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Team Obama's Auto Coup By: Dr. Mark W. Hendrickson
FrontPageMagazine.com | Tuesday, June 16, 2009


In assessing Team Obama’s semi-nationalization of the auto industry, a slight alteration of the famous verse by Elizabeth Barrett Browning encapsulates my reaction: “How do I [not] love thee? Let me count the ways.”

1) The government takeover is unconstitutional.

The Constitution authorizes Uncle Sam to “regulate commerce,” not to own and manage it. Even before the formal coup, Obama had already fired GM’s former CEO. Now, Team Obama intends to dictate to GM what kinds of cars it must build. Of course, the federal government is already well on its way to nationalizing the financial industry, the home mortgage market, health care, education, retirement, etc., so—ho-hum—why not the car industry, too?

2) Parts of the government takeover are illegal.

Contract law was trampled under foot when the government placed unsecured creditors (read: the United Auto Workers) ahead of secured creditors (bondholders) in the pecking order of who gets first dibs on the remnants of the old bankrupt GM and Chrysler.

That the president bestowed largesse on Big Labor was no surprise. What was jarring was Obama’s denunciation of the ripped-off bondholders as “speculators.” These “speculators” range from retired blue-collar workers to investment firms managing the retirement accounts of state and municipal employees, school endowments, and other such suspicious characters. Yet, Obama views and portrays them in class-warfare terms—as greedy capitalists whose property should be expropriated and redistributed to labor. This is textbook Marxism.

3) The takeover unwisely and unjustly keeps UAW intact.

UAW has been a disaster for the people of southeastern Michigan. For decades it has been strangling the Big Three. Its “triumphs” have been pyrrhic victories. Yes, UAW members received fantastic compensation, if they have managed to keep their jobs. Unfortunately, UAW, more than any other organization, has been responsible for hundreds of thousands of union jobs being vaporized by pricing them out of the market. Now, this parasitic outfit has killed the goose that laid their golden egg. If the bankruptcy had gone through the usual legal channels, UAW could have been buried alongside the companies that it killed. Instead, Obama made UAW its partner in these two companies by sharing ownership with them.

4) It leaves Corporate Average Fuel Economy (CAFE) standards intact, too.

Second to UAW, what most crippled the Big Three was Washington’s mandate requiring the automakers to manufacture cheap, fuel-efficient cars domestically, using high-priced UAW labor, in order to meet CAFE standards. This move made these politically correct cars automatic money-losers and, hence, company-killers. Yet, already this year, the Obama/Pelosi/Reid axis perpetuated this error by mandating even higher gas-mileage standards for domestically produced autos.

5) It has been and will continue to be costly for taxpayers.


Not only did Uncle Sam sink far more billions into GM and Chrysler than the companies’ market value, but now Washington expects the “new GM” to build many electric cars. These vehicles will not be cost-competitive on their own merits. Team Obama’s solution? A total of $7,000 in tax credits for those who buy the product of Washington’s central planning. And where will all that money come from? From us taxpayers, of course. Clearly, Obama wasn’t kidding when he told Joe the Plumber that he wanted to “spread the wealth” around more evenly.

Another potential cost of more fuel-efficient cars is that, to the extent that they reduce fuel consumption, government revenues from the excise tax that we pay at the gas pump will fall. Already in 2009, the decline in this source of revenue has meant that Uncle Sam has insufficient funds for road maintenance. Additional government revenues are now required, which implied a tax increase.

6) It turns economic decisions into political ones.

For example, will Uncle Sam protect the taxpayers’ investment in GM by buying GM vehicles, even if Ford and other domestically made cars are cheaper and better? That presents a major conflict of interest.

Will political clout rather than economic rationality determine which automobile factories remain open? Already, the blogosphere is filled with charges that Team Obama closed a disproportionately high percentage of car dealerships with Republican Party ties. Does anyone really doubt that this most partisan of presidents and congresses will play politics with the businesses that it controls?

7) Uncle Sam as hero?

As Team Obama rides to the rescue of GM and Chrysler, we should realize that earlier government interventions doomed those companies. Labor laws and fuel-economy mandates weakened them for years. The current deep recession that polished them off was due to the boom/bust cycle generated by the central bank and exacerbated by government meddling in the housing market, incompetent regulation, and Uncle Sam’s too-close relationship with Big Finance. Sadly, most Americans don’t understand government’s culpability in precipitating the demise of these two corporate icons; on the contrary, many entertain the dangerous fallacy that our economic well-being depends on government.

Until we understand the counter-productiveness of government intervention, our country will continue to suffer unnecessary economic pain.

Dr. Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College.


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