Monday, May 11, 2009

Politcal Power and Money Power

One of the themes of the Democratic Party since its founding by 1812 war hero Andrew Jackson is a trust in political power over economic power. It means nothing to a Democrat to ride roughshod over property rights in the service of some greater end than mere money-making.

The trouble is that there is a big difference between political power and economic power.

Political power is all about power. Economic power is a reward for service. Unless a business learns to serve the consumer it cannot wield economic power. Its economic power lasts so long as it serves the consumer.

It is when business gets enmeshed in politics that its troubles begin. Because politics is not about serving the consumer, day in and day out. Politics is about power.

The auto companies are a sad witness to the destructiveness of political power, for the auto companies are host to a political entity, the United Auto Workers union. And the union has systemically looted the auto companies for over half a century ever since World War II. And they have done it with the encouragement of Democratic politicians.

Today the auto companies are bankrupt. So what does the Democratic Party do, led by President Obama? It straight-arms the secured creditors and gives a large minority interest in the company to the United Auto Workers union.

Rich Galen pointedly asks how this is different from the expropriation of oil service companies by President Chavez of Venezuela.

The "state firm says lower oil prices mean the contractors are being paid too much" so Chavez went for efficiency and simply seized the services companies and now the state-owned oil company owes them … nothing.

Well. It is certainly politically efficient to dodge paying the piper. But as the Fram oil filter guy says: You can pay me now or you can pay me later.

The problem with political control of the economy is that politicians and their aides know nothing about running successful companies.

That is why Fannie and Freddie were such a disaster; they were run by men and women from the Clinton administration that knew nothing about mortgage banking. But they did know a lot about lobbying Congress.

That is why the oil industry in Venezuela is a disaster. It is run by Chavez appointees, men who may be brilliant at political activism. But they are lousy at getting the heavy oil of Venezuela out of the ground and off to market.

The tragedy of expropriation politics is that the very people who cheer at the expropriation of the hated capitalists are the people that suffer first when the capitalists lose confidence and the economy tanks.

And that is what will happen to the US as the Obama administration continues its random walk through the economy making decisions based on short-term political expediency instead of long-term consumer needs.

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