Analysis: Auto plan brings even more government control

Associated Press • Dec 10, 2008 at 12:00 AM

WASHINGTON — It was hard enough to get policymakers to finally utter the word “recession.” The next challenge may be to get them to say “nationalize.”

It’s not a word congressional Democratic leaders or the Bush or Obama teams like to use. Yet that’s pretty much what the government takeover of big chunks of the economy amounts to, at least in part.

Actions taken by the Democratic-led Congress and the outgoing administration — moves generally supported by President-elect Barack Obama — already have reversed decades of deregulation and privatization that Presidents Ronald Reagan, George W. Bush and George H.W. Bush all championed.

Washington has taken a direct stake or orchestrated the takeover of banks, seized control of mortgage finance giants Fannie Mae and Freddie Mac, taken a controlling stake in insurer American International Group and now is poised in the final weeks of Bush’s term to throw a lifeline to troubled Big Three automakers.

Supporters of the auto bailout insist their intent is not for the government to be running car companies. But it’s clearly a big step in that direction. It would take some decisionmaking away from automakers and give power to a government overseer.

Congressional Democratic leaders and the White House have negotiated a bill to provide $14 billion in emergency short-term loans for Detroit and create a “car czar” to be named by Bush to dole out the loans and oversee restructuring. Democrats hope to pass it by week’s end, but a determined band of congressional GOP foes could still run it into a ditch.

The government has no business managing car companies, even if temporarily, argued Sen. Richard Shelby, R-Ala. “It’s very un-Republican,” he said.

Nearly two years after Bush suggested that Detroit produce “a product that’s relevant” rather than looking for a possible Washington bailout, the president threw his support behind the emergency loans — after wringing a concession from Democrats that the money would come from an existing program to help the industry retool its plants to make greener cars.

Despite Bush’s repeated calls for more free-trade agreements and less international protectionism, the bailout plan would only benefit historical U.S. automakers, not Asian or European ones with plants in the United States.

Advocates of lifting the government’s heavy hand over private business say they are alarmed by the auto plan and other aggressive government moves to impose more regulation, even if the motivation is to keep the recession from deepening.

“The economy will eventually recover. I think policymakers spend too much time thinking about the short-term,” said Chris Edwards, director of fiscal policy for the libertarian Cato Institute. “They should focus on the long term and how do we get investment back to this country.”

Supporters of the Detroit bailout want strings to be attached aimed at making management more responsive, manufacturing more streamlined and vehicles more fuel-efficient.

Longer-term proposals being developed by Obama and congressional leaders call for an equity stake for the government and a chance to dictate business decisions for years to come.

“As messy as it may be, I think there’s a sense of, ‘Let’s stabilize the patient,’ “ Obama said in an interview published in Wednesday’s editions of the Chicago Tribune and Los Angeles Times.

At the White House, Deputy Chief of Staff Joel Kaplan insisted the proposed car czar “is not somebody who is going to run the companies.” Instead, the new federal overseer will bring auto executives to the table, “knock heads” and seek concessions, Kaplan said.

Yet the auto bailout bill would give the czar veto power over any transaction of $100 million or more by the automakers while they were taking advantage of federal aid.

“We don’t want government to run companies,” Obama told NBC’s “Meet the Press.” “Generally, government historically hasn’t done that very well.”

Actually, it’s a mixed bag. During World War II, the government seized railroads, coal mines, Midwest trucking operators and, briefly, retailer Montgomery Ward.

President Harry S. Truman tried to nationalize steel mills in 1952 to avert a strike he claimed would hinder Korean War efforts. The takeover was blocked by the Supreme Court, ruling he failed to cite any legislative authority.

The federal government partially nationalized the nation’s troubled railroads in the 1970s. Today, it still owns and runs the National Railroad Passenger Corp., Amtrak.

The government nationalized more than a thousand failed savings and loan institutions in the late 1980s and the early 1990s, modeling the effort on a government-run corporation that made loans and bought stock in distressed banks during the 1930s.

There’s economic justification for more direct government involvement in the Big Three automakers, argues John Blank, a senior economist with Decision Economics, an international consulting business based in Lexington, Mass. “The industry could use some outside input,” Blank said. “There’s no question that restructuring is coming one way or the other — and this is just a more mild way to get it done.”

It’s created a dilemma for old-school Reagan “supply siders,” who have faith in the power of tax cuts to boost the economy like a rising tide that lifts all ships. They are now confronted with a falling tide that seems capable of stranding all ships.

“I’m very frustrated,” said Bruce Bartlett, an architect of the Reagan tax cuts as a White House economist in the 1980s and a Treasury Department official in the administration of the elder Bush. “I just know that the options on the table are either ‘been there, done that’ or there’s just no reason to think they will work at all. The problem is we’ve never experienced anything like what we’re seeing today, not since 1929.”

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