The Chrysler Farce

If, a year or two ago, a fiction writer had given us the story of the Chrysler bankruptcy in a farce written to lampoon the corruption and ineptness of the government, people probably would have dismissed it as too goofy and farfetched to be effective satire. Yet here we are.

First the government gives Chrysler billions of dollars to avert bankruptcy. When that does not work, it looks for a buyer for the company. It selects the worst major car company in the world, and arranges for it to buy a large interest in Chrysler for zero dollars and zero cents. Perhaps having missed the fact that that the only valuable components of the old Chrysler were Jeep, Dodge trucks, and the van business, the government decrees that the new Chrysler will henceforth be making small, “green “ cars, on the Fiat model. This seems to be an odd business plan given that Fiat left the American market years ago because its small cars could not compete with those of the Japanese and Korean companies and never came back. The government then uses the bankruptcy as an excuse to dump hundreds of Chrysler dealers around the country, on the interesting premise that it is better to have fewer than more people selling one’s products. Finally the administration ignores settled bankruptcy law and stiffs the holders of Chrysler’s debt to give a majority interest in the company to the United Auto Workers union, the same bunch that shares joint responsibility with Chrysler’s management for the company’s failure.

It is a farce, but, as we laugh at it, we should remember that the people who held Chrysler’s bonds did so in good faith, that the dumped dealers and their employees were treated with capricious unfairness, that that many good Chrysler employees will become unemployed, that customers who like Jeeps and Dodge trucks may be blocked by fiat and Fiat from getting what they want, and that this country is just a little worse place in which to live or do business because of what all of this says about the present state of the rule of law. The nation will be poorer in more than just an economic sense for this mess.

News and Politics

The market has just taken out the lows of the 2000-2002 bear market and reached dozen year lows. This is completely understandable in term of a set of risks that are starting to resemble those of the 1970’s. In the short run we have a monetary crisis and a nasty recession that is pretty much worldwide. For the medium term we have a federal government that is operationally hostile to economic growth and the creation of wealth, as its tax, regulation, “fairness”, and “green” policies and proposals already clearly show. And in the long run we have a massive increase in the national debt, due to war and “stimulus”, just at the time when, because of the retirement of the boomers, we can least afford it. The last is particularly dangerous. In the 1970’s the government repudiated a large fraction of its debt through inflation, decimating the citizens’ savings of the post-WWII prosperity in the process. It then confiscated more of people’s savings by creating and taxing high nominal (though low or negative real) interest rates on those savings. There is every incentive for them to do it again now, particularly given that the party in power does not see savers or investors as part of its constituency. It is also important to remember that the inflationary depression of the 1970’s ended only when we got an inflation fighting fed, a pro-growth administration in Washington, and the explosive development of new companies and entire industries, many driven by innovations in technology. None of these things is on the horizon right now.

There is a lot of discussion about a crisis for people who are under water with their mortgages, and I find it puzzling. I understand the problems of those who are delinquent in their payments on mortgages, but I cannot see a crisis for most of those who are under water, but still making their payments. It is certainly unpleasant for a person’s house to be worth less on the market than the amount he owes on it. It makes the household balance sheet look bad, but unless a person sells the property, he does not have to cover any actual cash losses. He has the house he agreed to buy at the monthly payments he agreed to make. Eventually, as he pays down his debt and the real estate market turns, he will be above water again. After all, despite anything politicians or realtors might tell us, there really isn’t any natural or Constitutional right to annual appreciation in real estate.

The government announced last week that it was putting the squeeze on UBS to reveal names of its American depositors to the IRS. The news led to the usual bleating about “tax cheats” and “those not paying their fair share costing the rest of us”. Most of this is unseemly nonsense. A cheat is someone who defrauds another person or who breaks a rule of fairness or conduct to which he has agreed. Running from bandits or hiding from the tax collectors is not cheating. The question of whether to pay taxes is an almost purely pragmatic question, not a moral one. (There is a ethical issue about paying one’s share of the legitimate activities of the government and not being a free rider, but for most taxpayers that issue does not come up, because the government claims enough by withholding and through W-2’s and 1099’s to more than render that concern moot.) To claim otherwise is to assert that a government has an unlimited moral claim over people’s lives and efforts and that whatever it decides to take from them is right, solely because it has decided to take it. The point about “cheaters” increasing costs for the rest of us is no more valid. We need to remember that the problem for members a herd of gazelles being chased by a pack of hyenas is the hyenas, not the faster gazelles. We suffer harm at the hands of the tax collectors, not from our more nimble countrymen who avoid them. Besides, as a practical matter, does anyone believe that, if this government miraculously collected what it wants from all the “cheats”, it would lower taxes on everyone else? There is not much plausibility for that one.

Also last week, one our politicians admonished his fellow citizens for being cowards on the issue of race. He is of course right, though not in the way he meant. Our culture is deeply dishonest about race. Future generations likely will consider our hypocrisy and perversity on the question at least as harshly and ironically as many now view the attitudes of the Victorians on sex. We could take steps to become more honest. We could be sure we really do rate persons by their individual characteristics and not their ancestry. We could realize that one may criticize or even condemn a person’s acts or attitudes without having racial prejudice against him. We could reject undeserved guilt. The crimes of slavery and Jim Crow were egregious. No one alive today had anything to do with slavery. Only a few, in places such as the U. S. Senate, who played a role in Jim Crow are still alive. Those who had nothing to do with it need to refuse to accept guilt for something they did not do. That would make for more honesty, though probably not of the kind the politician wanted.

Bailouts and Unmaskings

One of the distressing things about the recent monetary crisis is that is has revealed so many people to be unprincipled and dishonest. I am not referring to the politicians of both parties who have abandoned their professed beliefs in a logrolling frenzy of bailouts, panic, and handouts in the last four months. People who pay attention already knew that most politicians are scoundrels and hypocritical posers. Their behavior has been execrable, but hardly surprising. Neither am I talking about the out and out con men who have been exposed by recent events – Madoff and all the little Madoffs who have come or are coming to light as things have gotten tighter. There are always con artists out there. It is not odd that a system wide margin call would smoke a few of them out.

No, I am thinking of some so-called honest people – some bankers, business people, and manufacturers who may have generally made their way in the world by working productively and dealing fairly and been proud to do so, but are now pushing up to the bailout trough with all the other little piggies and squealing out specious justifications for doing so. It seems that they are all for free markets when they are doing well, but want to socialize their losses when things get rough. There is not much good to say about the former high-fliers who shirk responsibility for their failures and show no shame or reluctance over begging for public assistance. Whatever else these people are, they are not principled believers in a free economy and free competition. Many now seem to be sloganeering opportunists who don’t believe in anything in particular.

We have even had some people in various places try to have it both ways on TARP by announcing that they took or want to take TARP money and then claiming that they do not really need it. There is surely good reason to be skeptical about the veracity of such statements, given the costs and restrictions attached to the payouts. However, in one sense it almost does not matter whether they are true or not. A person who seeks a government handout he does not need is a welfare cheat. A person who needs his handout but says he does not (perhaps to avoid frightening stockholders or depositors) is a liar. Neither one commands a whole lot of respect. Nor do all the other actual and wannabe corporate welfare queens out there.