In Washington, they always try to announce unpleasantness during the off-hours (weekends, holidays and such) so that – hopefully – the stink will be less noticed.
In Detroit, too.
The recent announcement of the accession of Mary Barra as the new CEO of General Motors just happened to be exactly coincident with the announcement that the federal government has divested itself of its remaining partial ownership of GM.
This is good news.
[amazon asin=1494399806&template=*lrc ad (left)]The bad news – according to the Center for Automotive Research – is that $14 billion in taxpayer dollars went up in smoke as a result of the government’s “investment” in GM.
Now, this is supposedly mitigated by the recovery of GM – and the existence of all the associated jobs (and consumer spending and tax revenue) that would have disappeared had GM not been crash-carted by the federal government. That is, had the violence of the state not been used to forcibly compel ordinary Americans to subsidize the failure of a big corporation and thereby immunize it from the moral hazard (having to face up to the consequences of poor decisions) that face them – you and me – in the course of their ordinary, individual lives.
But it’s a false premise.[amazon asin=B00GX0H47I&template=*lrc ad (right)]
Why is it assumed that, had GM not been crash-carted, a zero-sum game would have ensued? Certainly, there were parts of GM that were sound. Had the corporation gone on the block, these worth-something parts would not have been thrown away. Do people throw away machine tools? Physical plants? Of course not. They are sold – and re-used.
Productively.
Consider the analogy of a guy who owns a car he can no longer afford to fix. Perhaps he is not competent to fix it. In any case, he realizes it is time for him to bow out – and hand the keys to someone who can fix it (or who can [amazon asin=B005PHVO80&template=*lrc ad (left)]afford to have it fixed). The car is not thrown away because it needs a brake job (or even a new engine). A free exchange takes place – and both parties are benefited. The in-over-his-head former owner walks away from something he isn’t able to deal with – cash in hand, which he can use for other productive purposes. The new owner has less cash in hand, but holds title to a new (to him) car that he will repair and which, once repaired, will be of more value to him than the cash he parted with.
This analogy is simple, but it scales.
Had natural market forces been allowed to take their course, there would have been change of a piece with our example above. Some people within the company – in over their heads, perhaps – would have had to get out. But new people would have come in– and made lemon aid out of lemons.[amazon asin=B003NX6YNI&template=*lrc ad (right)]
Without squeezing other people to do it.
Perhaps some of the individual brands (and specific car models) subsumed under the GM umbrella would have been sold off – but the viable ones would not have been given the needle.
Ownership changing hands is not the end of the world. Sometimes, in fact, it is a necessary tonic. So also the ebb and flow of success – and failure. The prospect of the latter encourages the former. It is much easier to be flippant about walking a tightrope knowing there’s a safety net below.
It has been observed that America is a mixed economy: Socialism for the rich – “free market” capitalism for the poor and middle class. Though the American economy is far from being free, the fundamental observation is valid. Corporate colossi such as GM are insulated from the poor decisions taken by management, which almost never feels any meaningful personal pain as a result of those decisions. They have “pull.” The small businessman, the individual proprietor does not. The former chuckles it up with congressmen and senators on private jets owned by the corporation. The latter gets auto-penned form letters from his congressman.
