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….

Give Them Enough Power And They *Will* Abuse It

This is just beautiful.  Because they are so outraged at the AIG bonuses, members of the US Congress are seeking ways to “get the money back.”

Still, lawmakers are moving quickly to take the initiative in responding to the public outcry. Montana Democrat Max Baucus and Iowa Republican Charles Grassley, the leaders of the Senate Finance Committee, proposed taxes totaling 70 percent on companies and individuals getting bonuses at firms that receive federal aid.

The tax would apply to bonuses over $50,000 paid out beginning on Jan. 1, 2009, and to the full amount of any retention bonuses, the two senators said.

Pelosi directed House committees to draft several alternatives and said her chamber may consider a bill as early as this week. Other lawmakers introduced their own plans.

Using the power it has to manipulate the tax code, and to make changes to tax law retroactive, the government is going after a very small set of citizens for political reasons.  That’s not supposed to happen.  What about “equal protection under the law” (i.e., not targeting specific citizens) and due process (meaningless, in light of retroactive laws)?

This demonstrates exactly why we should be very wary of transferring ever more power to the government.  Once they have it, regardless under what pretense they request and are granted it, it is inevitable that they will use it in ways that were never intended.  In the heat of a political moment, they will twist their power to advance their current agenda.  In this case, they’re not taxing specific citizens by name — a power they do not have — but they are using the power they do have to manipulate the tax code to achieve the same effect — exacting retribution on law-abiding citizens to placate the angry hoard.

UPDATE (3/19): I’m happy to see people with more knowledge of constitutional law than I have, pointing out the issues with this approach:

Two of those difficulties, lawyers say, lie in Article I of the U.S. Constitution — a section stating Congress cannot pass any “Bill of Attainder” or “ex post facto” law.

A Bill of Attainder is an act of the legislature that singles out and punishes a group or individual without trial. An ex post facto law retroactively changes the legal consequences of an act.

But hey, we’re talking about Congress, here. Why would they let a little thing like the US Constitution get in the way of political opportunism?

It’s An OutrAIG!

Ah, the bailout follies continue.  In the past few days, we’ve been hearing about how “insurance giant, AIG,” has supposedly misused the bailout funds given to it by the government (aka, you and me), paying out a ton of money to foreign banks, and millions in executive bonuses.  If you hadn’t heard, President Obama himself called the bonuses an “outrage,” and now members of Congress are following suit.  You know, when the word “outrage” gets thrown around by politicians, that the BS will be coming pretty thick.  I hadn’t posted on this subject before now, because I had a feeling we weren’t hearing the whole story.

First of all, specific language was intentionally added into the bailout bill, by Senator Dodd, to allow the recipients of the funds to pay out bonuses for which they were contractually obligated.  Second of all, the bonuses in question, at least in AIG’s case, are not performance based — they’re something called “retention” bonuses (which I learned from the linked AP article) and are used to keep highly-valued employees from jumping ship.   I know that past employers of mine did offer bonuses that were not wholly based on the performance of the company, and I suspected that might be the case here, too.  Basically, depending on the position, employers often include a guaranteed “bonus” as part of the overall compensation package.  The money is essentially the same as salary, though my guess is that it’s kept separate to allow for some flexibility.   So, going into the year, the employee knows that he will be paid X dollars in salary, plus Y in a guaranteed bonus, plus perhaps a potential extra percentage based on a formula that takes performance into account.  So, all of those politicians screaming that AIG should not have paid these bonuses are basically saying that AIG should not be paying employees their full salaries.

But the government has been giving out these bailouts so that companies such as AIG can meet their financial obligations and not have to file for bankruptcy.  As I understand it, the outrageous AIG bonuses are exactly that — a contractual financial obligation.  I don’t for a second believe that the furious politicians do not understand this (which is probably why they were not outraged when the bonuses were first disclosed, months ago).  What they’re seeing here is an opportunity to deflect some of the anger that has been directed at them for pushing these bailouts though in the first place, toward some convenient bogeymen — the evil corporate execs.

Should the government should have bailed out AIG (or any other company)?  Had AIG been forced to file for bankruptcy protection, they would have been able to modify or eliminate the very bonuses at the center of all the current furor.  Attempting to shift the focus by demonizing them now, for not doing something that violates their contractual obligations to their employees, is what’s really outrageous.

UPDATE (3/18): What I did not mention is that the press has been complicit in this phony outrage.  Even in a story about the AIG CEO explaining to Congress that the bonuses were required, Reuters neglects (refuses?) to make clear that the bonuses have nothing to do with performance.

I Survived A Plane Crash — Now Pay Me!

I was wondering how long this would take.  I had hoped otherwise, but I just knew passengers of the US Airways jet that crash-landed in the Hudson River would start looking for a pay day.  I hadn’t heard that the airline had offered each passenger $5000 for “immediate needs” and to cover the cost of the ticket.  It’s very nice of the airline to do so (though I’m sure it’s a business decision, more than “niceness”).  And apparently many of the passengers appreciate the gesture.  But, of course, there are some that want more.

From the USA Today article:

Joe Hart, a salesman from Charlotte who suffered a bloody nose and bruises, says he “would like to be made whole for the incident.”

“Made whole?”  Does he want the airline to erase his memory of being in a plane crash?  Of course not.  He wants money.  Probably lots of money.

Now, I don’t know Joe Hart. He may be a decent person. He has obviously gone through a very traumatic experience — I can’t even imagine.  So, I don’t want to impugn his character here. But all indications are that this was a freak accident that the pilots did nothing to instigate and everything to mitigate.  Everyone walked away with their lives, and, at worst, minor injuries.  So, why must someone pay (aside from the geese, who paid with their lives)?  And why on Earth should the airline pay?

It sickens me. There is a disgusting need, in our culture, to find someone to blame and punish for every bad thing that happens to us. It’s a terrible way to live. It turns every stranger — even non-strangers — into a potential adversary with a dollar sign on his head. It pits doctors against patients (every mistake must be malpractice), teachers and schools against parents (ever wonder why all of the playgrounds are disappearing?), shopkeepers against their customers (slip and fall scam, anyone?), and provides a strong disincentive for anyone to try to create anything new that might actually improve people’s lives.

And now this.  A man survives a plane crash in which everyone recognizes the heroic efforts of the pilot, and he wants “to be made whole.”  Sorry, but if the miracle of surviving a plane crash (that was no fault of the airline’s) is not an incredible enough gift for you, money is not going to make you whole.

And to the National Air Disaster Alliance & Foundation, which thinks $5000 is not enough, because passengers lost a bunch of stuff:  um, so what? The airline didn’t lose it. The pilot didn’t lose it. The geese and the Hudson River (and physics) took it.  They also took a multi-million dollar plane from US Airways.  Maybe the Port Authority of NY and NJ should reimburse the airline, because their river destroyed the plane?