Obama, Detroit and The Bailout
Everyone seems to have an opinion lately of how the government should handle the current economic crisis. Normally, these would be easy to dismiss, given our relative inexperience compared to the authority of those in charge, however watching Hank Paulson waffle back and forth, seemingly each week, on the best strategy to secure the economy, I’m less convinced that our leaders truly know what to do this time around. Granted, these are unprecedented times so Paulson deserves some slack, but I find it auspicious timing that we have a president-elect who has pledged put an unprecedented level of information on the web, detailing government spending and lending transparency to an institution that historically lacked it. Given the critical nature of the present, this may be the best opportunity we have to go one step further and leverage technology to harness the massive intellectual firepower of this country, and efficiently share ideas to find the best solutions. I hope Obama recognizes the opportunity presented by this crisis and wastes no time in putting his transparency/technology plan into action.
Nicholas Kristof wrote last week that education was essential and shouldn’t be relegated to 5th on Obama’s list of priorities. Apparently, Obama’s website – Change.gov – took down an ordered list last week and replaced it with five domestic priorities, in no particular order:
The principal priorities of the Obama Administration include: a plan to revive the economy, to fix our health care, education, and social security systems, to define a clear path to energy independence, to end the war in Iraq responsibly and finish our mission in Afghanistan, and to work with our allies to prevent Iran from developing a nuclear weapon, among many other domestic and foreign policy objectives.
This past Sunday, 60 Minutes presented his priorities in the following order:
- Economic Recovery
- Energy Independence
- Health Care
- Social Security
Personally, I disagree with Kristof and support this order. Certainly, the travails of the economy are hard to ignore and that’s why it needs to be a pervasive priority, but I believe energy independence is the single-most important issue facing our country and one that directly affects our ability to rebuild the economy, create sustainable and universal health care and indirectly help fix social security. As both Al Gore and Paul Krugman have recently explained better than I can, a robust clean energy economy can create millions of jobs, replace dying industries (read: auto) with a new and burgeoning one that’s full of promise, and create a vast new exportable good for the country. An equally important motive, reducing our dependence on foreign oil will boost national security because we’ll have less incentive to meddle in middle east affairs, making the country safer. During the campaign, Obama said he would eliminate foreign oil imports within 10 years. It was such a popular claim that McCain pledged to do the same. It’s an aggressive timetable, but one the country should commit to. We’ll all be better off for it.
As for the issue/question of the day – what to do with the ailing auto industry and specifically GM – Michael Levine lays out one of the best arguments I’ve read in today’s WSJ on why bankruptcy is the best option for GM. There partially exists an image problem for Bush/Obama because having already bailed out Wall Street and AIG, not doing so for Detroit would seem elitist and contrary to the guiding principles of the Democratic party. Also, UAW did Obama a big favor by waiting til Nobember 6 to mention that GM had less than two months of cash in the bank. Doing so earlier would have made it a campaign issue, which likely would have hurt Obama’s chances. They also donated heavily to his campaign, which makes this Obama’s first real test. Will he cave to the pressures of Pelosi and protect traditional Democratic interests possibly leading to an appeasing administration that never gets anything big done, or will he do the right thing from the start and set his presidency in motion?
His mantra during the campaign was Change and allowing GM to go bankrupt would represent a much-needed one from the politics of old that are dragging down our country. Fundamentally, GM is not a competitive organization. We’ve all watched their market share consistently slide for the past several decades. If the smartest pe funds aren’t interested in the investment, why should the tp fund (tax-payer) consider it? I visited Detroit twice in the past year and the pervasive urban decay that’s impossible to miss tells the whole story. The best course of action is to help GM engineer a well orchestrated bankruptcy plan with federal assistance. Directing federal funds towards unemployment insurance and pension guarantees is a far better use of cash than life support for a dying business. As Levine explains:
If GM were told that no assistance would be available without a bankruptcy filing, all options would be put on the table. The web could be cut wherever it needed to be. State protection for dealers would disappear. Labor contracts could be renegotiated. Pension plans could be terminated, with existing pensions turned over to the Pension Benefit Guaranty Corp. (PBGC). Health benefits could be renegotiated. Mortgaged assets could be abandoned, so plants could be closed without being supported as idle hindrances on GM’s viability. GM could be rebuilt as a company that had a chance to make vehicles people want and support itself on revenue. It wouldn’t be easy but, unlike trying to bail out GM as it is, it wouldn’t be impossible.
Levine goes on to point out that a GM bankruptcy will make addressing health-care coverage more urgent, which is a good thing – it will lend a hand to the next major priority on Obama’s to-do list. To President-elect Obama: this is your first test and it’s coming before you even take office. If you get it right by doing what’s unpopular within your own party, you’ll win the respect of some of your foes and set a strong precedent that will commence your presidency the way you ended your campaign, seeking to repair what’s wrong with America, without missing a beat.
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