Auto industry needs reform, not bailout
Finally, the outlines of a coherent debate on the federal bailout. This comes as welcome relief from a campaign that gave us House Republicans' know-nothing rejectionism, John McCain's mindless railing against "greed and corruption" and Barack Obama's detached enunciation of vacuous "principles" that allowed him to be all things to all people.
Clarity is emerging. The fault line is the auto industry bailout. Democrats are pushing it. The White House is resisting.
Underlying policy differences is a philosophical divide. The Bush administration sees the $700 billion rescue as an emergency measure on the grounds that finance is a utility. No government would let electric companies go under and leave the country without power. By the same token, government must save the financial sector lest credit dry up and strangle the rest of the economy.
Treasury Secretary Henry Paulson is willing to stretch the meaning of "bank" by extending protection to entities such as American Express. Fundamentally, he sees government as saving institutions that deal in money, not other stuff.
Democrats have a larger canvas, with government intervening in other sectors of the economy to prevent the effect of mass unemployment leading to more mortgage defaults and business failures as spending plummets, dragging down more businesses and financial institutions, producing more unemployment, etc. - the spiral of the 1930s.
Bush is trying to move the LIBOR or the TED spread, which measure credit. The Democrats' index is unemployment. With about 5 million workers supported by automakers, Democrats want a rescue. But problems are obvious.
First, the arbitrariness. Where do you stop? Once you've gone beyond the financial sector, every struggling industry will make a claim on the federal treasury. What are the grounds for saying yes or no?
The criteria will inevitably be arbitrary and political. The money will flow preferentially to industries with lines to Capitol Hill and the White House. To companies concentrated in the districts of committee chairmen. To clout. Is this not the kind of policymaking that Obama ran against?
Second is the sheer inefficiency. Saving Detroit means saving it from bankruptcy. As we have seen with the airlines, bankruptcy can allow operations to continue while helping shed fatally unsupportable obligations. For Detroit, this means release from wage deals with astronomical benefits
The point of the Democratic bailout is to protect unions, which will guarantee continued failure of these companies and burn billions of taxpayer dollars.
Democrats are suggesting, however, an even more ambitious reason to nationalize. Once the government owns Detroit, it can remake it. The euphemism here is "retool" Detroit to make cars for the coming green economy.
In World War II, government had the auto companies turning out tanks. Now they would be made to turn out hybrids. The difference is that, in the middle of a world war, tanks have a buyer. Will hybrids? One of the reasons Detroit is in such difficulty is that consumers have been resisting the smaller, less powerful, less safe cars.
Consider the effects of nationalizing an industry of this size, but now run by bureaucrats issuing quotas to fit five-year plans to meet fuel-efficiency standards - to lift us to the sunny uplands of the coming green utopia.
Republican minimalism certainly risks not doing enough. But the Democratic drift toward massive industrial policy threatens to grow into the guaranteed inefficiencies of command-economy maximalism.
We agree to suspend the invisible hand of Adam Smith - but not to be crushed by the heavy hand of government.
© 2008, The Washington Post Writers Group