Monday, June 1, 2009

Auto Bankruptcy Morning

It's telling, isn't it, that the New York Times had on its website the day of General Motors' bankruptcy a photo of a Chevrolet Corvair. You know, Unsafe at Any Speed, Ralph Nader, and all.

Because the Corvair is a symbol of the liberals' 70 year relationship with General Motors. They just couldn't keep their hands off.

You could say that it all started in the 1930s with the Wagner Act that allowed the auto unions to organize the automobile industry and first raise wages above the market rate (and plunge the economy into the 1937 recession).

After World War II liberal economist John Kenneth Galbraith wrote American Capitalism. It was an apology for the economic arrangements brought in by the New Deal and the Wagner Act. In Galbraith's view it was a good and beneficial thing for Big Business to be balanced by the countervailing power of Big Labor with Big Government as a arbitrator between labor and business. That is what Galbraith said. Now we can see how completely wrong he was.

Instead of countervailing power there arose a narrative of countervailing power. Underneath the narrative and the rhetoric, the auto companies capitulated to the union, choosing a cosy life of appeasement rather than a principled stand against government-sponsored monopoly. But then, what else could they do?

Under this cosy arrangement Big Labor and Big Business racked up wages and car prices in a kind of hands-off collusion. Profits were good and it looked like they would go on forever. So the United Auto Workers bargained for and the auto companies agreed to wages and benefits that assumed continued prosperity and robust earnings far into the future, with expensive pensions and retiree health benefits that would have to be paid not from savings in the present but auto company earnings in the future.

Then there was Ralph Nader in the mid 1960s and the auto safety movement. Then there was the 1970s energy crisis and laws to regulate automobile mileage.

Now, of course, we have the green energy movement that wants to regulate Detroit into building green cars that are fuel-efficient and have a small carbon footprint.

What's surprising is that it has taken this long to completely destroy the domestic auto industry. Now, of course, the US government owns a majority interest in both GM and Chrysler. The stockholders and bondholders have been more or less completely stiffed and the United Auto Workers union gets a big minority interest. That, my friend, is what piracy and plunder looks like.

Now that the government owns GM and Chrysler will it help them get on their feet and get out of the way? Or will it meddle even more in the auto business?

What do you think?

But there is one comfort. The auto companies failed on the Democrats' watch, and now they own the problem.

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