David Rodeback's Blog

Thursday, May 14, 2009

Federal Takeovers: The Road Leads Where It Leads

If we keep going down the road we're on, we will inevitably arrive at the place to which the road leads.

The Pattern

First, President Barack Obama essentially fired the CEO of General Motors. At about the same time, he was seen holding the shotgun as he tried to force a wedding between Chrysler and Fiat. Yesterday I read that he (as in his administration) has cut Chrysler's advertising budget in half.

Then there's the matter of the TARP money. (TARP is short for "bank bailout.") Some major banks, which are ready and eager to repay the money they received, are finding that the federal government will not accept repayment. Instead, the Obama administration wants common, voting stock in the banks -- or, in other words, ownership and control.

I'll grant that it's naive to expect federal largesse without federal interference, or, in other words, bait without hooks. And I'm setting aside a very reasonable question about why we would think that the current administration is more qualified to run auto companies and major banks than their own management is.

The Larger Issue

There's a larger issue here: Where does the President of the United States, or Congress for that matter, get the constitutional authority to take over and run the auto and banking industries? I've read the United States Constitution many times and have studied it and the related case law for decades; I don't see any such authority.

Admittedly, there have been federal capers before which arguably lay outside the government's legitimate, constitutional authority. But politicians used to try to shoehorn their whims into the Constitution, at least rhetorically. The Obama administration doesn't seem to bother with that. Sure, they'll use the few pieces of the Constitution which suit them, but any provision that poses an obstacle seems likely to be ignored, without even the slightest bit of old-school sophistry to fool us into thinking they are acting constitutionally after all.

Now that is change. We were promised change, you'll recall. As regards the hope we were also offered . . . I hope this change isn't permanent. I hope many Americans now see that this is a very dangerous time, in which nothing less than the freedom of future generations is at stake.

Next Steps: A Thought Experiment

Remember how Senator Chris Dodd, a Democrat, slipped some language into the stimulus bill to protect past bonuses paid to executives whose companies were receiving bailout money? Or maybe Dodd, the committee chair, looked the other way while someone else did it? Remember how Dodd and his party then loosed a flood of invective at companies who had paid bonuses in the past, and at the executives who received them? Remember how they passed legislation imposing a retroactive tax of 90 percent on such bonuses? This is hardball, and the game is politics, not economics.

Lately we've heard that bailout recipient Citigroup has asked federal permission to give retention bonuses to some top executives. I haven't heard a decision yet. Here's one way things could go, if this becomes a habit.

1. The government denies a company permission to give retention bonuses.
2. Top talent starts to leave for greener, or at least less vindictive, pastures.
3. Congress and the President quite logically decide that we can't have needed talent leaving companies in the middle of a crisis.
4. The government adopts a statute revoking what has long been understood to be the right to leave one's employment, so no more executives can leave their posts.
5. Opportunistic legislators, drunk on union money and proclaiming their heroic devotion to the victory of the the little guy over evil management, make it illegal to lay off or fire a worker without a show of cause and advance approval from the federal government -- which will be difficult to obtain even if one is willing to wait months or years for the bureaucracy to consider it.

Is this too much like Atlas Shrugged for your taste? Do you think it could never happen?

If it does happen, we might as well just call ourselves a new, enormous colony of France. But not to worry. The government will still be hampered by two substantial obstacles. First, public schools are not particularly good at teaching foreign languages, and many of them don't offer French at all. Second, no matter how vehemently the government insists that the fruits of its new economic scheme are equality and fairness, it will still feel like government-enforced poverty to a lot of people, at least for a generation or two.

Step 6

To a certain, diseased mindset, the logical step to follow number five will be further legislation. This will make it illegal for businesses to go bankrupt or otherwise close their doors. Of course, it will also have to be illegal to reduce an employee's salary or benefits, or to miss payroll. Just to prove that we're not totally ignorant of economics, we'll have to make it a crime to produce a superior product, which might tend to put another company out of business, or to price an equivalent product lower than a competitor can. We'd probably better throw in a law requiring people to keep buying as much of everything as they used to. And those quaint intellectual property laws will have to go, since patents protect the patent owner's right unfairly to produce something other companies cannot produce, or to do it -- unfairly! -- in a better or more efficient way.

I wonder if Japan would be willing to go to war with us (and with France, of course) to force us to allow Toyota and Honda to leave the United States.

Finally, a Question or Two

Do you think I've gone too far here, with my psychotic little thought experiment? Perhaps I have. But are you completely certain that the road we are now traveling leads somewhere other than to the place I've described? Actually, I didn't go all the way to the end of the road. Life is even uglier there. The old Soviet Union came close. North Korea is practically there now.

It is a fact, not some wild-eyed partisan opinion, that the federal government is exerting increasing control over, and assuming increasing ownership of, the auto and banking industries. It's no secret that the next large target is the health care industry. I suppose you can decide for yourself what you think all this means.

It seems to me that, if we keep going down the road we're on, we will inevitably arrive at the place to which the road leads. You don't have to be Yogi Berra to see that.

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