Socialism: A Detroit Success Story

The right’s spurious accusations of “socialism” in the Obama administration probably find their most purchase — which still isn’t much — when discussing the administration’s brokered bankruptcy of General Motors, which eventually ended with the government owning 60% of the company’s stock. Ahah! Socialism! State ownership of the means of production!

Except, no: as explained earlier, temporary nationalization of embattled companies, to serve the state or save the industry, is something of an American tradition, and one that knows no party, and no ideology.

Further, the executive branch’s temporary ownership of GM yesterday proved its temporary nature — while GM still posted substantial losses, its losses weren’t as bad as expected, and the company will begin repaying its debt to the American public. Here’s a secondary danger to conservatives seeking to demonize Obama as a “socialist.” Set aside concerns for intellectual honesty: by muddying the definition, should so-called-“socialism” continue to succeed, there’s a real risk that conservatives will make “socialism”-in-fact palatable. Brace for epic — and universally undesirable — backfiring.

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16 comments

  1. Its not socialism if you are bailing out a big business, only if you are helping actual, individual people! Or so the bumper sticker would read.

    And that’s the fundamental plank of the current conservative thinking that makes it so different from liberal thinking. COnservatives hold up th eindividual as a praise-worthy entity, but screw the individual in favor of the corporation in nearly every economic and legal policy. corporations, afterall,ARE the economy; people, not so much.

    Liberals on the other hand, hold the individual in some esteem, but recognize that forces align against the individual to deprive him of his freedom. Liberals fight those forces – be they corporate entities or obtrusive government that acts against individuals, rather then protecting them.

  2. It may have succeeded, but it succeeded at something that shouldn’t have been done: saving GM. If the bailout had involved mass executions of GM management, if their families had frozen or starved to death on the streets last year as the price of their incompetent, if it had been made clear that the consequences of failure and imperfection are brutal and inescapable death, then the bailout would’ve succeeded at something worthwhile. But it didn’t.

  3. Wasn’t the real purpose of saving a bunch of over-paid jobs at a crummy company an attempt to guarantee their votes in 2010 and 2012?

  4. Geez Mike, cynical much? GM got into trouble for two reasons – first, it (like Ford and Chrysler) failed to adapt its products to changing consumer economics. The foreign auto makers – less so. But the other reason tha GM went down is that it had a huge finance arm – GMAC – that was in the housing business as well as the car business. When the credit bubble burst and house value plummeted, GMAC took huge hit after huge hit. Because GM hadn’t spun the unit off – as had Ford and Chrysler – GM had to take vehicle profits to cover GMAC losses. At one point it just got unsustainable, which is why GM went to the Fed window first (and Ford never did).

    Now, having said all that, I still think the automakers and the Too Big To Fail banks all should have been allowed to fail. I just don’t agree with private profits being set against public risk – which is how the system works now. An immediate crash is easier to deal with structurally then loosing the car one screw at a time.

  5. Allowing big companies like GM to fail is almost always one of the worst things you can do in the middle of a recession. Not only does it create a lot of additional unemployment then and there, it also causes uncertainty even for people who are still employed, making them spend less money. Thus, the economy contracts further, deepening the recession.

    Basically, the government can and should do two things – stabilizing the economy as much as possible, especially in order to restore trust, and spending obscene amounts of money to try and promote growth. The bailout accomplishes both, so it’s exactly the right thing to do.

    It may not seem so at first, but to be honest, a recession is no time for conclusions drawn from banal household economics.

  6. @lanfranc:

    . Not only does it create a lot of additional unemployment then and there, it also causes uncertainty even for people who are still employed, making them spend less money. Thus, the economy contracts further, deepening the recession.

    Um, if you haven’t notice, we “saved” GM, Chrysler, and a number of financial institutions, and all those things happened anyway. Or do you believe all this Jobless Recovery hooey going around?

    And do you think that saving GM was wise, giventhat it contributed to an evisceration of moral hazard? Me, personally, I’d rather see moral hazard . . . .

    1. This isn’t a black and white thing. It’s not either the economy rebounds because we saved GM or it doesn’t. It’s about degrees. The assumption here is that the failure of GM would have led to a greater degree of decreased spending, etc. You have to challenge that assumption if you want to say “spending is down, etc, so therefore the bailot was bad/didn’t work.” And even then, the meat of the argument would be in challenging the assumptions.

      Also, what are saying about moral hazards?

  7. I’m saying that what ever there was left of moral hazard as a consequence of economic behavior got tossed out the window in the bailouts. Sure, GM and Chrysler are shells of their former selves, but they are still in business, and still fairly unrepentant. Ditto major financial houses like Citi and BofA. These folks took enourmous financial risks – systematic financial risks – expecting the be bailed out by taxpayers. They were then bailed out by taxpayers, but without any sort of restraint on their business practices. Thus in my view moral risk is at least gravely ill if not dead. Bad economic precendent – doubly so when the players do not, as Alan Greenspan was supposedly surprised by – act rationally for the long term survival of the economy as a whole.

    1. As I understand it, a moral hazard is exactly the situation you describe, not the opposite:

      Moral hazard arises because an individual or institution does not take the full consequences and responsibilities of its doings, and therefore has a tendency to act less carefully than it alternately would, leaving another party to hold some responsibility for the consequences of those actions. (Wikipedia)

    2. Avoiding moral hazard is all well and good, and I’m generally a fan of doing that, but there are certain things you just can’t afford to do in the middle of a recession. One of those is to allow a series of your country’s biggest financial and industrial corporations to go bust right in the middle of everything.

      1. Well, that depends entirely on your intended outcome. See, here’s the problem for me – I don’t want us (i.e. The U.S.) to again be driven to the brink of economic collapse by irresponsible, private financial risk taking. There’s just too much money flowing out of my pocket to clean up this mess – and more will have to be taken eventually. So from my view, bailing out the banks, with no visible, public penalty, sets up a situation where THEY WILL DO IT ALL AGAIN. And that’s what I mean by we’ve lost moral hazard. BofA and Citi (and Goldman) see no down side to taking similar risks in the future. Their current profitable balance sheets show it. Thier continued paying of stratospheric bonuses show it. They EXPECT to find another markey where they can duplicate the profits that lead into the latest crash, and they EXPECT the American taxpayers – you and I – to bail them out when they are at risk of failing again. And this is why I am so adamantly opposed to their continued survival. They are playing chicken with my financial future without my permission, and I have no intention of allowing them to throw me in front of the train so they don’t get hit.

        Neither should any of you.

        1. I think Phillip makes some good points which is that GM is highly likely to make these kinds of mistakes again. There have been some articles out lately which talk about the corporate culture over there. Completely disconnected from reality.

      2. The #1 priority during a recession must be to make that recession stop and restart economic growth, otherwise you risk it deepening into a depression and then it’ll be early 1930’s all over again.

        Once you’ve accomplished that, you can look to preventing the causes of the recession from happening again, and in this case, I think it’s government regulation and oversight of the financial sector that’s really needed.

      3. Just to add: Moral hazard by itself definitely won’t be enough. Just look at the 19th century – back then, moral hazard was pretty much the only regulatory mechanism available, and that period was basically one long cycle of booms and recessions.

  8. The #1 priority during a recession must be to make that recession stop and restart economic growth, otherwise you risk it deepening into a depression and then it’ll be early 1930’s all over again.

    How’s that worked so far? And second question – if that’s the case, then shouldn’t we stop spending billions overseas in two wars we can’t win? Or would that make too much sense?

  9. The 2010 forecast for the US economy shows a growth of about 2.5%, so I’d say it’s working pretty well so far.

    As for the wars – I guess you’d have to look at where the money is actually being spent. If a large enough part of it goes back into the US economy, for e.g. equipment purchases and the like, it might actually not be too bad from a strictly economic perspective. Still, there are probably much better ways that money could be spent.

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