Politics, et Cetera

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Monday, December 23, 2013

They Said It:

The Benthamite mind, the political economists’ mind, reaches no higher than the useful but limited Understanding, and therefore never attains to general truth – only to particular means and methods. Without Faith to restrain Understanding (and Faith is the product of true Reason), mankind succumbs first to the death of the spirit and then to the death of the body. Coleridge, in the introduction to his second Lay Sermon, caricatures the Utilitarian as a dim-eyed old philosopher who “talked much and vehemently concerning an infinite series of causes and effects,” which turns out to be a string of blind men, one following another by clinging to his predecessor’s coat-tails, all striding confidently forward. “Who is at the head to guide them?” asks Coleridge; and the contemptuous sage informs him, “No one; the string of blind men goes on for ever without any beginning: for although one blind man cannot move without stumbling, yet infinite blindness supplies the want of sight.”

Russell Kirk, The Conservative Mind, from Burke to Eliot, 1953.

 

THE AUTO BAILOUT AND YOUR LYING EYES.

Every once in a while in this business, we will stumble across a piece – an essay, a story, an article, a speech – that encapsulates the very ethos of the era, spelling out in no uncertain terms all of the moment’s pathologies, idiosyncrasies, and dysfunction, far better than we ever could.  Longtime readers will undoubtedly recognize that this often happens to us with the likes of Mark Steyn and Megan McCardle, both of whom we quote so often in these pages that they should be considered “regulars” rather than mere occasional “guest stars.”

Other times, the piece in question will be just the opposite, which is to say precisely the type of thing that one would expect from the ruling class, either from a politician or, more likely, from a member of the mainstream press, who shares both the government’s biases and its obtuseness.  The “agenda setters” in this country often have no idea how the rest of the country functions and thus have no idea how foolish they sound extolling the virtues of the ruling class or how perfectly they capture the radical obliviousness of our nation’s elites.

This week, we have a perfect, almost textbook, example of the latter, a strange but telling missive from Dana Milbank, the Washington Post’s current purveyor-in-chief of the inside-the-Beltway conventional wisdom.  Milbank, you may recall, made an appearance in last week’s newsletter as well, defending Barack Obama’s self-absorption with the tried-and-true schoolyard retort:  “Oh yeah?  Well, they are too!”  Sometimes, Milbank is better than that.  Sometimes, he is perceptive and clever.  Most times, though, he is not.  And so it is this week, with his insistence that the Affordable Care Act, better known as Obamacare, will, in the long-run, be remembered no differently than was the auto company bailout that was one of Obama’s first acts in office.

According to Milbank, when the bailouts of GM and Chrysler were decreed, all the usual suspects made all the usual clucking noises, insisting that the government had committed terrible, horrible, no good, very bad sins against the American people.  Conservatives shrieked and rent their garments, squawking that the bailouts proved that Obama was a socialist who wanted nothing more than to nationalize entire industries and thus ruin the country.

As the years rolled slowly past, Milbank opines, the bailouts proved precisely the opposite.  They made money, or at least they saved the government money.  They also saved communities.  Heck, they saved the country!  Contrary to conservative spin, the bailouts worked beautifully.  Most importantly, they were so successful that they made everyone forget why they were upset in the first place, or at least, according to Milbank, they made everyone sane forget.

This will also be the fate of Obamacare, Milbank predicts.  In time, everyone will forget about the web site and about keeping the plans that they liked and about all the other apparent disasters.  Over time, the entire country will come to understand what has been done for it and will embrace the better, more perfect world ushered in by Barack Obama and his brave compatriots in the Democratic Party.  Or at least everyone sane will do so.  To wit:

When will the criticism of Obamacare finally end?

I’ve done some research on the question, and by my calculations, judging from current trends, this will happen approximately . . . never.

I base this on the criticism of the auto bailout of early 2009.  Almost five years later, the industry is healthy again and large swaths of the Midwest have been spared what would have been certain economic devastation.  All this was achieved for a relatively modest sum: When the government’s last shares of General Motors were sold last week, the total cost to save GM and Chrysler came to about $12 billion.  It would seem that the argument against the bailout has been settled.  Yet opponents continue to argue their case — if anybody will listen.

On Monday, I resolved to listen.  I went to the National Press Club, where the National Legal and Policy Center, a conservative group, was arguing that the GM bailout was a big mistake.  When I arrived two minutes before the start of the news conference, I was the only reporter in the room; eventually, two others joined me.

Peter Flaherty, the group’s president, stared into a lone camera.  “At its most fundamental level, the auto bailout is a failure,” he proclaimed.  “There’s only been a modest culture change” at GM, he said, and “the bailout did not save jobs.”  What’s more, he said, GM’s reorganization “was government-orchestrated theft . . .

Flaherty was offering a pre-buttal to GM’s chief executive, Dan Akerson, who spoke at the press club two hours later.  Unlike Flaherty, Akerson had some concrete evidence to show why the bailout had been worth the cost: a $21.3 billion initial public offering for GM, 15 profitable quarters and total profits of nearly $30 billion, $10 billion invested in U.S. facilities (including $1.3 billion announced Monday), a return to an investment-grade rating for its bonds, and 26,000 jobs preserved.

Akerson — who is soon to be replaced by Mary Barra, GM’s chief of product development and the first woman to run a major industrial company — was a private-equity guy who joined the company after the bailout.  But asked his opinion of the bailout decision, he cited a study by the Center for Automotive Research that concluded that overall it saved the government $36 billion to $38 billion in costs such as unemployment benefits, and that didn’t include $26 billion in pension liabilities that would have been dumped on taxpayers . . . .

Flaherty was sure the bailout didn’t work because his theory says it couldn’t work . . . .

But in the long run, we’re all dead.  And the dramatic, and rapid, collapse of the American automotive industry in 2009 could have rippled across the economy, setting off panic and perhaps a depression.  Again, Flaherty scoffed.  “These dire stories . . . about a depression being triggered or the economy of the Midwest collapsing were just totally overblown and wrong,” he said.

We will never know for sure.  But we can believe either opponents of the bailout, or our lying eyes.

We’re absolutely certain that Milbank believes every word he has written here (and more!).  He believes that the bailouts were wonderful.  He believes that only lunatics and unthinking reactionaries are unable to see that wonderfulness.  He believes that anything that works this wonderfully should be a model for government, particularly in this day and age, where nutty conservatives are impeding the important work of enlightened government simply because their constituents want them to.

And that, we suppose, is the point.  Milbank believes.  He wants us all to believe – in the magic of government.  Yes, Northern Virginia, there is a Santa Claus.  And as it turns out, he looks an awful lot like Uncle Sam.  When the din dies down and the partisan posturing becomes too exhausting, government can do wonderful things – if only you believe it can.

Now, there is so much packed into this one, brief piece, so much of official Washington’s disconnect with both the rest of the country and with reality, that we’re not really sure where to start.  Given that, we’ll start where the government would start, with the money.

Milbank writes that the “total cost of the bailouts came to about $12 billion,” which, he says, settles the argument.  Of course, if you factor in the cost to bailout Ally Financial, which provides the financing for GM purchases, the real cost is closer to $15 billion.  But then, what’s the difference?  Are we going to argue about a paltry $3 billion?  Of course not.  That would be silly.  Like Milbank says, it’s settled.

One might wonder, given the vagueness of his prose, what Milbank means when he says that $12 billion settles the argument.  We can guess, though, from context, that what he means is that there is no longer any question that the bailout was an undeniable success.  It only cost $12 billion (or $15 billion, if you’re scoring at home.)  What a GREAT deal!

Of course, what Milbank doesn’t say is that TWELVE BILLION dollars came from somewhere.  And the place from which it came is the pockets of the American taxpayers.  As far as Milbank is concerned, a loss to the government of $12 billion (that’s Billion, with a “B”) is no big deal.  Why would anyone, anywhere worry about a measly twelve billion bucks?  That’s nothing, a mere rounding error to old Uncle Sam.

And therein lies the problem.  In Washington, twelve billion dollars is nothing to worry about.  It’s the cost of doing business.  In the rest of the country, however, twelve billion is a BIG number.  It’s a one, then a 2, and then NINE zeroes.  In the rest of the country, people know – thanks to the ruling class – that $250,000 makes them “rich,” for tax purposes.  And yet roughly 50,000 times that amount is no big deal – as long as it’s just the government’s money.

A bigger question, we suppose, is what, exactly, the American people – or, if you live inside the Beltway, “the government” – got for their money.  They spent 12 (or 15) billion dollars saving the auto makers, which is either a big deal or a pittance, but to what end?

According to Milbank, the money was spent saving the entire country and perhaps the world from complete and total economic breakdown.  Had the auto makers gone under, he argues, the entire economy itself would have been in jeopardy.  And, as they say, when America gets the sniffles, the whole world gets sick.

Moreover, he says that the bailout “saved the government $36 billion to $38 billion in costs such as unemployment benefits, and that didn’t include $26 billion in pension liabilities that would have been dumped on taxpayers.”  He also argues that “The study Akerson cited calculated that the bailout saved 1.2 million to 2.6 million jobs in 2009 alone.”  All of this suggests that the bailout was money well spent.  After all, 12 billion is but a third of 36 billion.  If you add the pension bit, then the government and the American people came out way ahead on the deal.  And that’s not even counting the “ripple effect,” which Milbank argues could have set “off panic and perhaps a depression.”  All things considered, then, the bailout was a wise and prescient policy move that saved the government money, saved the taxpayers money, and perhaps even saved the country from economic despair.

Or at least that’s what you believe if you are Dana Milbank.

The problem with Milbank’s cost savings argument is that it is based exclusively on one study conducted by one, generally pro-government group.  Milbank, as is the wont of those in the ruling class, considers this one study to be “fact,” largely because it confirms his own prejudices.

What Milbank doesn’t say about his “facts” is that they are based on assumptions made by the authors of the study in question (the Center for Automotive Research).  Milbank also doesn’t say the Center for Automotive Research is an erstwhile appendage of the University of Michigan or that it has “affiliations” with all of major auto manufacturers, including GM and Chrysler.  Lastly, and undoubtedly most importantly, Milbank doesn’t tell his readers that the “facts” he cites are based on a study by the Center that “assumed” the worst case scenarios, which is to say that they assumed a difficult, prolonged, and largely “unsuccessful” bankruptcy, in the absence of a government bailout.  To wit:

For purposes of this study, CAR researchers used two separate alternative scenarios — using a model loaded with actual economic performance data for the period 2009-2010 and actual employment for GM and Chrysler and for all of the automakers  . . . The first scenario relied on the assumption of an automotive supplier sector collapse in January 2009 that continued for the balance of the year.  It is also assumed that industry could achieve a 50 percent return to production and employment in 2010 and full recovery in 2011.  The second estimate only considered the loss of GM employment only as a net loss for the industry in 2009 and a partial loss in 2010.  This second scenario is examined by CAR as an attempt to gauge the effect of just the shutdown of GM employment and capacity on the U.S. economy without the assumption of a complete collapse of the North American supplier sector affecting all other automakers.

Now, it is entirely possible that a standard bankruptcy – i.e. one not shepherded by the federal government – would have been prolonged or ultimately unsuccessful.  It is also possible that a bankruptcy directed by the government, but without a government bailout, would have been equally unsuccessful.  But no one – and certainly not Dana Milbank – knows this.  It is “assumed” for the purposes of a social science study.

All of this is perfectly typical, of course.  And there is nothing wrong with it.  That’s the way social science works.  But then, that’s also the reason that social science isn’t real science.  And, by extension, that’s the reason that only those who are pushing a political agenda or who are radically ignorant refer to the findings of heavily, if necessarily, biased social science studies as “facts.”

In a very real sense, the most ridiculous aspect of the “bad bankruptcy” scenarios Milbank cites as fact is the bit about pension costs that taxpayers would have had to pick up had the government not bailed out the automakers.  Milbank passes along the “assumption” about failed companies and taxpayer pension risk credulously, never realizing that taxpayers are already on the hook for automaker pensions.

If you take a look at the actuality of the bankruptcy settlements in the automaker cases – and especially the case of GM – it is pretty clear that what the American taxpayers bought for their $12 billion was the right to ensure that unionized autoworkers get to enjoy the fruits of labor negotiations past.  In a recent piece for Bloomberg News, James Sherk spells out some of the “facts” that Dana Milbank somehow missed.

The government didn’t need to lose any money on the auto bailout.  Had the United Auto Workers not gotten special treatment, taxpayers would have come out ahead.

The administration gave the UAW billions more than bankruptcy law calls for.  Typically, bankruptcy reduces union compensation packages to competitive rates.  However, GM’s existing union members made few concessions on pay.  As the UAW put it, the contract meant “no loss in your base hourly pay, no reduction in your health care, and no reduction in pensions.”

This virtually never happens during bankruptcies at unionized companies, as many unionized airline pilots can attest.  As a result, GM still has higher labor costs than every foreign transplant automaker – almost $60 an hour.

Bankruptcy law further stipulates that all unsecured creditors should recover their debts at the same rate.  This, too, didn’t happen.  Instead GM’s bondholders recovered less than 30 cents on the dollar; the UAW recovered most of the money owed its retiree health trusts.  At Chrysler the UAW recovered a greater proportion of its (unsecured) debt than even secured creditors did.

GM also backstopped the pensions of union workers at Delphi Automotive Plc, its bankrupt parts supplier.  New GM had no legal obligation to do this.  Nonetheless the company spent $1 billion of bailout funds to preserve their benefits.

These generous subsidies account for more than the entire net cost of the GM and Chrysler bailouts.  The excess funds and equity given to the union cost the Treasury $30 billion – twice what taxpayers lost.  Had the administration bailed out the automakers but treated the UAW impartially, taxpayers wouldn’t have lost anything.  Instead, the union collected more than the entire U.S. foreign aid budget.

Milbank, naturally, mocks his token conservative agitator for arguing that “the culture has changed only modestly” at GM.  Frankly, we’re surprised it’s changed at all, since clearly the entire point of the government orchestration of the bankruptcy was predicated on the goal of preserving as much of the culture at GM as possible.  Keep the unions happy.  Keep their workers in high cotton.  And most important of all, keep the pension plans as they are.  It’s just government money, after all.

This, in turn, brings us, at long last, to the final problem evinced by the auto bailout and Dana Milbank’s reading of it.  As Milbank insists, the bailout is a “success” because it worked – or at least it worked well enough.  His exclusive consideration here is the effectiveness of the policy in promoting or preserving economic viability and/or in giving the appearance of fiscal propriety.  Did the plan save the world from meltdown?  Milbank sure thinks so.  And so does the Obama administration.  And so does most of Congress.  And so do the heads of GM and Chrysler.  And since it “worked” it must therefore be “good.”  And only a kook could possibly think otherwise.

The problem with this type of reasoning is that is both absurd and dangerous.  We know that it’s considered bad form to compare anyone to the Nazis, and so we’ll refrain from doing so.  But that’s not to say that we won’t compare our ruling class and its apologists to the Nazis’ kissin’-cousins, the Italian fascists.  Mussolini, you may recall, made the trains run on time – or at least that was the party line.  It didn’t matter to fascism’s apologists what ignominies were committed in the pursuit of order and “success.”  All that mattered was the success.

It is no mere coincidence that the American Progressives, the ideological godfathers of today’s “liberals,” admired and praised the Italian fascists.  Herbert Croly, the intellectual architect of Progressivism, was an enormous fan of Mussolini, as were countless of FDR’s advisers and confidants.  In 1927, Croly wrote that “Whatever the dangers of fascism, it has at any rate substituted movement for stagnation, purposive behavior for drifting, and visions of great future for collective pettiness and discouragements.”  Fascism, in short, got things done.  It was a success, at least when measured by the only metric that mattered to the progressives.

This same thinking pervades official Washington today and is particularly manifest in the policies and programs of the Obama administration.  Let’s go back, just for a minute to what James Sherk noted about the bailouts of the automakers.  “GM’s bondholders recovered less than 30 cents on the dollar; the UAW recovered most of the money owed its retiree health trusts. At Chrysler the UAW recovered a greater proportion of its (unsecured) debt than even secured creditors did.”  What the auto bailouts did, therefore – and at government direction – was violate the tacit and written rules bankruptcy law.

Obviously, the government disputes this notion and argues that it did what it did because it had to do so and, more to the point, because no one else would.  What this means, then, is that the government was, in essence, saying:  They had to take our deal because there was no possibility of another deal, so . . . uh . . . . shut up.  This is typical of progressive governance.

If there are two bedrock principles on which the great American experiment is founded, they are liberty and equality under the law.  The government’s actions in both the auto bailout and countless other policy actions contradict both principles.

In the case of the automakers, the government ensured that unions – their allies, not coincidentally – were treated better under the law than the companies’ other creditors.  The government broke with precedent to achieve the end it saw fit.

Defenders of the Obama administration’s actions insist that this might have been unusual, but it was hardly unprecedented.  As Neil King and Jeffrey McCracken noted in the Wall Street Journal at the time of the bailouts, the Obama administration took “a trick from the hedge-fund playbook . . . [and] used its leverage as the sole willing lender to Chrysler, either in bankruptcy court or out, to extract deep concessions from some of the country’s biggest banks.”  The government, in short, just did what market forces would have done, so why should anyone care?

And the answer is because the government did it.  There is a difference in both magnitude and type between market-based corrective forces and government coercion.  And anyone who is unable or unwilling to acknowledge that is either manifestly stupid or autocratic by temperament.  Coercion of investors is well beyond the scope of legitimate government action, if for no other reason than because there is no appeal beyond the government.  The government  is the final arbiter.  And if it behaves badly or unfairly, then those whom it is coercing have no recourse whatsoever.

The pension fund of the state of Indiana and the Indiana State Teacher’s Retirement Fund, to name just two, got screwed because the federal government said they would get screwed.  And there wasn’t a damn thing they could do about.  The overt and explicit violation both of this nation’s founding principles and of any basic standard of human rights is flabbergasting – though apparently not flabbergasting enough to render the bailout somehow “unsuccessful” in the eyes of the ruling class and its apologists.

It is fitting, we think, that Dana Milbank would liken Obamacare to the bailouts, since the same principle applies there.  As you undoubtedly recall, one of the most controversial components of the Obamcare reforms – and one that hasn’t even begun to unleash its destruction on the ongoing policy disaster – was the “death panel” provision.  The administration and its apologists argue that the “death panel” charge is wildly overwrought, and they may be right.  The Independent Payment Advisory Board is tasked with saving money in Medicare and is explicitly ordered not to “ration care.”  Still, by cutting payments for services, the IPAB will have de facto say over accepted treatments by determining those procedures that are still viable under the Medicare reimbursement system.

Defenders argue that this is precisely what private insurers do, and therefore it is mere hysteria to worry about the government doing so.  Maybe.  But again, there is a patent and obvious difference between private companies doing something and the government, with its unelected bureaucrats and infinite powers of coercion, doing precisely the same thing.  If a private insurer does something untoward, one may pursue the company under the law.  If, however, the government’s unelected IPABs makes an adverse decision, to whom does the consumer appeal?  If you can’t fight city hall, how on God’s green earth are you supposed to fight the White House?

When the government takes it upon itself to choose winners and losers, it has violated the very foundations of the social contract.  It has undertaken to pursue its preferences rather than the preferences of the people.  Certainly, it is true that no government, however just, can prevent all harm from coming to its citizens.  But that is merely the nature of man and his civilization.  By contrast, when the government undertakes to determine to which citizens harm shall come, even if it does so with the best of intentions, then it has violated the first principle of government by, of, and for the people.  It has chosen sides and thereby casts the tenet of equality under the law to the wind.

In the case of the auto bailout, the government has, unfortunately, also cast aside the bedrock principle of liberty.  Recall that in order to receive government funds, both Chrysler and GM were compelled to “restructure” their organizations.  GM cut several of its lines – Saturn, Pontiac, etc.  And both companies cut several dealerships, thereby putting people out of business in the midst of terribly uncertain economic times.  Again, had the companies chosen to do so of their own accord, that would have been one thing.  Dealers have contracts with the automakers, after all, contracts which govern the termination of business relationships.

Dealers do not, however, have such contracts with the government, which means that any government intervention into this business government overstepping its legitimate bounds.  And again, as James Sherk notes:

Until recently the administration has ducked responsibility for this largesse, claiming the automakers negotiated these expensive union contracts and the White House simply signed on.  To hear the officials tell it, the administration “deferred to General Motors in terms of their business judgment.”

An Inspector General Report released last summer shows otherwise.  The IG found that GM understood the administration’s auto task force called the shots in the bailout.

All of which is to say that the government, based on its interests and priorities, deprived some Americans of their businesses, their livelihoods, and their economic freedom.

Does that matter?  Is there any reason why anyone should care about those whom the government screwed over?  After all, they were few and the people the government saved are many.  Isn’t that the point of contemporary government, to provide the greatest good to the greatest number?  And shouldn’t that be considered a “success?”

Well . . . no.  This too is one of the Progressive conceits, one derived, as Russell Kirk notes, from the arrogance of “Benthaimte” utilitarianism.  It relies exclusively on “private rationality” and presumes – superciliously and mistakenly – that reason and the scientific application thereof can solve all of society’s problems.  Not only is this demonstrably false and historically invalidated, it is also a clear violation of this country’s constitutional principles, which, in turn, explains why the early Progressives so determinedly hated the Constitution.

In any case, what we have in Dana Milbank’s defense of the auto bailouts is a veritable feast of the pathologies common in any discussion of federal government policy today.  Milbank’s defense is based first on the presumption that money – taxpayers’ money is fungible.  It’s all just accounting gimmicks after all.  So why should anyone care?  Here today, gone tomorrow.  C’est la vie.

The Milbank/ruling class defense of policy also hinges on the demonstrably false notion that social science research is synonymous with “fact.”  As long as you can create – or better yet, have someone with fancy-sounding academic credentials create for you – a model that proves your point, then your policy is, by definition, valid and virtuous.  You can “bend the cost curve” down because the CBO says you can.  You can raise taxes without damaging the economy because the JCT says you can.  You can dole out unemployment benefits forever without economic repercussion and with some economic benefit because some Keynesian think tank says you can.  And lastly, you can claim to have saved the world from a global depression because the Center for Automotive Research says you did.

What could possibly be better?

Finally, our current governing ethos hinges upon the belief that economic or budgetary viability is the only acceptable and necessary measure of a policy’s righteousness.  As long as it makes money, or doesn’t lose too much money, or costs less money than the alternative, then nothing else matters.  So you deprive a few people of their liberty.  So you radically alter the relationship between citizen and state.  So you trample on the bedrock principle of equality before the law.  So . . . what?  Who cares about that, as long as the policy is a “success?”

As you may have noticed, the Tea Party is, according to the mainstream press, dead and buried – once again.  Everybody hates the Tea Party.  Most people blame it for the government shutdown.  Its days are numbered – again.

Color us skeptical.  As we have argued in these pages countless times, the Tea Party is, at present, the only organized and effective opposition to the ruling class, to government as usual in Washington.  And given that, we expect that it will be around for a long time and, moreover, that it will have a significant impact for a long time, particularly in next year’s midterm elections.

As long as our governing elites and their media apologists insist that their priorities both trump the priorities of the people and the restrictions placed on government both by the Founders and by classical rights theorists more broadly, then there will be constituency for the Tea Party, and perhaps other groups like it.

Dana Milbank suggests that you can “believe either opponents of the bailout, or [y]our lying eyes.”  We’d suggest, rather, that you believe the election results next November.

Copyright 2013. The Political Forum. 8563 Senedo Road, Mt. Jackson, Virginia 22842, tel. 402-261-3175, fax 402-261-3175. All rights reserved. Information contained herein is based on data obtained from recognized services, issuer reports or communications, or other sources believed to be reliable. However, such information has not been verified by us, and we do not make any representations as to its accuracy or completeness, and we are not responsible for typographical errors. Any statements nonfactual in nature constitute only current opinions which are subject to change without notice.