Insulating GM From Politics
As Brendan Nyhan points out, no matter how sincere the Obama administration is about its desire to avoid politicized management of General Motors, in practice it’s hard to imagine a de-politicized state-owned firm. Members of congress are already putting their requests in and no administration can totally ignore congressional pressure. Meanwhile, “Even when the administration does not weigh in directly, the management of GM will be forced to consider what issues might draw political attention and adjust its strategy accordingly.”
Nyhan’s proposal:
Shouldn’t the government now bind itself to the mast and directly forswear intervention in the company’s decisions? For instance, after voting for a new board of directors, the Obama administration could transfer control of the government’s shares to a Federal Reserve-type board of independent experts. This step would free the administration of de facto responsibility for GM’s decisions and insulate the President from any resulting fallout. By contrast, political meddling is likely to hinder the company’s efforts to return to profitability, which would in turn harm the administration and the country.
This might be a good idea. But it’s worth emphasizing that even this doesn’t really solve the problem. The Fed’s independence, after all, is in many ways nominal. There’s nothing stopping congress from changing the laws that govern the Fed—including the provisions making it “independent.” Thus, in principle, a Fed chair can be swayed by informal political pressure. The reason the Fed is independent in practice is that Paul Volcker and Alan Greenspan built a strong political consensus around the idea of Fed independence so politicians don’t want to be seen as undermining it.
Earlier Fed chairs were much more inclined to do the bidding of the Johnson and Nixon administrations and this was a major contributor to the super-high inflation that emerged in the 1970s.
37 Responses to “Insulating GM From Politics”
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June 2nd, 2009 at 1:48 pm
Why did GM fail?
You posted the picture -
Sweet Jesus, the Jimmy was an ugly little SUV. You could probably post pictures of a different ugly GM car with every post on this topic, with many to spare.
The made BAD CARS.
June 2nd, 2009 at 1:53 pm
Independence is no-brainer. And while there could be challenges with maintaining it, the fact that it wasn’t a core part of the solution is a big issue. Obama may be claiming he didn’t want to run GM, but he sure didn’t try to put anything in place to prevent it.
June 2nd, 2009 at 1:58 pm
But it would give the administration (and no interference like minded in congress) a way out politically.
They would be able to say “hey our hands our tied”.
June 2nd, 2009 at 2:00 pm
Earlier Fed chairs were much more inclined to do the bidding of the Johnson and Nixon administrations and this was a major contributor to the super-high inflation that emerged in the 1970s.
Yes! Obviously it’s much better to have consequential economic policy decisions made as far removed from political pressures as possible. That’s why having the captive SEC doing the bidding of a powerful unchecked financial industry is such a great way to run an economy.
June 2nd, 2009 at 2:02 pm
Oh, and I heard an NPR story this morning where someone from the administration basically said “the government will act exactly like any private shareholder. We will not appoint any directors.”
Nice non-sequitur there. As far as I’m concerned, the government should run these companies like its personal fiefdom, since that’s what they are. If we taxpayers are being forced to own them, let’s at least get something for it.
June 2nd, 2009 at 2:13 pm
“the government will act exactly like any private shareholder. We will not appoint any directors.”
A board of directors who wasn’t looking out for the interests of shareholders is a big part of what got us into this mess, not just with GM but with the banking and finance industry. I’d think that the first thing we’d want to do is pick new directors.
June 2nd, 2009 at 2:15 pm
They should appoint a car czar – or did they already? – who should just copy what successful car companies are doing, backed by the government’s unlimited sources of funds. They shouldn’t do anything obviously political or unseemly.
If this czar doesn’t pan out, steal someone from Ford or Toyota or whoever.
At the end of Obama’s second term, the new GM’s brand would be known for quality and the best energy-efficient cars at good prices and for treating the UAW fairly, which would be very funny b/c no one would expect it. Then they should sell it off for a windfall to the taxpayer and Kaus could suck on it.
Simple!
June 2nd, 2009 at 2:16 pm
When does the John Murtha Chevrolet Assembly Plant open next to the John Murtha International Airport?
June 2nd, 2009 at 2:19 pm
the management of GM will be forced to consider what issues might draw political attention and adjust its strategy accordingly
How does this differ from every other company subject to US jurisdiction?
June 2nd, 2009 at 2:26 pm
Regarding Fed Chairs doing Presidents’ inflationary bidding (and I’d love to be able to review all communication between Greenspan and the Bushies in 2004) it’s also nice when Presidents have a modicum of courage. Volcker always has given credit to Reagan for refraining from trying to dissuade Volcker from doing what needed to be done in the early eighties. Those were ugly times, with double digit inflation, unemployment, and interest rates.
June 2nd, 2009 at 2:28 pm
fusion, the impetus is somewhat greater when the company needs to have Congress appropriate several billion bucks in order to keep the lights on.
June 2nd, 2009 at 2:31 pm
The Fed is no longer independent. Bernake threw that independence out the window when he decided to aid the administration in its spending spree rather than focus on the very real problem of inflation that’s going to wack us over the head.
As for GM. There’s no way that these guys are going to be able to restrain themselves. I realize that it’s been overplayed, but the fact is that President’s promise to Detroit’s mayor is but the first of what will probably end up being a long string of political decisions. By the time he’s done with GM (if ever) I think he’ll probably live to regret that he didn’t follow his own advice. This is going to be a complete and utter disaster.
BTW, for all of you Sotomayor supporters that love to pretend that I’m the one that has this all wrong. Once again…not a word about whether she misspoke or was taken out of context.
http://www.politico.com/news/stories/0609/23226.html
Dodges like this one aren’t going to help her in front of the committee folks.
June 2nd, 2009 at 2:37 pm
And you have the same problem with national Healthcare.
June 2nd, 2009 at 2:43 pm
Volcker always has given credit to Reagan for refraining from trying to dissuade Volcker from doing what needed to be done in the early eighties. Those were ugly times, with double digit inflation, unemployment, and interest rates.
And then Reagan appointed Greenspan, who bequeated us our current predicament/fiasco.
It was gratifitying to see him admit he was wrong. Same with Bill Clinton.
June 2nd, 2009 at 2:46 pm
Um.
Who gives a shit if it’s run politically? Running it politically means GM will be forced to make more fuel efficient cars that cost less, in order to please the consumer, who is the voter. Isn’t that the height of consumerism?
Also, what the fuck dream world are you living in that GM isn’t a political entity? So, the government can either operate GM, or GM can operate the government.
And you want to give control over the company to fucking Helicopter Ben? Let me rephrase that.
You want to give control over the company to Helicopter motherfucking Ben, who will run it apolitically?
Because the Fed has done such a great job with everything motherfucking else.
A state-run GM is fine as long as the GOP is out of power. If they’re getting power back, reprivatize it.
June 2nd, 2009 at 2:48 pm
At the end of Obama’s second term, the new GM’s brand would be known for quality and the best energy-efficient cars at good prices and for treating the UAW fairly, which would be very funny b/c no one would expect it. Then they should sell it off for a windfall to the taxpayer and Kaus could suck on it.
And a pony.
June 2nd, 2009 at 2:51 pm
Speaking of politicalization. Will the Obama campaign forego any donations from the UAW? Prohibit them from campaigning for him in ‘10 and ‘12? Taking donations from a union who has a partnership with the US govt. seems to be a big conflict of interest.
June 2nd, 2009 at 2:53 pm
A state-run GM is fine as long as the GOP is out of power. If they’re getting power back, reprivatize it.
The nice thing about the two party system is that it encourages you not to change the rules because if you do then when the other party gain control they will use it against you. The is why the ‘nuclear option’ never gets used, people are afraid not only of public opinion backlash but of what would happen when the other crowd got back into power.
When you policy idea is ‘this is great as long as we are in control but will suck if our opponents get control’ it is automatically a bad idea.
June 2nd, 2009 at 2:53 pm
Well, poptarts, Greenspan’s greatest error was that he didn’t realize, or more likely, convieniently forgot once he was in the job for a while, that a Fed Chairman is just a glorified central planner, doomed to screw up big time if he hangs around long enough. He should have had enough sense to quit after about 10 years, recognizing that his timing to that point had been pretty damned fortunate. He could then have been on the Certified Genius Speaking Tour for the rest of his life.
June 2nd, 2009 at 2:55 pm
Can the UAW also guarantee that none of the $2.5 billion note they got will end up in the Dem’s campaign coffers?
June 2nd, 2009 at 2:57 pm
JD, as Bush proved, EVERYTHING sucks when the Republicans have power.
June 2nd, 2009 at 2:59 pm
There are some folks who, under different circumstances of birth, would think it was normal to wait in line four hours to purchase toilet paper.
June 2nd, 2009 at 3:00 pm
Because the Fed has done such a great job with everything motherfucking else.
A state-run GM is fine as long as the GOP is out of power. If they’re getting power back, reprivatize it.
The Fed under Bernanke has done a pretty good job given the circumstances. Since the time the tech bubble popped I don’t see much they could have done differently except talking more about regulation and irrational exhuberance and Greenspan shouldn’t have pimped for Bush’s tax cuts. Greenspan really gave Bernanke a mess.
But yes if it looks like the GOP is poised to regain power GM should be privatized quickly or else the American auto industry will suffer the industrial equivalent of hurricane Katrina.
June 2nd, 2009 at 3:09 pm
But yes if it looks like the GOP is poised to regain power GM should be privatized quickly or else the American auto industry will suffer the industrial equivalent of hurricane Katrina.
Yes, because the dems have done such a good job of running Fannie and Freddie, what are we on the hook for? A couple hundred billion in guarntees?
June 2nd, 2009 at 3:11 pm
But yes if it looks like the GOP is poised to regain power GM should be privatized quickly or else the American auto industry will suffer the industrial equivalent of hurricane Katrina.
Or maybe we should put Ray Nagin or that clown of a Dem Govenor in charge of GM, since they did such a great job in the run-up to Katrina.
June 2nd, 2009 at 3:17 pm
There is no way for Obama to avoid political accountability for whatever happens to GM at this point. The administration needs to realize that and do whatever’s necessary for a successful rebirth of the company. Fobbing it off to a quasi-independent group won’t stop everyone from blaming Obama if it goes badly so keep control, make it work, and claim the credit.
They’ve taken a huge gamble and now they have to see it through.
June 2nd, 2009 at 3:18 pm
Well, poptarts, Greenspan’s greatest error was that he didn’t realize, or more likely, convieniently forgot once he was in the job for a while, that a Fed Chairman is just a glorified central planner, doomed to screw up big time if he hangs around long enough.
Well goldbugs certainly have a weird kind of fatalism about government, which did of course put a man on the moon via NASA.
And goldbugs have a weird Stalinist way of erasing from history facts they don’t like, like the fact there regular bank panics and economic depressions before the Federal Reserve system was created.
June 2nd, 2009 at 3:21 pm
Re Judd
Maybe they should put Michelle Bachmann in charge.
June 2nd, 2009 at 3:23 pm
Er, you don’t have to be goldbug to understand that a Fed Chairman is a glorified central planner inevitably doomed to huge errors. You don’t have to be opposed to a central bank to understand the inevitable failures of central banking.
June 2nd, 2009 at 3:32 pm
The taxpayer guarantees on GSE debt exceeds 5 TRILLION dollars. Hundered of billions is nuthin’ in this age.
June 2nd, 2009 at 4:02 pm
This goes back further than Johnson. Truman had a falling out with the Fed Chairman during his second term because the Federal Reserve wouldn’t simply buy up as many US Treasury Bonds as possible so that Truman could finance the Square Deal along with the Korean War.
June 2nd, 2009 at 4:19 pm
Will the Obama campaign forego any donations from the UAW?
No political campaign for Federal office may accept donations from a labor union or a corporation.
June 2nd, 2009 at 4:23 pm
Do you mean no money from UAW members? Will the GOP foreswear contributions from oil workers?
What the hell kind of quid pro quo would Obama give UAW members anyway? Jobs? Because creating jobs is kind of in the purview of the president.
Then again, Republicans clearly disagree with that statement.
June 2nd, 2009 at 6:49 pm
What the hell kind of quid pro quo would Obama give UAW members anyway?
Are you serious? He just gave them two car companies.
June 2nd, 2009 at 9:08 pm
Evidence? Heck, I’ll wager you a dollar that inflation isn’t a problem in the next 2 years.
June 3rd, 2009 at 2:24 am
@Alex – “But it would give the administration (and no interference like minded in congress) a way out politically.”
It’s the equivalent of the base-closing commission that we used to close obsolete military bases. Unfortunately, that process took years, which is somewhat slower than the speed at which say, Toyota, makes decisions.
@Marshall – “As far as I’m concerned, the government should run these companies like its personal fiefdom, since that’s what they are. If we taxpayers are being forced to own them, let’s at least get something for it.”
This is why GM will never again be a profitable company (not just a quarter here and ther). Too many agendas. Note that the word profit appears in none of the comments on this thread.
@Tyro – “I’d think that the first thing we’d want to do is pick new directors.”
The new owner has every right, but what a disaster it would be.
@Poptarts – “At the end of Obama’s second term, the new GM’s brand would be known for quality and the best energy-efficient cars at good prices and for treating the UAW fairly”
That’s the best possible outcome of the current plan. However, you didn’t say “making a profit”, which has no chance with anything like the new way.
@Will Allen – “Those were ugly times, with double digit inflation, unemployment, and interest rates.”
Yes, but the problems predated both Volcker and Reagan. Their cure was nowhere near worse than the disease.
@judd – “Can the UAW also guarantee that none of the $2.5 billion note they got will end up in the Dem’s campaign coffers?”
They can guarantee that they’ll contribute only slightly more than legally allowed.
@judd – “the American auto industry will suffer the industrial equivalent of hurricane Katrina.”
That’s what’s about to happen now. 10s of billions disappearing with no appreciable effect other than that people keep getting paychecks.
@Herschel – “No political campaign for Federal office may accept donations from a labor union or a corporation.”
Have you heard of this strange thing called a political action commitee? That’s the money conduit these days.
@Benny Lava – “I’ll wager you a dollar that inflation isn’t a problem in the next 2 years.”
Yeah, but what will the dollar be worth in 2 years? If the economy stays in the dumps, we won’t have inflation. Certainly the Chinese will try to stop us from inflating. They have lots of “non-nuclear” options for doing so. A much more likely outcome is 80’s-level interest rates. Fun.
June 3rd, 2009 at 11:16 am
The new owner has every right, but what a disaster it would be.
I’m pretty sure the disaster occurred under the watch of the current set of directors.
We have a class of interconnected people who serve on many different boards. These are generally chosen from the same pool of people. They’re the ones who oversaw the accounting frauds and excessive CEO compensation and financial implosions. It seems to me that this is an opportunity to finally clean house, rather than to reinforce a track record of failure.