A Lesson In The Problem Of ‘Big Government’

<sound of cobwebs being cleared…>

Got back from a 2-week semi-vacation (I worked, most of it) about 2 weeks ago.  I had meant to post something sooner, but I couldn’t find much motivation.  But just now I came across an article in Forbes describing what is being done wrong, with respect to the Chrysler bankruptcy.  After reading it, I realized that what’s happening in this case actually illustrates a point about government expansion that I had tried to make in a pre-election post.  Essentially, that point was that handing over more of the private economy to the government is a bad idea, because government agencies do not respond to the realities of the market, and are therefore destined to be inefficient and to exacerbate the problems they’re supposed to be addressing.  Or, more generally, giving more power to the government will inevitably lead to abuse of that power, as well as waste.  The Chrysler saga seems to demonstrate this pretty well.

As we all know, the federal government got involved in the “rescue” of GM and Chrysler, by loaning them billions of dollars, intended to give them a chance to fix themselves.  At the time, there were some voices saying that the companies should be allowed to go into bankruptcy, if they were not able to fix themselves without government help.  But, mostly, what we heard were things like, “Bankruptcy is not an option!” and “They’re too big to fail!”  President Obama promised to “save” the US auto industry (yes, I know the Bush administration started the ball rolling), while also saying he had no interest in running the car companies.

And where are we now?  The president has demanded that Chrysler and GM submit to his administration plans to achieve viability — and has rejected parts of the plans, demanding revisions  (so much for “no interest” in running the companies).  In the case of Chrysler, after dumping billions more in taxpayers’ money into the company (read: waste), he has forced it into bankruptcy (not an option?) and into a deal that will divide ownership of the company among Fiat, the US and Canadian governments, and the UAW — with the union getting the majority stake in the company.  In the process, the administration is strong-arming Chrysler’s creditors into taking a much less equitable deal than they would expect under the law, in a normal bankruptcy (read: abusing power).  He has allegedly used the TARP money awarded to many of those creditors as leverage to get them to agree to the deal.  (Funny thing here, he’s actually forcing TARP-receiving creditors to further hurt their own balance sheets by giving up money to which they are legally entitled.)

Why are things being done this way, when Chrysler declaring bankruptcy months ago would have saved billions in taxpayer money, and left legal decisions in the hands of the courts, where they belong?  Well, the two reasons I can come up with are foolishness: the president believes he knows better than the bankruptcy courts and people with relevant industry experience; and politics: the president gets to claim that he’s “doing something,” he gets to tilt the deal to favor a major constituent group (unions), and he gets to gain more leverage over private industry, and therefore more political power.  This is exactly the problem with expanding the role of government further into the private sector.  The motivations and accountability are very different, and most often are not focused on or responsive to the true needs of the market, a.k.a., the people.  Instead of getting the most efficient solution to the problem at hand, we get grandstanding, power-grabbing, and billions more dollars wasted.

Now, let’s get the government into the health care business….