Topic: Government and Politics

Why the GOP Must Stop ObauckennewydenCare, Part II

Paul Starr is an ardent advocate of (dare I say it?) socialized medicine. He co-founded the left-wing magazine The American Prospect. And he wrote the definitive history of the medical profession in the United States – seriously, you should read this book. Which is why Republicans should take heed when he writes:

Political leaders since Bismarck seeking to strengthen the state or to advance their own or their party’s interests have used insurance against the costs of sickness as a means of turning benevolence to power.

As noted earlier, the political survival of the Republican party probably depends on its defeating whatever health-care plan emerges from the scrum created by Messrs. Obama, Baucus, Kennedy, and Wyden.

If the GOP fails, the beating it took in 2008 will pale in comparison to the decades-long drubbing that will follow.

Everything Is a Security Issue

Anyone who sells to the Pentagon can claim that theirs is a strategic industry. In a war, enemies could cut off shipments from foreign producers, subsidy seekers say. Government then needs to protect American steel makers, shippers, shipbuilding, and so on. Those making these arguments avoid discussing the long odds that foreign supply will be interdicted or that the United States will fight a war that lasts long enough for it to matter.

Consider Wesley Clark’s op-ed in Monday’s New York Times. Clark notes that the Army buys a lot of vehicles from US automobile companies. Therefore, he says, bailing out the big three is a security issue. But letting US automakers go bankrupt does not mean they will stop making trucks. Even if they did, there are still foreign automakers that manufacture in the United States and would be happy to sell to Uncle Sam. And even if domestic automobile production disappeared entirely, we could still import. No imaginable enemy could close the sea-lanes that we use to bring in vehicles from Europe and Japan. Clark doesn’t address any of these holes in his argument. Nor does he let his lack of experience in the automobile business stop him from telling Detroit how to run its business.

In Sunday’s Washington Post, Joby Warrick offers similarly shaky analysis about the financial crises’ effect on US security.  Economic difficulty impacts every security issue, so you can always find an expert to tell you how the downturn heightens the odds of some particular nightmare.

Warrick suggests that lowered federal revenue could require cuts in defense spending, leaving us more vulnerable. Maybe, but the doubling of non-war defense spending since 2001 has bought us plenty of security to spare, by this logic. Warrick cites specialists who say increased global poverty will cause instability, which will cause terrorism. But there is no clear link between instability and terrorism. 

Warrick says “many government and private terrorism experts say the financial crisis has given al-Qaeda an opening,” which they may use to “probe for weakening border protections and new gaps in defenses.” Does anyone know what that means? The article never explains what defenses we’re talking about, let alone what gaps a downturn will open in them. It does not tell us why we should we view Al Qaeda as a carefully reckoning organization that probes and times its attack to US events, rather than groups of guys who attack when they can. The article cites analysts who say that the downturn could speed the day where China overtakes us economically. But China is not immune from economic distress. Nor it is clear that China’s rise is bad for US security.

The article could be turned on its head: “Global Downturn likely to slow China’s rise, undermine terrorist fund-raising, and eliminate wasteful defense spending, experts say.”

Gridlock Puts Brakes on Big 3 Bailout (for Now)

The Associated Press is reporting today that “Stalemate dims prospects for $25B auto bailout.”

Here’s the lead:

WASHINGTON (AP) - Prospects dimmed Monday for enactment of a $25 billion bailout for the faltering auto industry before year’s end, as congressional Democrats and the Bush administration seemed headed for a stalemate. Help for Detroit’s Big Three, which have been battered by the economic meltdown that has choked their sales and frozen their credit, is falling victim to a partisan fight over where the money should come from. Senate Democrats said they would press ahead with their plan to carve out a portion of the $700 billion Wall Street bailout to pay for the loans, but aides in both parties and lobbyists tracking the plan acknowledged they did not currently have the votes to do so. The White House and congressional Republicans insist that the automaker bailout money instead come from redirecting a separate $25 billion loan program approved by Congress to help the industry develop more fuel-efficient vehicles.

The story is already making me nostalgic for partisan gridlock and divided government, which will officially end on January 20, 2009.

My trade center teammate Dan Ikenson has been ably making the case in recent days that the bailout is a bad idea. What appears to be saving our country from wasting this huge amount of money is the much-bemoaned gridlock.

A key word in the story is “currently.” The plan does not “currently” have the votes to pass, but all that will change in 64 days.

The Surreptitious Socialism of the Strong

George Will despairs that we already have a good bit of the socialism that John McCain warned about in the waning moments of his decade-long quest for Rooseveltian power. That is, we already have a lot of government redistribution of wealth, though we have almost no overt advocacy of socialism:  ”This is partly because Americans are an aspirational, not an envious, people. It is also because the socialism we do have is the surreptitious socialism of the strong, e.g., sugar producers represented by their Washington hirelings.”

Rent-seeking, economists call it–using the government to get privileges, such as a grant, a subsidy, a tariff, or a restriction on one’s competition. It’s one of those things we free-marketers rail against all the time, in papers on free trade, corporate welfare, government spending, and virtually every other activity of the modern state. More broadly, we point out, as Will did, that it’s impossible to have nonpolitical allocation of trillions of dollars of taxpayers’ money handed out by government. If you don’t want the powerful to lobby and manipulate in order to get their share of the money, then leave it in the marketplace. If you put it in the hands of politicians, expect political allocation.

Responding to Will, Christopher Orr at the New Republic says, “insofar as there are two kinds of spreading the wealth around, ‘rent-seeking’ (which we can all agree is bad) and ‘socialism’ (which Will implicitly concedes is less bad), conservatives are relatively more friendly to the former and liberals are relatively more friendly to the latter.” Hmmm. Is that so? I suppose if you think of the Bush administration as “conservatives,” then you have a good case. And Orr may be too young to remember actual conservatives back in the days B.G.W.B.

But I’m not. And I recall, for instance, the first program that Democrats rallied around when the Reaganites stormed ashore in 1981 with their pitchforks and meat cleavers in hand. Nexis confirms that a day after the administration made a broad budget-cutting proposal, these words led page A1 of the Washington Post: “The entire Democratic leadership in the House joined yesterday in warning the Reagan administration to keep its budget-cutting hands off the synthetic fuels subsidy program Congress created last year.” Democrats love corporate welfare, and even liberal intellectuals are far less critical of it than are libertarians and free-market conservatives.

And it’s not just corporate welfare. All the elements of the liberal interventionist state are both product and generator of rent-seeking. You can say that rent-seeking is an unfortunately inevitable by-product of having the government do good. But to want a $3 trillion federal government with vast regulatory powers that isn’t awash in rent-seeking is, as Milton Friedman wrote, like saying “I would like to have a cat, provided it barked.” Cats meow, and government money flows to those with political power.

No Experience Needed

The Washington Post reports today that job-seeking Americans who peruse employment listings for the ensuing holiday shopping season are likely to find far fewer openings than last year. That is hardly a surprise: unemployment is rising, and people are looking for work in places and industries that they wouldn’t have considered previously.

It is far more surprising that President-elect Obama’s job listings for personnel to fill the top posts in his new administration seem to all be prefaced with ”only experienced persons need apply.” This from a man whose lack of experience did not block his path to the Oval Office, and might ultimately have cleared the way.

Don’t get me wrong: I much prefer a skilled surgeon to one who is performing his first operation. An accountant who has worked for dozens of clients will likely make far fewer errors than the person who has just started her own practice. But experience doesn’t automatically translate into competence; wisdom and insight might actually be impeded by years of working in the same field, exposed only to the canon of the profession.

New thinking is particularly needed in new industries. Most of the people that Jeff Bezos hired to staff his start-up had never worked in the Internet business, and quite a few had never worked in any business at all. Today, Amazon.com is a retailing juggernaut. 

New thinking – and new faces – are also welcome in old, tired industries that have run out of new ideas. (Yes, that means you Detroit automakers.)

Alas, the Washington foreign policy community has also largely run out of ideas, and the men and women in both established institutions and those newly created are still marketing products that Americans no longer want to buy. Ignoring the manifest lessons of Iraq, “experienced” Washingtonians on both the left and the right are clamoring for new and better ways to build foreign countries and fight other people’s wars; Beyond-the-Beltway Americans want to build our own country, and bring an end to our own wars.

Given his recent victory, Barack Obama clearly understands the public’s desire for change. But that applies to both foreign and domestic policy. The debacle known as the Iraq War won the support of left-leaning think tanks and academics – and 29 of 50 Senate Democrats – and yet the President-elect appears to be turning to this same, small cadre to staff his new administration. Maybe he didn’t mean it when he said that good judgment matters more than experience? Or maybe he doesn’t fully appreciate just how harmful our foreign policies since the end of the Cold War have been, and therefore misses the urgency of the need for change at Foggy Bottom and the NSC?

Would an Auto Bailout Lead to National Greatness?

There have been plenty of criticisms here of neoconservatism and “national greatness conservatism,” but two of the occasional targets, Charles Krauthammer and David Brooks, have just published devastating critiques of the auto industry bailout. Here’s Krauthammer in the Washington Post:

First, the arbitrariness. Where do you stop? Once you’ve gone beyond the financial sector, every struggling industry will make a claim on the federal treasury. What are the grounds for saying yes or no?

The criteria will inevitably be arbitrary and political. The money will flow preferentially to industries with lines to Capitol Hill and the White House. To the companies heavily concentrated in the districts of committee chairmen. To clout. Is this not precisely the kind of lobby-driven policymaking that Obama ran against?

Second is the sheer inefficiency. Saving Detroit means saving it from bankruptcy. As we have seen with the airlines, bankruptcy can allow operations to continue while helping to shed fatally unsupportable obligations. For Detroit, this means release from ruinous wage deals with their astronomical benefits (the hourly cost of a Big Three worker: $73; of an American worker for Toyota: $48), massive pension obligations and unworkable work rules such as “job banks,” a euphemism for paying vast numbers of employees not to work.

The point of the Democratic bailout is to protect the unions by preventing this kind of restructuring. Which will guarantee the continued failure of these companies, but now they will burn tens of billions of taxpayer dollars. It’s the ultimate in lemon socialism.

Democrats are suggesting, however, an even more ambitious reason to nationalize. Once the government owns Detroit, it can remake it. The euphemism here is “retool” Detroit to make cars for the coming green economy.

Liberals have always wanted the auto companies to produce the kind of cars they insist everyone should drive: small, light, green and cute. Now they will have the power to do it.

And David Brooks in the New York Times:

This is a different sort of endeavor than the $750 billion bailout of Wall Street. That money was used to save the financial system itself. It was used to save the capital markets on which the process of creative destruction depends.

Granting immortality to Detroit’s Big Three does not enhance creative destruction. It retards it. It crosses a line, a bright line. It is not about saving a system; there will still be cars made and sold in America. It is about saving politically powerful corporations. A Detroit bailout would set a precedent for every single politically connected corporation in America. There already is a long line of lobbyists bidding for federal money. If Detroit gets money, then everyone would have a case. After all, are the employees of Circuit City or the newspaper industry inferior to the employees of Chrysler?

It is all a reminder that the biggest threat to a healthy economy is not the socialists of campaign lore. It’s C.E.O.’s. It’s politically powerful crony capitalists who use their influence to create a stagnant corporate welfare state.

Hear, hear. The intellectual case for the bailout–if there was one–surely can’t survive these two clear and analytical critiques in the nation’s most influential newspapers. But then, protectionism couldn’t survive the analytical critique of Adam Smith in 1776, and yet it persists. So we can’t assume that members of Congress will read Brooks and Krauthammer and sheepishly drop the idea of handing a big pile of taxpayers’ money to corporate managers, stockholders, and unions who have dug themselves into a deep hole.

Krauthammer and Brooks both make a careful distinction between the financial bailout and the proposed auto industry bailout. Krauthammer posits the Wall Street intervention as “an emergency measure to save the financial sector on the grounds that finance is a utility. No government would let the electric companies go under and leave the country without power. By the same token, government must save the financial sector lest credit dry up and strangle the rest of the economy.” But bailing out Detroit is put forth as a scheme to save jobs, and where does that process stop? Krauthammer warns that the “drift toward massive industrial policy threatens to grow into the guaranteed inefficiencies of command-economy maximalism.”

For those of us who opposed all the taxpayer bailouts, starting back with Bear Stearns―or with Chrysler in 1979―all these bad ideas may seem to run together. Bear Stearns, AIG, the general financial industry, the auto industry―it’s all government intervening with taxpayers’ money to favor some businesses or industries that made mistakes. Perhaps because they weren’t so critical of the measures to deal with the financial crisis, Krauthammer and Brooks find it easier to see what’s very different about the Detroit bailout. And they both make crucial points: the dangers of political allocation of resources, the benefits of bankruptcy and restructuring, the industry’s partially self-inflicted wounds, the desire of some Democrats for political power over corporate decisionmaking, the dangers of corporate capitalism. Let’s hope members of Congress read and underline both columns.