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What is seen and what is unseen

Even in Britain, the headlines this morning are full of the imminent bankruptcy filing of GM. It is, as one report points out, the biggest bankruptcy in US industrial history, setting an unenviable record. Several things stand out as I looked through the details but one immediately grabbed my attention: the US taxpayer could be on the hook for up to $60 billion on account of state assistance. $60 billion. I guess we all get so punch-drunk with the vast sums involved in bank bailouts and the like that the significance of these sums becomes a little fuzzy (or maybe it was that white wine I had at the BBQ yesterday). $60 billion of money that is being spent to rescue part of a veteran auto firm will be money that will not be available to fund, say, a new set of business startups in the US. GM has highly recognisable brands and a lot of well organised workers. Pretty much everyone has heard of it, has heard of Detroit’s status as a car-making town. So, naturally, there is big media and political interest in what happens to GM. All those thousands of jobs on the line, etc. But the entrepreneurs, taxpayers and consumers who will see their wallets lifted, business plans stymied, or car purchases affected – who speaks for them? Taken as a whole, far more people will be affected by the cost of paying to sort out GM than the management and workers, but given the dynamics, it is usually far easier for politicians to portray themselves as “saving” a firm by spending or “investing” (sic) public money than it is to accept, however painfully, that a firm needs to be broken up and capital released for other, more productive things. (It needs to be remembered that GM’s problems pre-date the credit crunch).

The French classical liberal economist, Frederic Bastiat, wrote a famous essay, “What is seen and what is not seen”. He was attacking things like subsidies and tariffs. And not a word of his essay is out of date.

17 comments to What is seen and what is unseen

  • Vercingetorix

    $60 billion of money that is being spent to rescue part of a veteran auto firm will be money that will not be available to fund, say, a new set of business startups in the US.

    Which is an excellent point. In fact, it is the only point worth making: a penny spent by the government is a dollar lost to the market (in lost savings, investments, in production, and then the graft and waste of our court eunuchs at town hall).

    I’m a Michigan native, I will not buy Chrysler or Government Motors until they have either folded completely or returned to private hands. I am not alone. $60 billion wasted.

  • el windy

    Government help and subsidies have always been designed to help “friends of friends” although nominally meant to be available for all. What is worse is the fact that these subsidies always try to keep alive firms that are probably past their useful life. Despite the aberrations due to government interference what the markets are telling us is that large motor car corporations are now a 20th C. anachronism. I notice, incidentally, that the messianic Greens haven’t been very vocal about government money being used to prop up the carbon-burning economy.

  • Paul Marks

    Glenn Beck and others have been astonished by the lack of concern about all the Corporate Welfare by the left (they should not have been astonished of course – there are some honest leftists, but they are a small minority).

    The vast majority of Democrats even voted for TARP – and once the finance houses were bailed out it became politically impossible to oppose any other bailout. Bushbrain supported TARP so he had to support the G.M. and Chrysler bailout – thus playing into the hands of Barack Obama who supports the project in order to get political control.

    Those who think that Barack Obama is reluctant (or hesitant, or whatever) to get political control of enterprises most likely think the bust was caused by the “reckless lending of banks” with no connection to the endless expansions of the credit money supply by the Federal Reserve and the politically driven “affordable housing” policy of Fannie Mae and Freddie Mac.

    J.P. is correct – this bailout will destroy lots of new business enterpises, companies that “could have been”.

    It will also help destroy Ford – as the U.A.W. will not be broken. Whereas if Ford was the only big American auto maker left standing it might have had a chance (even with the Community Organizer in Chief in the Whitehouse) to really defeat the U.A.W.

    The bailout will not even really help G.M. – due to the way it has been done.

    The U.A.W. (under the Obama lie that “unions are not a problem they are part of the solution”) will be more entrenched in the company than ever.

    The bond holders (at least the ones without political connections) are being ripped off – “if you do not support the deal, we will use the Washington Press Corps to smear you”.

    And the company will be majority government owned (although, in line with Fascism, it would not matter if the government did not own it – as the regulations would give the government control anyway).

    It will truely be Government Motors.

    I am glad my father (who drove an American car for many years – and a G.M. one at that) has not lived to see this.

  • K

    The US government (and in that I include most state and local governments) has now dropped all pretense that it does not intend to impoverish great numbers of citizens in order to reward political favorites.

    Until fairly recently the premise of US taxation was that we transferred some resources from those who had much to those with very little, the poor.

    Washington now operates in quite another way using wealth transfers as tools to crush political foes and reward friends. No other criteria apply.

    We see wealth routed to firms with the proper political influence regardless their need. And to blocs who can be relied upon to vote for the Democrats regardless of their economic circumstances.

    Thus the power and money transfers to unions, union workers, teachers, universities, and the great numbers of government workers and retirees. These groups get regular increases and adjustments for inflation and total medical care regardless of economic conditions.

    And no accounting of where the money went is made.

    Higher tax revenues can only come from the vanishing middle class. These are mostly people who have built modest estates and security through years of work and discipline.

    But it also includes dentists, physicians, nurses, managers, engineers, owners of small businesses, etc. They are to be yoked and ruined by high taxation and regulation.

    And the Democrats deem it only proper; such people tend to vote for the GOP.

    There are also great numbers of retirees who worked in the private sector. They are exhausting the social security system and the funds which help them with medical bills in old age. (The funds have been looted by the government and the money spent for other purposes.)

    But if medicine can be federalized and then rationed. that should take care of those expensive bills and long life expectancies.

    And that too will be morally correct. After all, the government employees and retirees have their own more generous plans and need not be concerned.

    The government intervention in the GM and Chrysler bankruptcies stripped their creditors of billions of dollars.

    Who will now lend money to US companies? Perhaps banks controlled by the Treasury and TARP will. They have no choice.

    The result will be rising expenditures, businesses failing, huge unemployment, wealth running to other nations, and immense deficits. The US is also just printing money in addition to issuing bonds.

    Yet in Washington they seem astonished that bond yields are rising and foreigners are avoiding US Treasuries. And that lenders are reluctant to write mortgages or make business loans.

    There is not enough wealth in the world to satisfy the antics and madness of this government. Obama arrived after the illness began but he seems utterly determined to make it fatal.

  • “$60 billion of money that is being spent”

    Ages before he died, the great physicist Richard Feynmann remarked about 20 years ago, that people used to talk about “astronomical sums” when talking about large amounts of money, as until then, the public were only just coming to terms with interstellar distances etc.
    But like I said, about 20 years ago, he made a speech where he said “perhaps we should now be calling these numbers “economical numbers””!! (check out the video which is on YouTube if you look).

    That was then. The figures are truly “economical” now, but in fact, I’d prefer to call them “comical” numbers, because they are so beyond the realm of comprehension, I don’t think anyone takes them seriously anymore. They are so huge, they can be compared to the figures on banknotes in recent Zimbabwe or pre-war Germany.
    I just hope, that in everyone’s conciousness that the same melange of ideas does not happen and history does not repeat itself.
    We’ve already had “quantative easing” which fools no-one of intelligence; It’s printing money in normal English. That’s how Germany and the ensuing 100 million deaths in WWII kicked off, all triggered by a huge stock market crash….

  • Matt

    I will do everything in my power to ensure the final demise of this bloated pig General Motors. The second that a company takes my tax dollars is the second that I spend my money on their competitors.

    Toyota = Epic and Stunning WIN

  • The Obama administration has no interest whatever as to weather GM or Chrysler ever produce another car again. What’s important is that union workers keep getting paid, a percentage of which gets kicked back to the Democratic party.

    Excellent article in today’s Wall St. Journal by Romania’s former “car czar” on how well government-operated motors work. Of course you folks in England know all about how well British Leyland worked out.

    Disclosure: I own a Triumph, so I have some first-hand experience with that myself.

  • Ian B

    Bastiat’s essay is a classic. I wish every kid in school had to study it. Really, once you’ve understood that one essay, you almost don’t need to read anything else to understand what is wrong with modern economics and politics.

  • James

    I sold my Chevrolet pickup truck in March of this year. Our garage is now filled exclusively with Honda products. They were expensive SOBs, comparatively speaking, but the engineering and overall functionality is superlative and I expect each vehicle to last for many years. (The Chevy did not need replaced for any mechanical issues; on the contrary, it was well-maintained and continued to provide admirable fuel mileage returns. I simply couldn’t continue to defer the need for a crew cab-based vehicle any longer.)

    During my search for a replacement for the Bowtie, it was my stated intent to support the domestic (i.e., US) auto industry. What I found, having returned to the market as a buyer after an eight year absence, was a network of dealers and inventory whose self-assuredness was way out of lock step with its skill set. How reassuring it is to learn that the infrastructure will continue, more or less, to be maintained in the lifestyle to which it has become accustomed.

    It didn’t take me long to find the Ridgeline at one of our local Honda dealerships. No looking back now, gents.

  • Brad

    If it is so clear that the propping up of GM is a clear quid pro quo payouts for votes and kickbacks, shouldn’t there be a conclusion of what should be done next by people who are coerced to fund it? Is it time for the parasites to be sent packing? I see all sorts of postings by people who resent such bald political transfer but seldom see any comments as how it’s to be resolved. Is it assumed that they are just going to stop someday?

  • Subotai Bahadur

    Brad @ 2105 hrs.

    Actually, I don’t think that there is any expectation that this is “just going to stop someday?”. This is just the beginning of both a Corporatist [the economic facet of Fascism] coup and what will be the beginning of a cross between the Great Depression and Zimbabwe. Our electoral system has been so compromised, that there is little confidence that there will be any chance of saving things with elections. Or even that there will be an opportunity to try. Think Enabling Acts.

    It is no coincidence that there are only two related products whose sales are booming regardless of the economy.

    This is not going to be tidy, and there is no assurance that it is going to end well.

    Be Thou then truly Resolved ……..

    Subotai Bahadur

  • Alice

    A lot of people seem to have missed the message of GM’s unfortunate end. Less than two years ago, this was the largest motor manufacturer in the world. Then the bill for all the unfunded health care & pension benefits that had been promised during the days of wine & roses finally became unavoidable. When that reality eventually arrives, it is fast & it is crushing.

    Now, who else do you know has promised lots of unfunded pension & health care benefits? (Fill in the name of your favorite government here). And how long will it take that government to do a GM when those unfunded liabilities finally catch up? And who can bail out the bail-outer?

    You don’t need a weatherman to know which way the wind is blowing.

  • K

    Brad, there are few comments about how to oppose O and his programs because there seems to be no effective way to oppose them

    Many will boast of stopping them. Mostly Beer talk. There are ways hinder a little. There seems no way to stop what is happening.

    The US Red States have plenty of people who advocate arming and preparing for the breakdown of civil authority. But it will not be the government that breaks down. Instead it employ ever more brutal means and be quicker to resort to force.

    Obama and the Democrats intend to permanently end the traditional nonsense about laws and constitutions and civil rights and limited government. To do that they must stay in power. And to stay in power they must control elections.

    In the US gaining control of elections is hard to do. But it can be done given the time.

    Meanwhile a stopgap plan is in operation. They will pump money into Blue States to keep the electorate loyal. And punish the firmest Red States in every possible way. That should keep the Democrats in control after the 2010 elections.

    Most of the GOP in Congress will stay quiet provided they get a reasonable share of the earmarks. Expect nothing from most GOP incumbents except an unwavering devotion to retaining their seats.

    The Rust Belt, roughly from Pennsylvania across to Minnesota, is the key to power. Otherwise the nation is roughly balanced with the Northeast and the West Coast firmly in the Democrats camp. And the Southern and Western States are the stronghold of the GOP.

    The Democrats must hold the Rust Belt. And they usually do. But times are hard there. Which is why O simply will not let the auto industry collapse.

    Bailing out autos can keep the Democrats in power after 2010. Or at least they believe so.

    And by 2012 the Democrats alone will be counting the votes.

  • Geoff

    White wine at a BBQ? What were you thinking?

  • Laird

    SLightly O/T (but consistent with the theme of long-term bad consequences of the Obama government’s breathtaking spending spree), here is the opinion of a respected market prognoticator who thinks (with “100%” certainty!) that the US is headed toward hyperinflation. I’m not convinced (yet), but that’s certainly not a pleasant prospect to contemplate.

  • Paul Marks

    Ian B. on Bastiat – quite so Sir, and I wish people would also read his “The Law”.

    Hyperinflation and the United States:

    I do not know whether there is going to be hyperinflation or not. But, I do know that government spending is out of control and that the rule of law is dying – as has been shown in the treatment of bond holders in the Chrysler and Government Moters cases.

    In short – to invest in industry or commerce in the United States under the current regime is insane.

  • kentuckyliz

    I was hoping for regime change in the midterms. But the media have traded being a watchdog for being a lapdog and the slobbering is sickening. It’s pretty bad when you have to count on Pravda to speak the truth.

    Regime change yes. By peaceful means hopefully. By any means necessary. There are a lot of pissed off Americans right now.

    And the 7th circuit has excluded 2nd amendment rights from being individual inalienable rights.

    I’m a mad hillbilly.