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“GM is Alive” and American Enterprise is on the Ropes

“GM is alive, and Osama bin Laden is dead,” said President Obama in his recent speech at the Democratic National Convention. The crowd responded with resounding cheers, energetically waving signs bearing the same slogan. Now, just a week later, bumper stickers are already primed for your Prius. The problem is: Osama bin Laden is actually dead, and GM has resurrected into a zombie of sorts, fumbling and stumbling about under the control of autocrats—licking its lips for another round of taxpayer flesh. “Another?” you ask? Indeed, as many close observers are beginning to theorize, a second bailout for GM is looking more likely every day. Louis Woodhill explains:
Right now, the federal government owns 500,000,000 shares of GM, or about 26% of the company. It would need to get about $53.00/share for these to break even on the bailout, but the stock closed at only $20.21/share on Tuesday. This left the government holding $10.1 billion worth of stock, and sitting on an unrealized loss of $16.4 billion. Right now, the government’s GM stock is worth about 39% less than it was on November 17, 2010, when the company went public at $33.00/share. However, during the intervening time, the Dow Jones Industrial Average has risen by almost 20%, so GM shares have lost 49% of their value relative to the Dow. It’s doubtful that the Obama administration would attempt to sell off the government’s massive position in GM while the stock price is falling. It would be too embarrassing politically. Accordingly, if GM shares continue to decline, it is likely that Obama would ride the stock down to zero. GM is unlikely to hit the wall before the election, but, given current trends, the company could easily do so again before the end of a second Obama term
Ok, ok, but just how important is profitability, anyway? After all, many DNC attendees seemed perfectly comfortable with banning corporate profits altogether. Profitability is certainly not a primary concern of the Obama administration. First, there’s that pesky deficit. Then, there’s Obama’s very own “car czar,” Steven Rattner, who says GM’s inability to repay taxpayers shouldn’t a leading metric in the first place. Even while openly acknowledging that roughly $19.4 billion of the 2009 auto bailout is “lost money,” Rattner is perfectly comfortable with simultaneously labeling GM an “unambiguous success.” Why, you ask? For some, it’s based in a pseudo-religious devotion in GM as an American institution—a museum piece, or, if you’re Joe Biden, an altar to the good ole blue-collar days. For others, it’s based in a sincere belief that every time GM loses $49,000 on a Chevy Volt, we have done our duty to Mother Earth. For most, however, it’s because of all the jobs that were “saved.” The argument hits home, and it should. We’re all familiar with the negative consequences of economic readjustment: material loss, personal humiliation and widespread fear. What we are less and less familiar with are the positive consequences of such readjustment, summed up by what Joseph Schumpeter famously called “creative destruction”—a natural, social process in which humans collaborate to overcome obstacles in a series of trial-and-error experimentation and plain, old-fashioned “movin’ on.” Of course, this argument for actual capitalism is routinely dismissed by progressives and moderates alike, who claim it places too much focus on stale, “inhumane” features like efficiency and economic progress. But if what we’re dismissing is economic efficiency and prosperity, and what we’re promoting is human toil in unproductive, inefficient businesses, our view of basic human needs and human potential is sorely lacking. If we truly care about people, we should concern ourselves less with propping up failing employers and instead with guiding folks back toward value creation and productive ends. If we care about the fundamental, eternal needs of the human person, as both the president and Gov. Romney have referred to this week, we should concern ourselves less with insulating (i.e. trapping) people in self-serving situations and more with unleashing them to create value in other peoples’ lives. The DNC was filled with talk of a “belief in the American people.” Yet propping up failures with taxpayer money is seen as more noble than making hard, economically viable decisions. Making the contrast in visions quite clear, as Joe Biden, said in Charlotte:
When I look back on the president’s decision, I think of another son of another automobile man. Mitt Romney… his dad ran an entire automobile company, American Motors. Yes… and in spite of that, he was willing to let Detroit go bankrupt… I am sure he grew up loving cars as much as I did. But what I don’t understand… I don’t think he understood that saving the automobile worker, saving the industry, what it meant all of America, not just autoworkers.
I think he saw it the Bain [Capital] way…I think he saw it in terms of balance sheets and write-offs. Folks, the Bain way may bring your firm the highest profits, but it is not the way to lead our country from the highest office.
Profitability, we are told, should no longer be a priority of the American people. Further, we are told it shouldn’t be a priority of the United States government. And this is what garners cheers from the ruling party of our nation. We now live in a country where government-appointed bureaucrats can waste tens of billions of taxpayer dollars on failing companies, only to then be hailed as “defenders of industry.” We live in an era in which viewing government in terms of “balance sheets and write offs” is demonized; in which waste and inefficiency are downplayed; and in which those who pursue economic growth in a traditional sense are viewed as obstacles to human flourishing. The truth, of course, is that “the Bain way” secures higher profits by discouraging wasteful behavior and drawing on everything that’s good in humanity. It is this—value creation and the reward of earned success—that makes the market much more than a market, empowering us to attain the American Dream. The market can only be a source for good if it remains a free market: an arena where contributions come before rewards, not after. And the moment Americans forget this—the moment we join this overt celebration of government-subsidized failure—is the moment we start down the road that invariably makes America like every other entitled, vacuous Western democracy, rather than the exceptional nation we’ve always been.