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Archive for the ‘General Motors’ Category

Sometimes it’s no fun to be an economist. Or, to be more specific, it’s rather frustrating to understand Bastiat’s insight about the “seen” and the “unseen” and to always be asking “at what cost?” and “to what effect?” when politicians make inane statements.

The GM bailout is a good example. Politicians want us to believe that it was a success because the company is still in business. Heck, the Vice President’s favorite campaign statement is that “Osama bin Laden is dead and General Motors is alive

But if you’re the type of person who recognizes the importance of tradeoffs and incentives, then it’s easy to see how a political success can be an economic failure. Which is the message of this new video from the Center for Freedom and Prosperity Foundation.

This is music to my ears. I’ve been saying for years that any company can be kept afloat indefinitely with taxpayers subsidies. So if that’s the definition of success, we can party until we hit the fiscal brick wall. But that wall won’t feel good, as we can see from the fiscal chaos in Greece and other European welfare states.

But this issue involves more than just inefficient subsidies. I’m also concerned about the corruption that inevitably exists when cronyism replaces capitalism.

It’s quite likely, after all, that GM is spending lots of money on the Chevy Volt because of pressure from Washington rather than demand from consumers. And when you have a car company executive endorsing higher gas taxes, it’s reasonable to think that he’s currying favor with the political masters in DC rather than looking out for the best interests of drivers.

The GM bailout may be a win-win situation for politicians and lobbyists, but it’s a lose-lose proposition for taxpayers and the economy.

P.S. If you want some auto bailout humor, here’s a spoof on the Chevy Volt, an advertisement for the new GM Obummer, a couple of good political cartoons, and a very funny video on the Pelosi GTxi SS/RT.

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I think it’s a mistake to bail out profligate governments, and I have the same skeptical attitude about bailouts for mismanaged banks and inefficient car companies.

Simply stated, bailouts reward past bad behavior and make future bad behavior more likely (what economists call moral hazard).

But some folks think government was right to put taxpayers on the hook for the sloppy decisions of private companies. Here’s the key passage in USA Today’s editorial on bailouts.

Put simply, the bailouts worked. True, in some cases the government did not do a very good job with the details, and taxpayers are out $142 billion in connection with the non-TARP takeovers of housing giants Fannie Mae and Freddie Mac. But it’s time for the economic purists and the Washington cynics to admit that government can occasionally do something positive, at least when faced with a terrifying crisis.

Well, I guess I’m one of those “economic purists” and “Washington cynics,” so I’m still holding firm to the position that the bailouts were a mistake. In my “opposing view” column, I argue that the auto bailout sets a very bad precedent.

Unfortunately, the bailout craze in the United States is a worrisome sign cronyism is taking root. In the GM/Chrysler bailout, Washington intervened in the bankruptcy process and arbitrarily tilted the playing field to help politically powerful creditors at the expense of others. …This precedent makes it more difficult to feel confident that the rule of law will be respected in the future when companies get in trouble. It also means investors will be less willing to put money into weak firms. That’s not good for workers, and not good for the economy.

If I had more space (the limit was about 350 words), I also would have dismissed the silly assertion that the auto bailout was a success. Yes, GM and Chrysler are still in business, but the worst business in the world can be kept alive with sufficiently large transfusions of taxpayer funds.

And we’re not talking small amounts. The direct cost to taxpayers presently is about $25 billion, though I noted as a postscript in this otherwise humorous post that experts like John Ransom have shown the total cost is far higher.

And here’s what I wrote about the financial sector bailouts.

The pro-bailout crowd argues that lawmakers had no choice. We had to recapitalize the financial system, they argued, to avoid another Great Depression. This is nonsense. The federal government could have used what’s known as “FDIC resolution” to take over insolvent institutions while protecting retail customers. Yes, taxpayer money still would have been involved, but shareholders, bondholders and top executives would have taken bigger losses. These relatively rich groups of people are precisely the ones who should burn their fingers when they touch hot stoves. Capitalism without bankruptcy, after all, is like religion without hell. And that’s what we got with TARP. Private profits and socialized losses are no way to operate a prosperous economy.

The part about “FDIC resolution” is critical. I’ve explained, both in a post criticizing Dick Cheney and in another post praising Paul Volcker, that policymakers didn’t face a choice of TARP vs nothing. They could have chosen the quick and simple option of giving the Federal Deposit Insurance Corporation additional authority to put insolvent banks into something akin to receivership.

Indeed, I explained in an online debate for U.S. News & World Report that the FDIC did handle the bankruptcies of both IndyMac and WaMu. And they could have used the same process for every other poorly run financial institution.

But the politicians didn’t want that approach because their rich contributors would have lost money.

I have nothing against rich people, of course, but I want them to earn money honestly.

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While I often complain about government waste and stupidity, I’m not even sure what to say about this grim bit of news from Reuters.

General Motors Co sold a record number of Chevrolet Volt sedans in August — but that probably isn’t a good thing for the automaker’s bottom line. Nearly two years after the introduction of the path-breaking plug-in hybrid, GM is still losing as much as $49,000 on each Volt it builds, according to estimates provided to Reuters by industry analysts and manufacturing experts. Cheap Volt lease offers meant to drive more customers to Chevy showrooms this summer may have pushed that loss even higher. There are some Americans paying just $5,050 to drive around for two years in a vehicle that cost as much as $89,000 to produce. …The weak sales are forcing GM to idle the Detroit-Hamtramck assembly plant that makes the Chevrolet Volt for four weeks from September 17, according to plant suppliers and union sources. It is the second time GM has had to call a Volt production halt this year. GM acknowledges the Volt continues to lose money, and suggests it might not reach break even until the next-generation model is launched in about three years.

Gee, it’s almost as if everything that critics have said all along is right.

But not to worry, taxpayers are underwriting the costs. So if bigger subsidies are the price of buying support from the UAW and allowing fat-cat incompetent managers to stay on the job, that just means a bigger tab to pay for the rest of us.

How comforting.

P.S. If you’re a taxpayer and need to be cheered up, these cartoons may help.

P.P.S. This spoof video on the Volt may be even funnier.

P.P.P.S. Last but not least, Government Motors plans to build on the success of the Volt with the Obummer. It was due in 2011, but standard government incompetence has pushed back the release date.

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For some reason, I haven’t seen much political satire about the GM/Chrysler bailout.

Indeed, the only bailout humor I found in my archives are this funny cartoon about the Federal Reserve helping to bail out Europe and this very good cartoon about Greece deciding to take more handouts from the rest of Europe.

But these two cartoons hopefully are a start of a new trend.

If you like Payne’s work, you can view more of my favorites here, herehereherehere, and here.

Some of my favorite Bok cartoons can be seen here, hereherehereherehere, and here.

P.S. Here’s one more bailout cartoon, featuring a hapless taxpayer playing a rigged blackjack game with Fannie Mae and Freddie Mac.

P.P.S. How can I forget one of the most popular humor posts in the history of this blog, this image of how the bailout-hungry Greeks view the rest of Europe (with bonus sections showing how Americans view Europe, how the English view Europe, and – be forewarned – how the former Italian Prime Minister viewed Europe).

P.P.P.S. I commented the other day on the cost of the bailout jumping to $25 billion. It’s actually a lot higher when you count other bailout expenses, as John Ransom explains.

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I’ve been against the auto bailout from the very beginning because it was a corrupt payoff to lazy corporate fat-cats and an ossified union.

And when folks on the left say the bailout is a success, I explain that any industry can be propped up with a sufficiently large injection of other people’s money.

Now we have new data on how much “other people’s money” has been diverted. It’s a big number, and it seems to get bigger each time there’s a new estimate. Here’s part of a Reuters report.

The U.S. Treasury Department has said the auto industry bailout will cost taxpayers $3.4 billion more than previously thought. Treasury now estimates the 2009 bailout will eventually cost the government $25.1 billion, according to a report sent to Congress on Friday. That is up from the last quarterly estimate of $21.7 billion.

Sort of reminds me of the old joke about the lousy businessman who says he loses money on every sale, but he makes up for it with high volume.

Well, that incompetent businessman has a kindred spirit in the White House. Here’s some of what Politico reported.

President Obama, while villifying Mitt Romney for opposing the auto industry bailout, bragged about the success of his decision to provide government assistance… he said. “Now I want to do the same thing with manufacturing jobs, not just in the auto industry, but in every industry…”

Well, we can’t say we haven’t been warned. He wants to do the same thing in “every industry.” Well, according to the Bureau of Economic Analysis, there are 60 industries in America. At $25 billion each, that means $1.5 trillion.

Stimulus in action

By the way, Mickey Kaus explains that the government’s numbers are incomplete and that the actual damage is significantly higher. And this Reason TV video exposes some of the government’s chicanery.

P.S. If you’re in the mood for some satire, here’s a bailout form showing how you can become a deadbeat and mooch off the government.

P.P.S. Just in case you’re new to this blog and don’t know my history, rest assured that I’m also against Wall Street bailouts.

P.P.P.S. Ethical people should boycott GM and Chrysler, particularly since these companies are now handmaidens of big government.

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This might not be quite as funny as the Iowahawk video on the Pelosi GTxi SS/RT, but it’s a close call. In any event, this is extremely clever, makes an important philosophical point, and deserves to be shared widely.

And since we’re on the topic of mooching car companies, here’s another very good parody, featuring the sleek new Obummer from Government Motors.

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I’ll start with an important caveat and state that Ford is far from a perfect company. It has its snout in the trough for boondoggles such as green energy programs. And it happily benefits from protectionist restrictions on foreign pickup trucks and SUVs.

That having been said, there is an enormous difference between Ford, which did not get bailout cash, and the moochers and looters at GM and Chrysler. Which is why I said on TV last year that all ethical people should boycott the latter two companies.

And I’m very proud that other Americans feel the same way. Here are some excerpts from a story in the UK-based Daily Mail.

The Rasmussen Poll asked likely voters: “Have You or Anyone in Family Bought Car from Ford Because Didn’t Take Government Bailout?” 19% said yes, including 33% of the people 18-29 — and 28% of black voters — and 32% of government workers. …25% said yes when asked “Has Bailout and Government Takeover of GM Caused You or Anyone You Know to Avoid Buying GM Car?” …Rasmussen also asked: “Does Fact that GM Took Bailout Money Make You More/Less Likely to Buy GM Car?” 50% said less likely — just 4% said more likely. To the question “Ford Didn’t Take Bailout Funding. Make You More/Less Likely to Buy from Ford?” — 51% said more likely and 12% said less likely.

Here is an ad that Ford apparently is not using anymore because of pressure from the Obama Administration. But please share this link so more people can see it. Kudos to Chris, a patriot in the finest sense.

By the way, some statists are arguing that the bailouts are a success because GM and Chrysler are still alive. But as I’ve explained before, any money-losing entity can be kept alive in perpetuity (or at least ’til the point of Greek-style collapse) by raping and pillaging taxpayers.

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