The man of system will now fix the auto industry

by Russ Roberts on March 30, 2009

in Man of System

The President spoke today about his latest attempts to save the auto industry. You could teach a semester-long class in economics from this speech. So many errors and insults to the intelligence of the citizenry. The boldface and non-indented stuff is mine.

One of the challenges we have confronted from the
beginning of this administration is what to do about the state of our
struggling auto industry. In recent months, my auto task force has been
reviewing requests by General Motors and Chrysler for additional
government assistance as well as plans developed by each of these
companies to restructure, modernize, and make themselves more
competitive.

MY task force? Hmmm. "The" would have been better. Or "Our."

Our evaluation is now complete. But before I lay out what
needs to be done going forward, I want to say a few words about where
we are, and what led us to this point.

It
will come as a surprise to no one that some of the Americans who have
suffered most during this recession have been those in the auto
industry and those working for companies that support it. Over the past
year, our auto industry has shed over 400,000 jobs, not only at the
plants that produce cars but at the businesses that produce the parts
that go into them, and the dealers that sell and repair them.

The 400,000 figure is a made up number. It's just a guess. He just wanted to make it sound as big as possible. He has to. The UAW is so small, just 190,000 workers. One estimate of the bailout of the auto industry is $130 billion. That's only about $684,000 per worker. What a bargain.

More than
one in 10 Michigan residents is out of work — the most of any state.
And towns and cities across the great Midwest have watched unemployment
climb higher than it's been in decades.
The pain being felt in places that rely on our auto industry is not the
fault of our workers, who labor tirelessly and desperately want to see
their companies succeed. And it is not the fault of all the families
and communities that supported manufacturing plants throughout the
generations. Rather, it is a failure of leadership — from Washington
to Detroit — that led our auto companies to this point.

Year after year, decade after decade, we have seen problems
papered-over and tough choices kicked down the road, even as foreign
competitors outpaced us.

Kicking problems down the road? This from the man who has promised trillion dollar deficits for years.

Well, we have reached the end of that road.
And we, as a nation, cannot afford to shirk responsibility any longer.

Nations don't have responsibility. And I have no responsibility for the auto industry. Neither do you.

Now is the time to confront our problems head-on and do what's
necessary to solve them.
We
cannot, we must not, and we will not let our auto industry simply
vanish. This industry is, like no other, an emblem of the American
spirit; a once and future symbol of America's success.

So the first reason to save an incompetent industry with your money and mine is because it's a symbol. Are you kidding me?

It is what
helped build the middle class and sustained it throughout the 20th
century.

This second reason is no more persuasive. It implies we owe the industry for its largesse of the past. It is an industry. We owe it nothing. It is not a sentient being. And the statement ignores the reality that bailing out incompetence punishes the middle class.

It is a source of deep pride for the generations of American
workers whose hard work and imagination led to some of the finest cars
the world has ever known.

More irrelevance. Why doesn't he bring back the long-ago outstanding American shoe industry? The once first-rate American TV industry?

It is a pillar of our economy that has held
up the dreams of millions of our people.

More blather. it is not a pillar of our economy. It is not a pillar of the workforce. And it's no longer a pillar of anything. It's mostly broken.

But we also cannot continue to
excuse poor decisions.

That's it? We have to save this industry because it's a symbol, and it used to be successful? Not persuasive.

And we cannot make the survival of our auto
industry dependent on an unending flow of tax dollars. These companies
– and this industry — must ultimately stand on their own, not as
wards of the state.

Good points. Unfortunately, these are the only two really good sentences in the whole speech.

That is why the federal government provided General Motors 

and Chrysler with emergency loans to prevent their sudden collapse at
the end of last year — only on the condition that they would develop
plans to restructure.

What about Ford? Oh, I forgot. They're fine. But I thought the industry was dying. No, it turns out, only part of the industry.

 In keeping with that agreement, each company has
submitted a plan to restructure. But after careful analysis, we have
determined that neither goes far enough to warrant the substantial new
investments that these companies are requesting.

I'd love to see the methodology of that "careful analysis."

And so today, I am
announcing that my administration will offer GM and Chrysler a limited
period of time to work with creditors, unions, and other stakeholders
to fundamentally restructure in a way that would justify an investment
of additional tax dollars; a period during which they must produce
plans that would give the American people confidence in their long-term
prospects for success.

That would be great. Give them a deadline and if they can't be viable by then, cut 'em loose. Alas, that isn't what he has in mind.

What we are asking is difficult. It will require hard choices by
companies. It will require unions and workers who have already made
painful concessions to make even more. It will require creditors to
recognize that they cannot hold out for the prospect of endless
government bailouts. Only then can we ask American taxpayers who have
already put up so much of their hard-earned money to once more invest
in a revitalized auto industry. But I am confident that if we are each
willing to do our part, then this restructuring, as painful as it will
be in the short-term, will mark not an end, but a new beginning for a
great American industry; an auto industry that is once more
out-competing the world; a 21st century auto industry that is creating
new jobs, unleashing new prosperity, and manufacturing the
fuel-efficient cars and trucks that will carry us toward an energy
independent future. I am absolutely committed to working with Congress
and the auto companies to meet one goal: the United States of America
will lead the world in building the next generation of clean cars.

How about the next generation of profitable cars? They are not the same thing…

No
one can deny that our auto industry has made meaningful progress in
recent years. Some of the cars made by American workers are now
outperforming the best cars made abroad. In 2008, the North American
Car of the Year was a GM. This year, Buick tied for first place as the
most reliable car in the world. And our companies are investing in
breakthrough technologies that hold the promise of new vehicles that
will help America end its addiction to foreign oil.

But our auto industry is not moving in the right direction fast enough
to succeed.

Mr. President, maybe you don't quite understand how capitalism works. It's a profit and loss system. If you make a phenomenal family sedan but it costs you $200,000 to make it, that's not a viable product. Making the most reliable car is irrelevant if an insufficient number of people find its price attractive. The Chevy Volt is already going to get a $7500 subsidy. I think that's enough. If it isn't, kiss it goodbye. It's making us poorer not richer.

So let me discuss what measures need to be taken by each of
the auto companies requesting taxpayer assistance, starting with
General Motors. While GM has made a good faith effort to restructure
over the past several months, the plan they have put forward is, in its
current form, not strong enough. However, after broad consultations
with a range of industry experts and financial advisors, I'm confident
that GM can rise again, provided that it undergoes a fundamental
restructuring. As an initial step, GM is announcing today that Rick
Wagoner is stepping aside as Chairman and CEO. This is not meant as a
condemnation of Mr. Wagoner, who has devoted his life to this company;
rather, it's a recognition that it will take a new vision and new
direction to create the GM of the future.

No, it's really a vote of confidence in Mr. Wagoner. Really. Not a condemnation. And besides, he devoted his life (his life!) to the company. What a saint. Actually it's fascinating that Wagoner gets thrown under the SUV, as it were. Even after switching from the corporate jet to the clown car and eating at Quizno's, it wasn't enough to save him. It's a black swan, really, that got him. It was the outrage over the AIG bonuses. Obama couldn't keep shoveling money into a dying company and give them free reign over their pay and everything else. Who'd have thunk it? There's no way he expected to be fired.

In
this context, my administration will offer General Motors adequate
working capital over the next 60 days. During this time, my team will
be working closely with GM to produce a better business plan.

 I'm glad he's hard at work. I think I'm starting to get it. It's his team. His administration. His ceaseless efforts.

They must
ask themselves: have they consolidated enough unprofitable brands? Have
they cleaned up their balance sheets or are they still saddled with so
much debt that they can't make future investments? And above all, have
they created a credible model for how to not only survive, but succeed
in this competitive global market?

I can see the finger wagging. Come on everybody! Let's put on our thinking caps! Such deep questions. What insight! I'm sure the devoted Mr. Wagoner never thought about them. Or maybe he didn't think about them hard enough or wisely enough. Can you imagine being lectured by the President about your field of expertise, a field he and probably even HIS team have thought about for a few months while you've spent years trying to succeed? I think I'd vomit if I were Rick Wagoner. This actually makes me feel sorry for him.

Let me be clear: the United States
government has no interest or intention of running GM.

Could have fooled me. Did he mean to add the word "forever" to the end of the sentence?

What we are
interested in is giving GM an opportunity to finally make those
much-needed changes that will let them emerge from this crisis a
stronger and more competitive company.

The situation at Chrysler is more challenging. It is with deep
reluctance but also a clear-eyed recognition of the facts that we have
determined, [my team and I--boy it's hard work saving the financial system, restructuring the health care system, our energy system and our tax system and then to make these kind of subtle determinations. But I can do it. And fill out my NCAA bracket.] after a careful review, that Chrysler needs a partner to
remain viable.

Interesting. Chrysler needs a partner. It won't be enough for Chrysler to ask themselves: have they consolidated enough unprofitable brands? Have
they cleaned up their balance sheets or are they still saddled with so
much debt that they can't make future investments? And above all, have
they created a credible model for how to not only survive, but succeed
in this competitive global market? Nope. No  questions like these for Chrysler. They need a partner. Actually, my first thought is that Chrysler needs a partner like a fish needs a bicycle but that's just my perspective. My team isn't very insightful.

Recently, Chrysler reached out [love this lingo--makes it sound so decent and open to change. Memo to the Prez--companies don't reach out. People do. Dance partners do. Estranged siblings do] and found what could be a
potential partner — the international car company Fiat, where the
current management team has executed an impressive turnaround. Fiat is
prepared to transfer its cutting-edge technology to Chrysler and, after
working closely with my team, [that would be the team that belongs to me, the team that is mine, the team that is no one else's, signed Anne Elk] has committed to building new
fuel-efficient cars and engines here in America. We have also secured
an agreement that will ensure that Chrysler repays taxpayers for any
new investments that are made before Fiat is allowed to take a majority
ownership stake in Chrysler.

Well this is a novelty item–interjecting the government into a private transaction. Could it affect the price the terms of the deal to know the President of the United States is shoving the deal down the throat of one of the players? Naw.

Still, such a deal would require an additional investment of tax
dollars, and there are a number of hurdles that must be overcome to
make it work.

Ohhhh. So it's not a good deal for both sides. So he hasn't actually weakened Chrysler's negotiating position. He's weakened his own. Oh, I forgot. He isn't spending his money. Just yours and mine. No problem. Another day of global stimulus.

I am committed to doing all I can to see if a deal can be
struck in a way that upholds the interests of American taxpayers.

Yep. There it is. I wish him luck. It's tough to fight for a good deal when you've told one party the deal has to get done.

That
is why we will give Chrysler and Fiat 30 days to overcome these hurdles
and reach a final agreement — and we will provide Chrysler with
adequate capital to continue operating during that time. If they are
able to come to a sound agreement that protects American taxpayers, we
will consider lending up to $6 billion to help their plan succeed. But
if they and their stakeholders are unable to reach such an agreement,
and in the absence of any other viable partnership, we will not be able
to justify investing additional tax dollar to keep Chrysler in
business.

Phew. There's a cap on how much we taxpayers have to contribute. It won't be more than $6 billion. Peanuts. That used to be a lot of money. Not any more. And to save a symbol of the American economy it's a bargain at twice the price.

While Chrysler and GM are very different companies with very different
paths forward, both need a fresh start to implement the restructuring
plans they develop. That may mean using our bankruptcy code as a
mechanism to help them restructure quickly and emerge stronger. Now, I
know that when people even hear the word "bankruptcy" it can be a bit
unsettling, [Love the condescending tone here. Yes, you have cancer. But it's just a word. Don't get unsettled over it. It's just a word!] so let me explain what I mean [to you morons out there who think "bankruptcy" is a scary word] What I am talking about is
using our existing legal structure as a tool that, with the backing of
the U.S. government, can make it easier for General Motors and Chrysler
to quickly clear away old debts that are weighing them down so they can
get back on their feet and onto a path to success; a tool that we can
use, even as workers are staying on the job building cars that are
being sold.

So it's a tool. Fine. No big deal. Just a tool.

What I am not talking about is a process where a company is
broken up, sold off, and no longer exists. And what I am not talking
about is having a company stuck in court for years, unable to get out.

No that's something else. That's banana. Not bankruptcy. Banana—bad. Bankruptcy—no big deal–after all, it's a tool for moving forward. I wonder why he even mentioned a company being broken up, sold off, death, stuck in court (worse than death, evidently.) I guess some people associate those effects with bankruptcy. Who are those people? That's not bankruptcy. That's banana. Pay no attention to the word behind the curtain. And if you pull the curtain back–banana! Not what we're talking about.

It
is my hope that the steps I am announcing today will go a long way
toward answering many of the questions people may have about the future
of GM and Chrysler. But just in case there are still nagging doubts,
let me say it as plainly as I can — if you buy a car from Chrysler or
General Motors, you will be able to get your car serviced and repaired,
just like always. Your warranty will be safe. In fact, it will be
safer than it's ever been. Because starting today, the United States
government will stand behind your warranty.

Safer than it's ever been. Just imagine. This is the ultimate free lunch. By a GM or Chrysler car and your warranty isn't just compromised by the US taking over these companies. It's improved. This is a feature, not a bug! We're more reliable than the real companies. For homework, discuss how this incredible unconstitutional budgetary commitment (hey Congress, do you still exist?) affects GM's and Chrysler's incentive to produce first-rate cars that don't break down. And glad you're not intending to run the industry. You just want to guarantee its products with taxpayer money. Somewhere, Hayek is weeping.

But we must also recognize that the difficulties facing this industry
are due in no small part to the weakness in our economy.

Wrong. The economy is a small part of the difficulties. Disagree? I have a one word response for you. Starts with F. Ends in D. Four letters.

Therefore, to
support demand for auto sales during this period, I'm directing my team
to take several steps. First, we will ensure that Recovery Act funds to
purchase government cars go out as quickly as possible and work through
the budget process to accelerate other federal fleet purchases as well.
[We will of course only be buying the cars of the loser incompetent companies, Chrysler and GM. No Fords. That would be unfair. They're doing so well.] Second, we will accelerate our efforts through the Treasury
Department's Consumer and Business Lending Initiative. [Yes, let's return to the days where your personal situation didn't affect whether you got a loan. Loans all around!] And we are
working intensively with the auto finance companies to increase the
flow of credit to both consumers and dealers. [More and more and more and more loans. Can't have enough loans. That's how we got into this mess. Not enough loans!] Third, the IRS is today
launching a campaign to alert consumers of a new tax benefit for auto
purchases made between Feb. 16 and the end of this year — if you buy a
car anytime this year, you may be able to deduct the cost of any sales
and excise taxes. This provision could save familieswill cost taxpayers hundreds of
dollars and lead to as many as 100,000 new car sales.
Finally, several members of Congress have proposed an even more
ambitious incentive program to increase car sales while modernizing our
auto fleet. Such fleet modernization programs, which provide a generous
credit to consumers who turn in old, less fuel efficient cars and
purchase cleaner cars have been successful in boosting auto sales in a
number of European countries.
Yes, that is the goal of a successful economy. It's actually the goal of economic life. Car sales. Can you imagine that the Europeans have somehow managed to boost auto sales by paying people to buy new cars? Those Europeans are so ingenious. What will they think of next? Why not force everyone to trash their cars every year. That will really boost sales. Or slaughtering all the pigs to drive up the price. Oops, that's a mistake from the 1930s. Same mistake. Do we ever learn?

I want to work with Congress to identify
parts of the Recovery Act that could be trimmed to fund such a program,
and make it retroactive starting today.

Let there be no doubt, it will take an unprecedented effort on all our
parts — from the halls of Congress to the boardroom, from the union
hall to the factory floor — to see the auto industry through these
difficult times. But I want every American to know that the path I am
laying out today is our best chance to make sure the cars of the future
are built where they've always been built — in Detroit and across the
Midwest; to make America's auto industry in the 21st century what it
was in the 20th century — unsurpassed around the world. This path has
been chosen after consulting with other governments that are facing
this crisis. We have worked closely with the government of Canada on GM
and Chrysler, as both companies have extensive operations there. The
Canadian government has indicated its support for our approach and will
be announcing their specific commitments later today.

While the steps I am talking about will have an impact on all
Americans, some of our fellow citizens will be affected more than any
others. And so I'd like to speak directly to all those men and women
who work in the auto industry or live in the countless communities that
depend on it. Many of you have been going through tough times for
longer than you'd care to remember. And I will not pretend the tough
times are over. I cannot promise you there isn't more pain to come. But
what I can promise you is this — I will fight for you.

Excuse me, Mr. President. You really are supposed to represent the nation, not the UAW. It's inappropriate to fight for one group by using funds from the rest of the country.
You are the
reason I am here today.

An awkward choice of words. It makes it sound like he owes the unions for getting him elected. Could that be what he meant. Not exactly as it turns out. or maybe it was a Freudian slip. Or a wink wink nudge nudge for insiders.

I got my start fighting for working families in
the shadows of a shuttered steel plant and I wake up every single day
asking myself what I can do to give you and working people all across
this country a fair shot at the American dream.

No comment other than to note that he seems to have no idea what underpins the American Dream–the rule of law, private property, the sanctity of contracts. Actually I have one other comment. This kind of sanctimonious nonsense about waking up every morning, blah blah blah really insults my intelligence and yours.

When a community is struck by a natural disaster, the nation responds
to put it back on its feet. While the storm that's hit our auto towns
is not a tornado or a hurricane, the damage is clear, and we must
respond. That is why today, I am designating a new Director of Recovery
for Auto Communities and Workers to cut through red tape and ensure
that the full resources of our federal government are leveraged to
assist the workers, communities, and regions that rely on our auto
industry. Edward Montgomery, a former Deputy Labor Secretary, has
agreed to serve in this role. Together with Labor Secretary Solis and
my Auto Task Force, Ed will help provide support to auto workers and
their families, and open up opportunity in manufacturing communities.
Michigan, Ohio, Indiana, and every other state that relies on the auto
industry will have a strong advocate in Ed. He will direct a
comprehensive effort that will help lift up the hardest hit areas by
using the unprecedented levels of funding available in our Recovery Act
and throughout our government to create new manufacturing jobs and new
businesses where they are needed most — in your communities. And he
will also lead an effort to identify new initiatives we may need to
help support your communities going forward.

This is really entertaining. To help you cut through the bureaucracy, we're going to create a new level of bureaucracy. And it's really special. It's a bureaucracy explicitly designed to help out one group of Americans.

These efforts, as essential as they are, will not make everything
better overnight. There are jobs that cannot be saved. There are plants
that will not reopen. And there is little I can say that can subdue the
anger or ease the frustration of all whose livelihoods hang in the
balance because of failures that weren't theirs.

But there is something I want everyone to remember. Remember that it is
precisely in times like these — in moments of trial, and moments of
hardship — that Americans rediscover the ingenuity and resilience that
makes us who we are. That made the auto industry what it once was. That
sent those first mass-produced cars rolling off assembly lines. That
built an arsenal of democracy that propelled America to victory in the
Second World War. And that powered our economic prowess in the first
American century.

Cue the french horns. Now the trumpets.

Because I know that if we can tap into that same ingenuity and
resilience right now; if we can carry one another through this
difficult time and do what must be done; then we will look back and say
that this was the moment when America's auto industry shed its old
ways, marched into the future, and remade itself, once more, into an
engine of opportunity and prosperity, not only in Detroit, and not only
in our Midwest, but all across America.

Now bring up the strings and the big red white and blue flag in the background. I'm getting goose bumps. Not.

Once again, let us give Adam Smith the last word:

"The
man of system, on the contrary, is apt to be very wise in his own
conceit; and is often so enamoured with the supposed beauty of his own
ideal plan of government, that he cannot suffer the smallest deviation
from any part of it. He goes on to establish it completely and in all
its parts, without any regard either to the great interests, or to the
strong prejudices which may oppose it. He seems to imagine that he can
arrange the different members of a great society with as much ease as
the hand arranges the different pieces upon a chess-board. He does not
consider that the pieces upon the chess-board have no other principle
of motion besides that which the hand impresses upon them; but that, in
the great chess-board of human society, every single piece has a
principle of motion of its own, altogether different from that which
the legislature might chuse to impress upon it. If those two principles
coincide and act in the same direction, the game of human society will
go on easily and harmoniously, and is very likely to be happy and
successful. If they are opposite or different, the game will go on
miserably, and the society must be at all times in the highest degree
of disorder."

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{ 49 comments }

Adam March 30, 2009 at 11:39 pm

Stop. Please stop. This is so depressing, it makes me want to cry.

I am truly beginning to feel that we are witnessing the death throes of the constitution. Jackson started it, the Progressives exacerbated it, FDR put it into overdrive, Nixon reveled in it, and Bush woke up every single day asking himself what can I do to spread it.

Don't blame Obama. He's just taking the only merciful option left when faced with the pale, bloated, withered figure of the document drafted by the likes of James Madison.

T L Holaday March 30, 2009 at 11:42 pm

Geez I wish you or Don had written a Fisking like this about the special-resolution funding of the Iraq war, warrantless eavesdropping, secret prisons, and torture of the previous administration, but apparently the only kind of government power Hayek's disciples are willing to write about is its power to increase or decrease paycheck deductions.

Lee Kelly March 31, 2009 at 12:00 am

T L Holaday,

When Obama talks there is a real danger that people will mistake his excrement for wisdom–there was little danger of this with Bush. An army of bloggers, television producers, newspaper editors, and local gossipers recorded, criticised, and condemned Bush's every move. At the moment Obama is enjoying relatively positive press. The demand–theneed–for economists like Roberts and Boudreaux to carry the torch during this time is greater than during the Bush years.

Nonetheless, the Bush administrations' fiscal irresponsibility and comtempt fr civil liberties are regularly mentioned on this blog. And it is also worth remembering that Cafe Hayek is first and foremost an economics blog, and many of Bush's crimes were somewhat outside of the traditional realm of economics.

BoscoH March 31, 2009 at 12:01 am

I say let Obama take ownership of this disaster. Remind him that he's CEO of two companies in 18 months. Russ, I am not a fan of fisking at all, but it might be halfway appropriate here.

Ashish March 31, 2009 at 12:02 am

Outstanding!

That's the best speech I've ever heard. And I'm not talking about Obama.

That may sound like a left handed compliment, but I assure you – the appreciation is genuine.

vikingvista March 31, 2009 at 12:08 am

"power to increase or decrease paycheck deductions"

Obama is living up to the authoritarian aspirations the left had for Bush.

Mogden March 31, 2009 at 12:09 am

I wonder if all Presidents before Bush and Obama were just about as incompetent and offensive, but we didn't realize it because there was no Internet.

Ike March 31, 2009 at 12:11 am

Russ, you're obviously repressing here. Some severely sublimated feelings.

How do you *really* feel?

JamesFromPittsburgh March 31, 2009 at 12:29 am

Pwned

JPIrving March 31, 2009 at 12:29 am

Holaday, this is an economics blog, if you search the archive you'll find plenty of criticism of Bush's ECONOMIC policy. I'm thinking the steel tariff, and that program…what is it called again. Oh yeah. The TARP.

Regarding Prof Roberts post:

I wonder if the US can sustain 4/8 years  of this. If that fancy lawyer keeps fighting market corrections with economic planning, how does the U.S. avoid hyper inflation and a currency crisis? I'm not even wearing my tinfoil hat, I think this is becoming a legitemate concern.

It will be interesting to see if we make it to 2016 with all 50 states on board…

vikingvista March 31, 2009 at 12:41 am

"It will be interesting to see if we make it to 2016 with all 50 states on board…"

It would be good encouragement to a better Federal government if a state or two did successfully part ways.

iamse7en March 31, 2009 at 12:53 am

BRILLIANT commentary.

The sarcasm is both entertaining and profound. Indeed, Hayek must be weeping.

Your commitment to and defense of economic liberty is contagious. I'm sending this to all my friends and family.

EidolWays March 31, 2009 at 12:59 am

This post gave me a good chuckle when "banana" was substituted for "bankruptcy". It really is amazing to see the brazen arrogance of politicians and their condescension toward the common man; that is, the very same common man they claim to strive so hard for. Poor common man really must not be able to take care of himself. That poor common man must be a real Neanderthal!

The thing that makes me sad is that GM has a car I want to buy. But I'm really not sure what to think these days. I want this particular car enough that their instability doesn't bother me; engine parts shouldn't be hard to come by for this model. But all the government intervention and warranty "guarantees"? Hearing that the government is guaranteeing the warranties is no comfort at all! It's like being told a triggerhappy lunatic will be assigned as your bodyguard if all else fails. I don't trust government or the companies they'll contract to properly handle any sort of warrantied repairs. The sales tax deduction I don't mind quite so much, since taxes in general irk me. The fact that it's being done as an intentional credit rather than a rollback due to surpluses is not so good, however.

So yeah. I still want a GM car, but this government rape of GM casts a pall over their cars in my eyes. They're… tainted.

Brandon Robison March 31, 2009 at 12:59 am

That was beautiful.

Michael Gibson March 31, 2009 at 1:51 am

Best. Post. Ever.

Crusader March 31, 2009 at 2:12 am

T L Holaday – you obviously can never stay on subject.

Evgeniy Gentchev March 31, 2009 at 2:39 am

I grew up in communist Eastern Europe and came to the US to pursue my American Dream… Listening to the news today (and during the past few months) I have the sinking feeling that I've seen this movie before. In a weird way Karl Marx (in The Communist Manifesto) and Friedrich Hayek (in The Road to Serfdom) agree in their predictions: Marx – history progresses from capitalism toward communism, and Hayek – when people oppose competition, you move to a situation, in which the state supports industrial monopolies, but eventually the state takes over control of industry. I wrote a blog post to that effect at http://atleastonewhy.blogspot.com/2009/02/free-market-uses-misuses-and.html

Mike Farmer March 31, 2009 at 2:59 am

I worked at GM in the 70s. My father retired from GM. Obama's idealized version of the worker exerting tireless effort and devotion to the company is hilarious in light of what I experienced — workers doctor-shopping to find quacks to give them letters to stay on medical leave half a year – the drugs and alcohol that could be bought with a signal of the hand – the old union members mixing drinks at their stations – the scams that went around endlessly to beat the company — the cushy jobs that meaningless, on and on.

Mike Farmer March 31, 2009 at 2:59 am

I worked at GM in the 70s. My father retired from GM. Obama's idealized version of the worker exerting tireless effort and devotion to the company is hilarious in light of what I experienced — workers doctor-shopping to find quacks to give them letters to stay on medical leave half a year – the drugs and alcohol that could be bought with a signal of the hand – the old union members mixing drinks at their stations – the scams that went around endlessly to beat the company — the cushy jobs that meaningless, on and on.

Mike Farmer March 31, 2009 at 3:00 am

were meaningless

rssREader March 31, 2009 at 4:25 am

Prof. Roberts,

Great post!

I have one request. Your indentations do not show up in an RSS reader (I am using Sage on Firefox). If you can get the time can you please fix it?

Thanks.

Greg Ransom March 31, 2009 at 4:32 am

Note well that this is all the thoughts of some punk 20 something speech writer.

Obama is merely reading the words spilled on paper by the punk speech writer whose never done anything but write speeches.

A teleprompter might as well be running the country.

Obama's "Dreams From My Fathers" were dreams of self confidently telling everyone else how to remake a country from the top down — what Barack Obama, Sr. arrogantly gassed on an on about in Kenya until the President of Kenya had enough and destroyed his out of control hubristic career.

Can't wait till the voters do the same to Obama — assuming this cult of personality thing does do for Obama what it did for Roosevelt and what it's doing for Chavez.

Charlie March 31, 2009 at 4:47 am

Wow, soooo much anger. I really don't get it though. It still seems to me like the executive branch is just acting like a judge in a bankruptcy. GM and Chrysler put a plan together for Ch. 11 –restructuring–and it was rejected. They have more time to take another shot. If not, it'll go to Ch. 7 liquidation. Most Ch.11's end up in Ch. 7 even after they are approved. And in the mean time the gov't is acting as the creditor.

I'm still not clear on how this is so different. It could be different down the road, but right now it looks a lot like bankruptcy. What seems to me is really going on is that many economists have no idea that this is what bankruptcy is like. It was so funny as I was thinking Obama was giving code to the effect of "we are just doing a bankruptcy, but that word is too scary to most people and they don't know what it means so we're calling it a restructuring" whereas Russ immediately after gave code saying, "I have no idea what bankruptcy means. I don't recognize how any of the things you've discussed resemble bankruptcy, because I don't know anything about it. But you are trying to make bankruptcy sound less scary, so you must be talking down to me. Though it is true I know next to nothing about bankruptcy."

Greg Ransom March 31, 2009 at 5:51 am

Holady = paid hard left spammer.

Can't we delete this stuff?

RssReader March 31, 2009 at 6:49 am

Another comment Prof. Roberts:

You say:

"Wrong. The economy is a small part of the difficulties. Disagree? I have a one word response for you. Starts with F. Ends in D. Four letters."

I was wondering what word you were referring too. I ran through all four letter words on my mac dictionary starting with F and ending in D and I got the following words:

fand
feed
fend
feod
feud
find
fled
fold
food
ford
foud
fund
fyrd

Assuming a shorter word in some other tense (or form, too long to list) also leads to no plausible words.

So what naughty words is it? :)

geoih March 31, 2009 at 8:07 am

Quote from Charlie: "I'm still not clear on how this is so different."

I can think of tens of billions of reasons as to why it's different.

MnM March 31, 2009 at 8:19 am

It still seems to me like the executive branch is just acting like a judge in a bankruptcy.

Ignoring the economics for a moment, do the separation of powers mean nothing to you?

Bill March 31, 2009 at 9:10 am

My favorite is: "We will not just let our auto industry vanish"

I'm sorry, but who exactly is proposing/suggesting that the auto industry would go away? Bankruptcy of the Autos isn't like your local hardware store going bankrupt. This isn't Chapter 7, it's reorganization.

John March 31, 2009 at 9:24 am

"So what naughty words is it? :) "

Ford

MikeR March 31, 2009 at 9:40 am

Great commentary Russ. I agree with the first post, it really makes me want to cry. I don't think I have the stomach for cafehayek in the morning any more. I'll save my reading for the evening where I have the opportunity to numb this sinking feeling with a glass of scotch.

Hank Reardon March 31, 2009 at 9:52 am

Don't give up. Buy Gold.

EidolWays March 31, 2009 at 9:56 am

Posted by MnM:
"Ignoring the economics for a moment, do the separation of powers mean nothing to you?"

Do polite, meaningful replies mean nothing to you?

———————–

In all seriousness, let's tackle the statement that this is essentially a bankruptcy with the government acting as both judge and lender of last resort.

The issue is very much one of separation of powers. The executive branch isn't supposed to act as both judge and jury. Heck, they're not even supposed to act as judge. Given that Obama has placed himself as judge, and "his" task force is acting as jury, this is an enormous and dangerous breech of separation. As Russ points out at one point, does Congress even exist anymore? It seems that with Obama in the driver seat, they practically faint all over themselves even as the powers specifically enumerated to them by the Constitution are trampled on.

The other thing that makes this different is the government's position as lender of last resort. No private bank would lend to GM because of the financial system's instability coupled with a good chance of never getting the money back. Most outside viewers considered GM's mounting losses and apparent lack of change to be a very bad sign. In other words, lenders foresaw what we're seeing now. In a bankruptcy, the judge doesn't write the debtor a check. No, the judge simply oversees the proceedings. That Obama short-circuited the free market's decision regarding GM's viability, became a lender of last resort, and is now using that position for obscene leverage in his dealings, is what is being decried here. It's the same kind of implicit nationalization we're seeing occur with the banks.

Foxwood March 31, 2009 at 9:58 am

Bailout and then Bankruptcy… What this means is our tax money was a waste.

MnM March 31, 2009 at 10:04 am

Do polite, meaningful replies mean nothing to you?

I wasn't being impolite or sarcastic. It was an honest question.

The issue is very much one of separation of powers. The executive branch isn't supposed to act as both judge and jury. Heck, they're not even supposed to act as judge.

Precisely my point.

Brandon March 31, 2009 at 10:15 am

Wonderful wit and a very appropriate blend of sarcasm! Thank you, Russ.

Steven C March 31, 2009 at 10:37 am

If auto sales do not improve, Ford will wind up on the block as well.

Unlike GM, Ford had billions of dollars of unencumbered assets. The CEO wisely/luckily, mortgaged the whole shooting match to gain a large pool of working capital. If annual sales remain at around 10MM or so, Ford has about a year before the same cash flow crunch that is destroying GM impacts their financials.

My guess is that Ford will survive long enough to reap the benefits of the current economic trails and tribulations. It's better to be lucky than good.

Doug March 31, 2009 at 10:57 am

A new car from Congressional motors

http://www.smalldeadanimals.com/archives/010600.html

MEM March 31, 2009 at 1:16 pm

Beautifully done, and I know you couldn't hit every point. But I'm surprised you let "The pain being felt in places that rely on our auto industry is not the fault of our workers, who labor tirelessly and desperately want to see their companies succeed" go by without comment. The UAW isn't to blame?!

Matt March 31, 2009 at 1:32 pm

Everyone who works in the Recovery for Auto Communities and Workers department will be given a really, really sharp knife to cut through the red tape. And that will help the american knife industry! How awesome is our new president!! He's the best dad ever! I mean, He's the best president ever!

(Does it seem to anyone else that he's trying to seem like a benevolent father figure to the whole country?)

Methinks March 31, 2009 at 1:50 pm

I'm still not clear on how this is so different.

Because of a little thing called the Constitution. Obviously. The executive branch is NOT the Judicial branch and therefore is violating a restriction on its powers by acting in place of the judiciary. THAT makes it a very large difference. The issue isn't what's happening to GM, the issue is what's happening to government. Of course, you have an unrestrained view of government, so you don't see it as a big deal for government to insert itself into anything it pleases.

Paul M. Sark March 31, 2009 at 2:00 pm

1) Only business can run business!
2) Government is evil!
3) Governement can't even run wars!
4) Only business can run wars!
5) Let the businessmen run the wars!

Fred Beloit March 31, 2009 at 2:28 pm

Just a few American car makers who failed and didn't take the industry down with them:
Hudson, Packard, Stutz, Essex, Hupmobile, Cord, Pierce-Arrow, Nash, Studebaker. The real danger to our future economy is the I-man in the White House.

Shannon March 31, 2009 at 3:12 pm

You may have some good points somewhere in here, but when the first couple are petty I'm not inclined to stick around to find the (hopefully) more rational and meaningful commentary.

Jack Spade March 31, 2009 at 3:19 pm

This post was a thing of beauty.

Charlie March 31, 2009 at 3:23 pm

-MnM, Methinks, EidolWays, anyone else who thinks there is some impenetrable wall between bankruptcy and the executive branch

What do you think the FDIC does? What do you think the RTC did after the S&L crisis? This isn't unprecedented and it isn't unconstitutional. In fact, no where does it state in the constitution that we need to have bankruptcy courts in the judicial branch, we could have instead set up administrative courts in the executive branch. Why do so many people think everything they don't like must be unconstitutional?

What would happen instead if we focused on whether or not it was a good idea? You could argue that bridge financing is a waste of money credit crunch be damned. You could argue they need chapter 7 anyway and we could manage the fallout. You could make salient points rather than completely bogus constitutional arguments (that ignore both the constitution and historical precedent). Better be careful though, the fallout might be a well-reasoned debate, which isn't nearly as fun as a snarkfest.

Methinks March 31, 2009 at 3:26 pm

Better be careful though, the fallout might be a well-reasoned debate, which isn't nearly as fun as a snarkfest.

Irony.

MnM March 31, 2009 at 3:48 pm

no where does it state in the constitution that we need to have bankruptcy courts in the judicial branch, we could have instead set up administrative courts in the executive branch. Why do so many people think everything they don't like must be unconstitutional?

I wasn't being snarky. Dammit, you guys are sensitive.

Charlie, the US Constitution is a document expressing the powers of government. If it isn't explicit in the Constitution, then the Federal government doesn't have the authority. It becomes a state's rights issue.

The fact that, historically, politicians have ignored the Constitution does not seem to me to be a reasonable argument for continuing to ignore it.

Charlie March 31, 2009 at 4:53 pm

Dear MnM,

"Congress shall have the power to…establish…uniform Laws on the subject of Bankruptcies throughout the United States"

Love,
The Constitution

MnM March 31, 2009 at 5:09 pm

Charlie, this is tedious.

So I'll try this again (with snark, as that seems to be the only thing you're willing to bring to the table).

"Congress shall have the power to…establish…uniform Laws on the subject of Bankruptcies throughout the United States"
Article I, Constitution

"It still seems to me like the executive branch is just acting like a judge in a bankruptcy."
Chalie

I'll try this again: Do. You. Not. Care. About. The. Separation. Of. Powers?

Charlie, if you're going to respond, you probably shouldn't shoot yourself in the damn foot.

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