Granting immortality to Detroit’s Big Three does not enhance creative destruction. It retards it. It crosses a line, a bright line.
The impulse to confer eternal financial life is not confined to the Democrats. The Republicans have their fair share of healers. The desire to lay hands upon the taxpayer’s money is a catholic, in the sense of universal, impulse.
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16 Comments
1. wildernesscalling:HELLO!!! Why would they draw a line… What part of “SOCAILISM” don’t you understand? The media (NYT) is next bailout they will become the “GOVERNMENT” mouth (PROPAGANDA) peice, wiping out all others (See freedom act) this is RUSSIA 1917 only no straving troops just a won war that has been nothing but lost in the media and to the DEMOCRATs!
Nov 15, 2008 - 12:43 pm 2. Lifeofthemind:ACT II: CARL MARX…please stand by!
The UAW has answered America’s call. They said “No.”
Nov 15, 2008 - 12:53 pm 3. Lifeofthemind:http://news.yahoo.com/s/ap/20081115/ap_on_bi_ge/auto_bailout_gettelfinger_3
The UAW has answered America’s call. They said “No.”
Nov 15, 2008 - 12:55 pm 4. Mike Sylwester:See: URL: news.yahoo.com/s/ap/20081115/ap_on_bi_ge/auto_bailout_gettelfinger_3
I’m too ignorant about high finance to say whether the US Government was absolutely compelled to do whatever it has been doing in our financial sector with that $700 billion.
I can say, however, that this effort has opened the door for infinite proposals that the US Government likewise put billions of dollars into other economic sectors.
Ever since the Reagan Administration, the Republicans have been governing with deficit budgets that were justified by the argument that keeping taxes low would enable us to grow our economy sufficiently to continue to govern with deficit budgets indefinitely.
Unfortunately, we Republicans have opened the door for the Democrats to use the same arguments for deficit budgets during the next eight years. Many times during the past months, Obama looked straight into the television camera and promised with a straight face to reduce taxes for 95% of the population. The Republicans were helpless against that tactic, because Obama is such an eloquent and believable political actor. But we Republicans ourselves have laid the groundwork during the past three decades for him to promise these tax cuts so convincingly now.
Most people aren’t scared by the possibility that increased taxes on the richest 5% might reduce investments for further economic growth. These people expect that the government’s new expenditures will be the new investments for economic growth. Even Obama’s promise that the Federal Government will fund schools for three- and four-year-old children is considered to be an “investment” that will pay for itself very profitably in future years.
These people expect quick and big investment bonanzas to come from the US Government’s investments in new “green technologies.” They believe our Federal Government would be foolish not to invest billions or even trillions of dollars in these automobile companies. Our society will receive these investments back as huge profits as soon as these automobile companies become huge manufacturers and exporters of new automobiles using these new technologies. Everyone in the USA and everyone in the world will want to buy our new automobiles in the near future — only about eight years from now. Therefore it would be insane for us to allow these companies to go bankrupt now, when they really are so close to enormous profitable success.
Nov 15, 2008 - 1:12 pm 5. Fat Man:“Essay: Just Say No to Detroit” Given the abysmal performance by Detroit’s Big Three, it would be better to send each employee a check than to waste it on a bailout, says David Yermack, professor of finance at New York University’s Stern School of Business in the Wall Street Journal on November 15, 2008[$$$$]:
In 1993, the legendary economist Michael Jensen gave his presidential address to the American Finance Association. Mr. Jensen’s presentation included a ranking of which U.S. companies had made the most money-losing investments during the decade of the 1980s. The top two companies on his list were General Motors and Ford, which between them had destroyed $110 billion in capital between 1980 and 1990, according to Mr. Jensen’s calculations.
* * *
Over the past decade, the capital destruction by GM has been breathtaking, on a greater scale than documented by Mr. Jensen for the 1980s. GM has invested $310 billion in its business between 1998 and 2007. The total depreciation of GM’s physical plant during this period was $128 billion, meaning that a net $182 billion of society’s capital has been pumped into GM over the past decade — a waste of about $1.5 billion per month of national savings. The story at Ford has not been as adverse but is still disheartening, as Ford has invested $155 billion and consumed $8 billion net of depreciation since 1998. Yet one can only imagine how the $465 billion could have been used better — for instance, GM and Ford could have closed their own facilities and acquired all of the shares of Honda, Toyota, Nissan and Volkswagen.
* * *
The implications of this story for Washington policy makers are obvious. Investing in the major auto companies today would be throwing good money after bad. Many are suggesting that $25 billion of public money be immediately injected into the auto business in order to buy time for an even larger bailout to be organized. We would do better to set this money on fire rather than using it to keep these dying firms on life support, setting them up for even more money-losing investments in the future.
* * *
If the government diverts our national savings into businesses that have long track records of destroying investment capital, eventually we’ll end up with an economy like France’s — or Zimbabwe’s.
* * *
Nov 15, 2008 - 1:25 pm 6. E. Nigma:They can’t be ’saved’ as they are presently constituted.
Bankruptcy and re-organization. Sweeping changes in corporate management and changing the nature and scale of the UAW wages and benefits. Keep the people that are doing a good job and get rid of the deadwood.
A bailout is only throwing good money after bad.
Quoting and excerpting Professor Yermack details the abyss which the Big Three have dug and are plummeting into.
Bankruptcy isn’t the end; it is a mechanism to bring about sweeping re-organization and change. Isn’t that what the election was all about?
Nov 15, 2008 - 2:41 pm 7. Sleeper:Would the incoming Obama Administration be incredibly reactionary in trying to save these people from themselves?
I savor the irony of Obama, having promised investment in the most cutting edge technologies, will start by bailing out the most retarded industrial sector of the US, whose products are shunned by Obama hard-core supporters.
Nov 15, 2008 - 2:48 pm 8. Herb:Too stupid to live, too big to die, so just shoot them.
According to Heritage, the Social Security system has a 75 year unfunded liability (obligations in excess of source of funds) of over $43 Trillion.(present value) [Thats a number I have great respect for] There’s no money.
GM, Ford and Chrysler are a luxury we cant afford. But the Auto Industry (UAW) is the backbone of the American (Democrat) economy and we must save those jobs (PAC Dues).
That creaking sound you hear is the Bureau of Engraving and Printing oiling up their really high speed presses.
The only way out of this mess is by inflating our way out. How do we hedge ourselves against this obvious coming inflation?
Nov 15, 2008 - 3:21 pm 9. E. Nigma:Buy gold.
Nov 15, 2008 - 4:06 pm 10. buddy larsen:At this point, we may not be able to tolerate high inflation –the high interest rates –esp on the long end –will overwhelm gov’t deficit financing and destroy too much private economic activity –a bout of high inflation along with the new political config of DC will likely begin a new American socialist command economy. Jeez how did things get so grim so quickly –oh yes, forgot, Barney Frank’s Fanny. But somebody should’ve been watching Barney’s Fanny, and sounding louder and more continuous alarums when it started getting so grossly larger than its britches.
Nov 15, 2008 - 5:16 pm 11. steeple:Sleeper, so well stated and great economy of words. Well done.
Nov 15, 2008 - 5:44 pm 12. buddy larsen:Then there’s the irony of this democrat-authored financial crisis being the issue that elected…the democrats.
Nov 15, 2008 - 6:03 pm 13. slade:But Mr. Obama’s stance raises the question, with the country in a worsening economic situation, where would the Democrat draw the line as president?
As a Democrat, Obama will support the union demographic, which means as President come January 21 2009, he will oppose the Colombia Free Trade Agreement. A classic one-two punch that weakens both the declining US economy and the growing Colombian economy. What I have read so far is that immediate relief for Detroit, before January, being pushed by Obama’s people, is hung up on the Colombia Trade Agreement being pushed by Bush’s people. Actually I think that was this site. Time to shut up some more.
Nov 16, 2008 - 6:22 am 14. Jay:Lawyers and professors and lazy college students can not run a command economy.
Nov 16, 2008 - 8:26 am 15. buddy larsen:but jay, one can have social justice at any level of prosperity or poverty, or war or peace, or liberty or tyranny.
Nov 16, 2008 - 9:17 am 16. Tom Holsinger:The UAW bailout will be the defining moment of Obama’s administration, as the air traffic controller’s strike was for the Reagan administration.
If Obama vetoes this bailout, he will exert fiscal discipline for the rest of his administration and might succeed.
If he allows this bailout, he won’t be able to say no to anyone and his administration will be a one-term failure a la Jimmy Carter’s.
And we’ll know this soon after he takes office.
Nov 16, 2008 - 11:10 amSorry, comments for this entry are closed at this time.