'Government Motors': Will the Right Decisions Be Made?

So I’m back here in Detroit on the day when GM files for bankruptcy, sitting in my Ford (F) engineer sister’s home with my GM rental car (a Chevy Cobalt) in the driveway, with plans to meet up with my Chrysler-(still) employed friends later today. It’s a weird and difficult time for Detroit, so it’s a good thing the Red Wings are doing so well (because besides being the MotorCity and Motown, it’s a big HockeyTown, too).

I have such mixed feelings about what is happening here. I want the auto industry here to survive, and I think it can only do so with the government’s help. But I also want it to do more than survive; I want to see it thrive by getting smarter and moving in the best direction it can. And I want the government and the national economy as a whole to survive–and thrive–as well. So I worry about how much federal money will be spent on the auto industry and if it sets up the right incentives. The problem with the government’s borrowing more money to subsidize the auto industry is that that’s all about relaxing budget constraints, not tightening them, and that doesn’t necessarily force the industry or the federal government to make the (really) tough choices–choices that, yes, could involve greater short-term pain but would lead to greater health in the longer run. Instead of “bribing” Americans to buy new, fuel-efficient vehicles (the “cash for clunkers” idea), and instead of mandating and subsidizing the auto industry to produce those more fuel-efficient vehicles, I wish we could rely on a smart carbon/climate-change policy to get the price signals right while actually raising money instead of spending it. Of course, the Obama Administration thinks that way, too, but their ideas for carbon policy and the revenue it might raise aren’t going over so well with Congress.

Here is Sunday’s segment on This Week with George Stephanopoulos, where George Will and Paul Krugman disagree about the role of government in saving the auto industry. At one point in this discussion the panelists comment on how the federal aid to GM and Chrysler seems to put Ford at an unfair disadvantage. But here in Detroit, I don’t hear any Ford employees griping about that, because every piece of the auto industry seems so dependent on the overall health of the whole. And I think people here have a real sense of community and a “we’re all in this together” attitude.

That same video segment segues into a discussion of the Obama health care reform plan. Paul Krugman says that although the plan won’t pay for itself over ten years, it will likely pay off over the longer term, and that a ten-year cost of maybe $1 trillion-plus is not that large in the grand scheme of things–it’s still under 1 percent of GDP. But a trillion here and a trillion there, and no concrete plan on how to pay for it, and pretty soon you’re talking really serious money (and debt). It’s not that the benefits of those policy decisions (universal health care, saving the auto industry) aren’t obvious. It’s that we still need to consider the costs of achieving those policies and whether those benefits are worth those costs, and if not, to not abandon the effort, but to take some time or at least a moment’s thought into how we might improve those tradeoffs by either raising the benefits and/or decreasing the costs. There are smart ways and not-so-smart ways to do “good” things.

Comments

[ed233:]

A nationalized auto industry is a recipe for failure. We in Canada have perhaps more experience in the idea of government participation in private enterprise than most. I have to tell you that experience has been very dismal. And the difficulty comes when a government makes the commitment to become an owner. The owner connotation brings with it an automatic guarantee that failure is not an option. If it's a losing affair then at all odds they'll protect this initial investment instead of cutting their losses. That's the trap. Both governments went into it hook, line and sinker. It means there is likely the possibility for much more government investment ahead. That reminds me of a country enagaging in a no-win war with billions poured in to the affair with no plan for an exit as each government's party engages in bickering over whose at fault as to how we got into the whole mess in the first place (war waging). Eventually it comes to pass where withdrawl is made and of course it has to be in such a way as to save face in order to protect the debauched affair. You would have thought Canada in particular with a minority government could have gracefully escaped for fear of being toppled. But the other parties are scared that they might ruffle the feathers of a strong voting group. The Canadian government's position that they had to go along with the Obama administration for fear of losing its parts industry to the USA has to be the most flimsy argument to date. You don't hear a peep from opposing parties as they are tongue tied with nothing to say. When something goes wrong(and it will) then listen to them complain, theyll have lots to say then. And as time goes by and we look back at this acquisition we'll all be able to say with conviction that "Something had to be done!" So we became shareholders.

Jun 02 09:08 AM

[BeachRider:]

The USA doesn't want a nationalized GM. Unless GM hangs up in Chapter 11 Bankruptcy court, the government's dominant ownership will be sold back into private hands within a year. GM's long grind down into bankruptcy is a hideous end for a once-proud company. Its common stock has disappeared from the NYSE (although GRM continues to be listed). Many are impatient with getting this resolved (me too). Just like with Bank TARP, the Government expects to get its money back (other backstops might lose money, though). Hopefully all of this special attention will preserve jobs for the workforce/voters, as best they can.
This kind of intervention is never pretty, but GM could be quite profitable within 2-3 years, if their plan works.

Jun 02 12:34 PM

[Windsun33:]

My question is, why in the hell did Obama appoint a 31 year old perpetual student and radio talk show host to be in charge of dismantling GM??

"Despite having no formal business education, no business experience and no auto industry experience, 31-year-old Brian Deese is now in charge of dismantling General Motors.

So what does this guy's resume look like? It should be impressive, considering he's managing America's $458,000 per day involuntary investment.

Deese grew up in a Boston suburb, the son of a political science professor at Boston College. He moved to Vermont and attended Middlebury College, where he studied political science and also took time to host a campus radio show called "Bedknobs and Beatniks," described in one write-up as "a format of music, news, discussion and banter."

He graduated college in 2000 and then it was onto a pair of non-profit think tanks: the Center for Global Development and the Center for American Progress.

Eventually Deese went to Yale for a law degree, but a few credits short of graduating, he went "on leave" to work on Senator Hillary Clinton's presidential campaign, quickly becoming her top economic policy staffer..."

Jun 02 11:18 PM