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Auto Bailouts Will Give Us Detroitsky

Auto Bailouts Will Give Us Detroitsky

By Robert Tracinski - November 18, 2008

He hasn't even been sworn in yet, and Barack Obama is starting to reveal what his mantra about "change" really means. It means that we will reject the discredited old model of free-market capitalism and embrace the very promising, progressive new model of Soviet-style central planning.

That is the upshot of Obama's proposal for a $50 billion bailout of the Detroit automakers. It is actually a plan for de facto nationalization which will turn the Big Three into permanent wards of the state whose purpose is not to make a profit but to serve the "social goals" set by government.

Obama is backing a plan to pump $50 billion into the big American automakers, while also establishing "a czar or board to oversee the companies"--call it Gosplan--which will supervise "a restructuring of the auto industry." That's exactly what Detroit needs to recover: the benefit of government central planning.

In essence, this is a plan for nationalization of the American auto industry under a new government-appointed board of directors who will supposedly tell the Big Three how to make a profit again.

But of course Detroit will never recover under this plan, because its whole purpose is to avoid the one step actually necessary to make the automakers profitable: breaking the hold of the bloated unions. Let's be clear on that. The purpose of the bailout is not to avoid the destruction of automobile production in the US. Plenty of automobiles are being produced in America by Honda and Toyota and other automakers--at non-unionized shops. And if the Big Three were to go bankrupt, they would likely be bought out, or at least their most valuable pieces would be scooped up by new owners. But if GM goes into bankruptcy, its contracts with the unions would likely be thrown out--you can't have a contract with a defunct firm--and the new owners would be able to negotiate new contracts from a position of strength. Accept our terms, they would be able to say, or you will all be out of work permanently.

That is what a bailout is really meant to avoid: anything that would break the power of the unions. This is not a bailout for GM. It is a bailout for the UAW.

Here is the key phrase that sums up the outlook behind the bailout: Susan Helper, a professor of "regional economic development" at Case Western Reserve University tells the New York Times "From a social point of view, even if GM is not providing a return on investment, it is still providing a lot of good jobs."

If this bailout goes through, GM will get a lot of opportunities to do things that don't provide a return on investment but are considered desirable "from a social point of view" in Washington, DC. In fact, while the immediate motive for the bailout is to seize the Big Three in the name of the proletariat--the auto workers--there are also plans to seize the companies in the name of the planet.

A recent LA Times op-ed complained that:

the US automotive industry has been on the wrong side of almost every environmental, social, and safety issue since the 1960s....

If the US government--on behalf of the people--is going to spend considerable sums of public money and incur public debt to keep these institutions alive, let's insist on returns that benefit society as a whole, not merely Big Three shareholders, management, and employees.

What might these public benefits be? Well, for one, isn't it time for Detroit to turn out a car that gets at least 100 miles per gallon--and to do it in three years?

If the Old Left's goal is to save the unions, the New Left's goal is a kind of economic coup d'etat in which the environmentalists take over their hated enemy, the auto industry, and convert it into a new conduit for "green economy" subsidies."

This is going to be cloaked in claims about 100-mile-per-gallon cars and how they are going to be good for the economy. If the Soviet central planners had Trofim Lysenko, we have Jennifer Granholm. In a recent op-ed, the governor of Michigan claimed that "The US auto industry is the sector that will lead the way to energy independence. How? The car you drive will soon be the storage unit for all your energy needs. Your home, your car, your appliances can all be powered through the advanced battery that will sit inside your plug-in electric vehicle." Never mind that Detroit has been working for decades on this alleged super-battery breakthrough--without success. More fundamentally, someone needs to remind the governor that batteries are used to store energy, not to generate it.

The technological reality behind these preposterous claims is the Chevy Volt, which can travel only 40 miles before conking out, at which point it needs to charge for six hours. And the giant lithium ion battery it uses only lasts for 5 to 7 years before it needs to be replaced. For all of this inconvenience, consumers can expect to pay as much as $40,000 per car--at which price Chevy still will not make a profit on it.

That is the future the auto bailout advocates are selling us. Their rationalizations may be new, but they are bringing us back to the same place. They are scheming to transform the Big Three into permanently government-subsidized, government-run organizations that employ an inefficient and unmotivated workforce to produce small, underpowered cars at a financial loss.

While the government is busy restructuring GM, maybe they should consider renaming it "Trabant."

There is a lot of navel-gazing going on right now in conservative circles about how the Republicans can recover from last week's election loss. But rather than just talking, the Republicans should be doing something: they should take the lead in opposing the nationalization of the auto industry and in opposing the whole bailout culture that the Bush administration, the Democratic Congress, and the new president are trying to create.

The question, "Did you vote for the bailout?" should become, to Republicans, what the question "Did you vote for the Iraq war?" is to Democrats. Support for the bailout should become a stigma against any Republican politician within his own party, a decision he has to repudiate and apologize for--and opposition to the bailout should become a prerequisite for any Republican who wants to hold a leadership position.

The Republican Party stands for free markets in the minds of the public--so maybe they should try standing for free markets in reality. If they do so, they may just save us from the grey, dismal future Washington's new central planners have in store for us.

Robert Tracinski is editor of The Tracinski Letter and a contributor to RealClearMarkets.

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