Debt Approaches Historic High

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A recent report went virtually unnoticed, given the uprisings of oppressed peoples from Libya and Egypt to Wisconsin and Indiana. (In the last two cases I refer to the uprisings of the taxpayers against the tax eaters.) It turns out that the government debt of this fabulously progressive nation now exceeds its GDP.

Yes, if you add what the federal, state, and local governments owe to creditors, the sum exceeds what the country produces in a year, which is about $15.1 trillion. This includes the $2.4 trillion in debt owed by states and municipalities, and the debt owned by the fraudulently named Social Security Trust Fund, not to mention the now $14.17 trillion owed by the federal government.

We are approaching the all-time high mark in US debt to GDP ratio, which hit 122% in 1946, just after World War II. We were able to pay down that debt fairly rapidly, but prospects for rapidly paying down our current debt are dim.

In the years after WWII, we had a young labor force, high personal savings rates, and a population that had deferred buying consumer goods during the war. Also, defense budgets were cut dramatically in the face of peace.

But now we have the most rapidly aging population in our history, a low personal savings rate, and consumers who are pretty well tapped out. Under Obama’s policies, we face high unemployment and tepid growth for the indefinite future, along with the specter of unleashed inflation.

From the late ’40s through the ’60s, entitlement programs were much more limited than they are now. They expanded dramatically under Lyndon Johnson, then exploded with Obamacare, which has the potential of giving “free” healthcare to as many as forty million more people (if illegal aliens get covered).

Social Security is now in the red and likely to stay there. And the first of the 78 million Boomers became eligible for Medicare this year. Moreover, we are only now learning about the trillions of dollars in unfunded pension and healthcare entitlements of government employees.

Until recent times, the US was the preferred place of worldwide investment, because of our relatively free economy. But now, with massive new regulations here — from Sarbanes-Oxley (the law that was passed after the Enron debacle to regulate corporate accounting) to the Dodds-Frank finreg monster (the Wall Street Reform and Consumer Protection Act) — and ever freer economies in Asia and elsewhere, more investment money is flowing abroad.

After WWII, there was broad bipartisan support for free trade; people had seen the role that protectionism played in extending the Depression and helping to bring about a cataclysmic world war. But over the past few years, we have turned our back on that consensus.

Finally, we have at the helm the most radically leftist and the most economically illiterate president ever elected – and also the most profoundly incompetent president, managerially.

It will take a long time to dig out of this mess.




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CPAC Changes

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For the second consecutive year, Rep. Ron Paul won the presidential straw poll at the Conservative Political Action Conference (CPAC). This may seem like a minor trend; but, in fact, there are a lot of changes afoot at CPAC — which was an important staging area for Ronald Reagan’s political ascendancy in the 1970s and early 1980s.

Does this mean that the elder Paul is the next Reagan? Probably not. But the changes at CPAC are worth a look.

As usual, pundits in the establishment media focused on some clownish details (Donald Trump’s appearance and some headline-seeking quotes from a couple of collegiate anarchists in attendance) and pasted these to some lazy generalizations about the “stubborn libertarian streak” within the Right. And, as usual, these lazy regurgitations of conventional wisdom missed the more interesting story.

The Campaign for Liberty (CforL) — the political action organization born from the pieces of Rep. Paul’s last presidential campaign — has made a concerted effort to influence CPAC. CforL has developed a partnership agreement with CPAC’s owners, whereby CforL can offer its members discounted tickets to the Conference. This arrangement has worked for CPAC; it’s accounted for between a third and a quarter of all recent attendees.

The arrangement has also helped CPAC achieve some other goals. Since CforL focuses its membership recruitment efforts on people under 25, the deal has broughtdown the median age of the conference crowd. This youth movement is a good thing for CPAC, which could use the change. On this point, I can offer a bit of color to illustrate. About five years ago, a twenty-something Silver Lake Publishing author went to CPAC to promote his book. Overall, the reception was chilly; and, in one panel discussion, he was on the receiving end of some barbs from the execrable Ann Coulter — who dismissed libertarians as “hippies who just want to smoke pot all day.” Her line got a lot of applause from the sensibly-shod audience.

The author was chagrined. Afterward, on the phone, he asked me: “Do these people realize that Reagan was a lifelong reader of The Freeman?”

Anyway, those sensible shoes may be shuffling elsewhere. This year’s CPAC was boycotted by several groups — including the Heritage Foundation, the Family Research Council, the American Family Association — who objected to the presence of GOProud (a gay conservative group) and the growing ranks of Paul supporters. Some of the boycotting groups have announced plans to launch a “family values” conference to rival CPAC.

So be it. Maybe CPAC will become a more open-minded place, with people who remember that Reagan built his political identity on libertarian ideals.

Finally, the arrangement between CPAC and CforL also explains — almost precisely — Ron Paul’s straw poll victory. He was the first choice of 30% of the Conference attendees; and, since CforL accounted for between a third and a quarter of the people in the halls, it’s safe to assume those people danced with the one who brought them.

Second place went to Mitt Romney (in its CPAC coverage, Fox News led with this point and barely mentioned Paul). Third place was a tie between former New Mexico Governor Gary Johnson and current New Jersey Governor Chris Christie. This is a hopeful sign for those libertarians who see Johnson as a better media presence — and, therefore, a stronger prospect in a national campaign — than Rep. Paul. Other popular names (including Sarah Palin and Mike Huckabee, both of whom honored the “family values” boycott) trailed far behind.

Many observers point out, correctly, that presidential straw polls such as CPAC’s get some attention yet rarely predict the nominee accurately. I’m less interested in presidential horse race handicapping than in the ideas being discussed at conferences like CPAC. There was talk in the halls this year about taxes as the worst form of statist coercion.

I’m not sure that’s true. War is worse than taxes. But I’m glad the CPAC attendees were having that discussion — instead of nodding and clapping to the halfwit populism of Mike Huckabee or the empty screeching of Ann Coulter.




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1989 in the Muslim World?

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On December 17, Tunisian street vendor Mohamed Bouazizi, driven to desperation by mistreatment at the hands of petty officialdom, drenched his body with gasoline (or paint thinner, according to some accounts) and set himself alight. His death touched off a chain reaction in much of the Muslim world. Protestors took to the streets of Tunis, and their protests culminated in a popular revolution that ousted the country’s corrupt president. The tumult spread to Egypt where, remarkably, a massive yet largely peaceful protest movement succeeded in forcing Hosni Mubarak, who for 30 years had ruled the land like a pharaoh, to step down. At this moment street protests and violence are occurring in Morocco, Algeria, Libya, Jordan, Bahrain, Yemen, and Iran — an upheaval reminiscent of that which swept Eastern Europe after the fall of the Berlin Wall in 1989.

Will the outcome be the same? Are the Middle East and North Africa on the verge of changes that will transform the lives of the people living there? Americans cannot but hope that the early promise of this revolution will be sustained. But I would sound a note of caution. There are reasons to believe that the events we are witnessing represent a false dawn.

That a region-wide conflagration had to come at some point was obvious, though exactly when it would occur no one knew. Demographics (a major youth bulge exists in all the countries in tumult), economics (the region is plagued by high long-term unemployment and soaring food prices), and government corruption provided the tinder that allowed Bouazizi’s fire to spread. Conditions in the Middle East are as backward and absurd as those that prevailed in Eastern Europe in 1989. But Eastern Europe’s problems were in a sense artificial, caused by the warped imperatives of Marxism-Leninism. The problems of the Muslim world are more fundamental.

 Although Iran, the one non-Arab nation involved, has a democratic tradition of sorts (no thanks to the US, which overthrew a democratic government there in 1953), the Arab world does not. Despite the hopes and dreams of foreign policy liberals in the West, there is no evidence to indicate that the Arab peoples have any talent for democracy. Indeed, history seems to show that the reverse is true. Egypt, the political and cultural center of the Arab world, will be the test. Some observers believe that the Egyptian middle class, educated and secular to the extent that it is largely immune to the lure of radical Islamism, will take the nation into a liberal democratic future. But given the abject poverty of the Egyptian masses (living on two dollars a day, as we were reminded again and again during the uprising), and the country’s apparent aversion to liberal values (i.e., free markets and functional democracy), this seems very doubtful indeed. East Germany was pulled up from dictatorship and poverty by rich West Germany, with the latter expending a vast amount of wealth in the process. Who will be Egypt’s mentor and bankroller? The US? Not likely, given the state of our economy and the massive federal budget deficit — not to mention the fact that Egyptians will likely spurn our advice and even our money if any strings are attached. The only nation with enough wealth available to prop up Egypt economically is the kingdom of Saudi Arabia. But we may take it as certain that the Saudis have no desire to see their neighbor become a thriving democracy. The Egyptians will have to pull themselves up by their own bootstraps, something they have never demonstrated an ability to do. Should they fail, the lure of Islamism will be strong and perhaps irresistible.

Eastern Europe’s problems in 1989 were in a sense artificial, caused by the warped imperatives of Marxism-Leninism. The problems of the Muslim world are more fundamental.

Final victory for the protestors in Egypt came about not as a result of their undoubted courage and determination, but because the Egyptian Army refused to stage a Tiananmen Square. That they refrained from doing so was the result, in part, of US “advice” to exercise restraint. The American and Egyptian militaries have maintained close ties since the 1970s. Egyptian officers attend US military schools and training courses, and Egyptian forces are equipped with US weapons. The relationship is so close that the US has permitted production of the M1 battle tank on Egyptian soil.

The US, therefore, has leverage with the Egyptian military. At the same time, we must listen to what that military says, for maintenance of the 1978 Egyptian-Israeli peace treaty remains the top priority of US policy in the Middle East. Egypt is the irreplaceable linchpin of America’s Middle East strategy. If the transition to democracy in Egypt fails from the outset or is derailed by democracy’s inability to cope with the country’s massive economic and social problems, look for the Egyptian army to take a hand. And don’t be surprised if the US backs any action the army may take, even if it comes to the establishment of a new dictatorship. The US must retain Egypt within the orbit of its influence, or find its entire Middle East policy ruined.

There remains a third possibility beyond a successful transition to democracy or a reversion to military dictatorship — a recurrence of the events witnessed in Iran in 1979. This possibility has been pooh-poohed by some experts, who are convinced that the Muslim Brotherhood (founded in 1928 and after the army the largest and best organized actor in Egypt) is neither strong enough nor willing to impose an Islamic regime. The Brotherhood itself has done much to dampen fears, denying that it harbors ambitions to remake Egypt and even going so far as to promise not to field a candidate in the next presidential election. But consider this: on February 18 the radical Sunni cleric Sheik Yusuf al-Qaradawi, who had been forbidden to preach in Egypt for 50 years, and who supports attacks on both Israel and US forces in Iraq, spoke to over a million people (as estimated by the New York Times) gathered in Cairo’s Tahrir Square. He exhorted them to demand of the army that it clear out all holdovers from the Mubarak regime and prepare the way for a new government forthwith. And he urged Egyptians to keep up the pressure until all their demands are met.

Needless to say, such a forcing of the pace will lead to disappointment, more protests, and perhaps a move by the army to “restore order.” Already the army has warned that the country must get back to work; indeed, anything like permanent revolution in Egypt will mean bankruptcy for the Egyptian state. If chaos rather than order results, and the army begins to disintegrate, with conscripts deserting or joining the ranks of the Brotherhood, nothing will stand between the Islamists and their achievement of power in the state. And an Islamist regime would undoubtedly, sooner or later, turn Egyptians’ frustrations outward against Israel and the US. The US would then be effectively shut out of the Middle East (unless it could somehow maintain a precarious position on the Arabian peninsula), while Israel, already facing the demographic challenge of a Palestinian birth rate far higher than that of its Jewish inhabitants, would find itself surrounded once again by hostile states, now motivated by religious fanaticism. One can play out this scenario in various ways, none of which ends well for the US or Israel.

There is no evidence to indicate that the Arab peoples have any talent for democracy.

To the west of Egypt lies Tunisia, the birthplace of revolution, and its neighbors Libya and Algeria, both of which have experienced major unrest. Libya is to an extent a special case, being a collection of tribes rather than a true nation state. As of this writing civil war is raging there between supporters of the regime and rebels. Even the armed forces are divided. It is difficult to predict a winner at this point; however, the longer the fighting continues, the more the possibility of radical Islamists gaining a foothold increases. Recall that in the 1990s Islamists won free elections in Algeria, only to be prevented from taking office by the army. Throughout North Africa the armed forces are the main, or sole, bulwark against radical Islamism. Even in Tunisia, which thanks to French influence has what most of us would regard as a normal attitude toward alcohol and sex, riots have broken out in which fanatical Muslims sought to close down brothels and ransack bars.

But North Africa west of Egypt remains, for the US (though not Western Europe), a sideshow. It is to the east, in the oil-rich Persian Gulf region, that events of world-historical importance are being played out. The principal centers of events here are Iran and, surprisingly, tiny Bahrain.

Iran of course is the other great and ancient civilization besides Egypt in the Middle East. It has more of a democratic tradition than any country south of Turkey, a sizable middle class, and the potential to build a thriving economy based on more than its immense oil and gas reserves. Its peoples are not Arabs but belong to various ethnic groups, with Persians making up a slim majority. The vast majority of its citizens are followers of the Shia sect of Islam, whereas in Egypt the people are Sunni. Since the overthrow of the Shah in 1979, Iran has been under Islamist rule. The Iranian revolution was a delayed reaction to the Anglo-American coup of 1953, which overthrew a democratic government and restored the Shah to power. But for that cardinal Anglo-Saxon sin, Iran might today be a rock of pro-Western stability in one of the most important regions of the world. Instead, it is the West’s most dangerous adversary this side of China.

The tide of history is undergoing a major turn. The whole edifice of Western and especially American policy in the Middle East is crumbling.

In 2009 pro-democracy activists took on the Iranian regime after an election that was widely (though not universally) perceived as fraudulent. They were crushed. In the wake of Egypt, street protests once again sprang up. It is believed in some quarters that these protests mark the death knell of the Islamist order in Iran. On the February 20 edition of Fareed Zakaria’s CNN talk show, the ubiquitous (and apparently immortal) George Soros declared that the Iranian regime would be swept from power within a year. This seems to me a fundamental misreading of the situation. The Revolutionary Guards Corps, the real power in Iran, is as entrenched as the People’s Liberation Army in China. It has the means to crush any popular revolt, and will do so.

The uprisings in the Arab countries should be seen as anti-Western and anti-American (for who supported the autocrats? and who will be blamed if the revolutions don’t deliver democracy and prosperity?), and therefore helpful to the Iranian cause. Iran will reach out to Islamists in the Arab world with a message of unity against the common enemies, America and Israel. Such an appeal will have a potent effect on people looking to blame their problems on malevolent outside forces. In February, for the first time since the overthrow of the Shah, Egypt allowed Iranian warships to pass through the Suez Canal (something Egypt could not legally prevent in any case, but nevertheless a definite straw in the wind).

Watch Bahrain to see which way the tide turns. This small Persian Gulf nation has a Sunni ruling family but a majority Shia population. So far, the protests there have been contained, but if the Shia chase out the rulers, Iranian influence will be at the very doorstep of Saudi Arabia. (Saudi Arabia’s Eastern Province, where the oilfields lie, is connected to Bahrain by a causeway. And its population is overwhelmingly Shia.)

Throughout North Africa the armed forces are the main, or sole, bulwark against radical Islamism.

The Saudis are very, very nervous. They have been urging the Bahrainis to take a hard line with the protestors, while at the same time announcing new giveaways of money for the average man in their own country. How secure the House of Saud really is remains to be seen, of course, but I would point to the fact that more jihadists come out of Saudi Arabia than any other Arab country. If Bahrain goes, and a Sadrist, pro-Iranian regime emerges in Iraq (as may very well happen in time — see my January 27article, “The Return of Moktada”), Saudi Arabia is probably doomed. At a minimum, the Eastern Province and its oil riches will be the target of Iranian pan-Shia propaganda and subversion. How the Saudis and the US will cope with such a situation appears problematical to say the least.

Even if the pro-Saudi ruling family holds on for the time being in Bahrain, one cannot but think that the tide of history is undergoing a major turn. The whole edifice of Western and especially American policy in the Middle East is crumbling. The majority of the peoples in the region have no love for us, or any strong interests in common with the Western world. We are witnessing not a liberation of the peoples as in 1989, but the end of a neocolonial epoch that began with the overthrow of the Ottoman Empire in World War I. In terms of economic impact, and particularly regarding energy, this will have a profound effect on an America already suffering from severe recession and catastrophic fiscal problems. And the effect on Israel will be even worse.

The history of revolution in countries with little or no tradition of self-government is instructive. Moderates overthrow oppressive autocrats, only to be removed by more ruthless and better organized actors — actors who are invariably more oppressive and murderous than the original autocrats. Robespierre, Lenin, Mao, Khomeini are the winners; the moderates are exterminated and the people are worse off than ever. When possible, popular discontent is then deflected upon an external enemy, as when the French Revolutionary armies swept over Western Europe. Such a future may await the West in the Middle East.




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Cuba, While Collapsing

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On January 14, President Obama announced that he would issue an executive order loosening US travel restrictions and remittances to Cuba. Though the administration has yet to spell out the details of the change in policy, several areas have been targeted.

Students seeking academic credit and church groups traveling for religious purposes will now be able to visit the island. But it’s the broadening of the definition of “cultural” groups permitted to travel to Cuba that could really open up the island to US tourism — depending on exactly what the new guidelines allow. The indications, according to Arthur Frommer, a travel guide writer, are that these, if not broad indeed, will be fuzzy enough to allow the entire head of the camel to slip into the tent. Additionally, authorized charter flights to the island will be able to depart from any US international airport equipped with proper customs and immigration facilities. Right now, only LAX, Miami, and New York City can offer flights to Cuba.

Predictably, Republicans reacted skeptically — or unfavorably. Hence, Obama’s end-run around Congress. But the reformed Cuban American National Foundation, once the hardest of hardliners, welcomed the proposal, stating that “it’s going to help the interaction between regular Cubans and US citizens; it’s going to help Cuban people inside the island to gain independence from the Cuban government, especially now that roughly a million will be without jobs” — a reference to Raúl Castro’s decision to reduce the government workforce.

Bribery has become endemic. It is, in effect, an institutionalized way of getting things done and maximizing foreign exchange.

Right now, because of currency transaction restrictions, cash is king, which means that US visitors must lard themselves with reams of the green stuff to last their stay — a situation vulnerable to scams and ripoffs. Luckily, Cuban moral standards in the crime-against-US-tourists realm have not depreciated noticeably. But they have snowballed in Cubans’ relations with their own government, an area in which there does seem to be a convoluted method to this madness.

US State Department memoranda, recently leaked by Wikileaks, between Washington DC and the US Interest Section (USINT) in Havana indicate that bribery — high, low, and everywhere — has become endemic. It is, in effect, an institutionalized way of getting things done and maximizing foreign exchange.

The leaks themselves, unlike some Iraqi and Afghan communiqués, are definitely not sensitive. In fact, ever since the profoundly anti-Castro James Cason became our “ambassador” in Havana in 2002, the USINT has — as an official policy position — decided to pour sugar into the Castros’ gas tank. It wouldn’t surprise me if our mission welcomed the leaks. According to the USINT’s website, “The objectives of USINT in Cuba is [sic] to promote a peaceful transition to a democratic system based on respect for rule of law, individual human rights and open economic and communication systems.”

The most recent propaganda war began in the late 1990s, when the Cuban government erected a billboard in front of the mission with a cartoon revolutionary shouting to Uncle Sam, “Señores Imperialistas ! No les tenemos absolutamente ningún miedo!” (Messrs. Imperialists! We have absolutely no fear of you!”) This was followed — during the Elián Gonzales case — by the building of the Jose MartíAnti-Imperialist Plaza just east of the mission, where rallies, protest meetings (particularly targeting US policy), and concerts are held. At first, the USINT pulled its punches by displaying innocuous Christmas figures of Santa Claus, Frosty the Snowman, and a sleigh — censored symbols of a past era. But then, in January 2006, the USINT unleashed the full weight and measure of American creativity. That month, a scrolling electronic billboard in the windows of the top floor of the mission began displaying a quotation by George Burns: “How sad that all the people who would know how to run this country are driving taxis or cutting hair.”

Ever since the profoundly anti-Castro James Cason became our “ambassador” in Havana in 2002, the USINT has — as an official policy position — decided to pour sugar into the Castros’ gas tank.

The Cuban government responded with a huge protest march and the erection of a large number of flagpoles flying black flags with white stars, in a vain attempt to shield the billboard (which brings to mind the old Cuban saying about the fool who tries to deny reality: “You can’t cover the sky with one hand over your eyes”). There was also a Granma International editorial condemning the billboard as “the systematic launching of the crudest insults of our people via the electronic billboard, which, in violation of the most elemental regulations of international law, they think they can maintain with impunity on the façade of that imperial lair.” Apparently, George hit the funny bone again.

Cuban corruption, according to the leaked communiqués, includes bribery, inappropriate “tips,” illegal commissions, influence peddling, graft, embezzlement of state resources, and every other sort of unauthorized expedient used to gain advantage — from the highest levels of the bureaucracy, to ordinary members of the Cuban Communist Party, to the police, the security organs and anti-corruption watchdogs, to professionals of every stripe, right down to the average citizen navigating the reefs of Cuban quotidian life.

Many of the cables refer to illegal commissions either paid to fictitious third parties and deposited in foreign banks or paid openly to the Cuban concessionary and deposited in open accounts. One memo, quoting a Swiss businessman, says, “Like any other place in the world, a million dollar contract assumes $100,000 in the bank [as commission to the Cuban provider].”

If planning to visit Cuba, bring lots of cash — or blue jeans, perfume, soap, spices, sporting and electronic equipment, whatever we usually take for granted in a free society.

A Cuban told the USINT political advisor that “some entire government departments are run as, in effect, mafia fiefdoms. The director of the state bread distribution department placed friends in central hubs and now controls the entire chain of state bakeries.” Along these lines, many of the state jobs most susceptible to skimming, graft, or rent seeking are available only on a commission basis from the functionary in control. As another memo stated, “For example, a position with access to gasoline can cost thousands of dollars because it would permit the beneficiary to traffic in the combustible. Employment in the tourist sector, with access to its tips, can cost hundreds of dollars. A job with Cimex (the import/export bureau) would cost more than $500.” Government departments in charge of transport, construction, health, and food distribution are thoroughly suborned and maintain parallel black markets in lumber, cement, paint, meat, drugs, and many other goods.

Another cable cites the case of a woman who admitted to having her teeth fixed “paying hard currency to a clandestine dental clinic, run by dentists from the Ministry of Health and furnished with equipment stolen from the state.”

Michael Parmly, chief of USINT from 2005 to 2008, writes that the police “are famous for taking bribes. They’re so corrupt that the government replaces the entire force with new recruits from the eastern extremity [rural backwaters] of the island periodically. With time, the rookies become as corrupt as the old hands and they need to be replaced with a new crop.”

A previous Spanish ambassador characterized the situation to the USINT in this way: “Corruption is necessary to survive. When in the majority of Latin American countries a corruption scandal consists of one person stealing $11 million, in Cuba it’s that each one of the 11 million Cubans steals one dollar.” In 2009 the USINT provided this summary to Washington: “Corruption in Cuba is an accepted tool of survival. Cubans average an income of $18 monthly, and the security organs are well aware of it.” Madrid’s El País adds,Nevertheless, conduct considered corrupt in the United States, such as conflicts of interest or influence peddling, is business as usual in Cuba. The authorities tolerate corruption up to a certain point, but for serious corruption they respond with severity.” Makes one wonder how they define “serious.”

Now corruption is not normally part of the libertarian theoretical arsenal. Nonetheless, in this case (and probably in others as well), I will attempt a defense of the practice.

First, it is a relief valve for the constraints placed on normal market activities by unrealistic regulations — especially when they are “regulations without representation.”

Second, “corruption” is more understandable within certain frameworks and traditions. Modern political systems that evolved from Roman tradition — a tradition based less on ideology than on personal loyalty, patronage, and nepotism — are often perceived as corrupt by people nurtured wholly within Enlightenment political tradition. The Roman tax collection system is particularly instructive. Government collected taxes by selling the position of tax collector to the highest bidder. The price was determined by an estimate of the taxes that could be collected. The revenue agent then pocketed whatever he could garner from taxpayers — that was the return on his investment.

The Castro regime attempted to shift the traditional order — extant under Batista and his predecessors, albeit modified considerably over time — to an ideologically-based system. The draconian approach failed. Now, if anything — and in spite of many Cubans’ naïve admiration for the ideals of socialism — ideologically-based standards have suffered a crushing blow. Damage has been done that will be difficult to reverse when the regime collapses.

Bradley K. Martin, in his account of North Korea and the Kim dynasty (Under the Loving Care of the Fatherly Leader), interviewed many defectors from the hermit kingdom. North Korea has a much worse reputation than Cuba. It is surprising, therefore, that the North Korean defectors’ attitudes have much in common with Cuban attitudes. For one thing, reverence and admiration for Kim the Elder is widespread — for fighting the Japanese and imperialism and for socialist idealism, which the defectors are at pains to reconcile with the North’s economic failure, the primary reason for their escape. Similarly, in Cuba much of the populace still admires Castro’s accomplishments and idealism.

“When in the majority of Latin American countries a corruption scandal consists of one person stealing $11 million, in Cuba it’s that each one of the 11 million Cubans steals one dollar.”

In the course of describing how things get done in North Korea, Martin quotes one defector’s eloquent defense of the country’s widespread corruption: “I feel it’s justified. The official works hard to [fulfill the petitioner’s request], so there should be a payoff for him. Above that official there may be higher officials. This lower official has to work hard to [get his own requests fulfilled], has to pay off higher-ups. I just thought that was the way things were. I thought it was understandable. This system is prevalent throughout society. For example, if I couldn’t make it to the factory one day, I’d see the manager and give him some gifts and ask him to look the other way. In North Korea most bribery involves goods, not money. When my father worked as an official at a county economic committee he received so many ‘presents’ from farmers — potatoes, green onions and so on. If a person receives a present in the form of goods, that’s a ‘friendly present’.”

Conchita, a woman I know, understands. The not-so-recent émigré’s extended family and friends keep trickling into the USA, while she keeps visiting people who are still on the island. Those experiences, and her American dream job, conducting publicity for one of the state lotteries, invest her with an extremely pragmatic attitude to government in all its forms. She cultivates contacts in official and unofficial, high and low places. Her advice, if planning to visit Cuba, is to bring lots of cash — or blue jeans, perfume, soap, spices, sporting and electronic equipment, whatever we usually take for granted in a free society — to facilitate every contingency and make a Cuban’s day.




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Bones Crunch!

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Liam Neeson fairly burst onto the big screen in 1993 with his compelling performance as Oskar Schindler, the man who saved over a thousand Jews from Nazi execution, in the Oscar-winning Schindler's List. It wasn't his first film by any means, but it was his first big film, and it garnered him an Oscar nomination for best actor. From there his career turned in the direction one would expect for an Irish-born, classically trained actor with a resonant voice and proclivity for accents. He played characters with stature: Rob Roy, Michael Collins, Alfred Kinsey, Jean Valjean, the god Zeus. He was the voice of Aslan. He also had fatherly, mentoring roles in such films as Batman Begins and Star Wars Episode I.

So how did this stately-but-slightly-sagging, now-middle-aged man suddenly morph into an action figure? A figure who has become a number one draw at the box office?

It started with Taken (2008), a film in which he plays a father determined to rescue his kidnapped daughter. Not an unlikely reach for a man his age — except that his character, Bryan Mills, is a retired CIA agent who is highly trained in combat and espionage. Taken was 10% distraught father's angst and 90% thrill ride, with enough hand-to-hand combat, gunfights, dead bodies, and car chases in a 93-minute thriller to satisfy the most avid video game player. (And that's what many of these new thrillers have become: video games without the controllers.)

From there Neeson has voiced a character in an actual video game (Fallout 3), and fought the bad guys with The A-Team. Now he is taking on a horde of assassins in the new psychological conspiracy thriller, Unknown.

With a more engaging plot than most action movies, Unknown offers a satisfying evening's entertainment. The story has numerous unexpected twists and subtle clues, with enough red herrings to keep even this staid reviewer off balance. Neeson plays Martin Harris, a biochemist arriving in Berlin with his beautiful wife (January Jones) to present a paper at a scientific conference. When his briefcase is accidentally left behind at the airport, he grabs a cab to retrieve it and ends up in the river when the driver swerves to avoid some falling debris. By the time Harris returns to the hotel, after spending four days in a coma, another man has taken his place, and his wife does not recognize him. Creepy men start following him. Cars race through traffic with guns blazing. Bodies crash through walls in the throes of battle. Bones crunch. Bullets fly. Blood flows. Necks snap. And in the middle of it all, Liam Neeson, looking more like Al Bundy than James Bond, is the unlikely action hero.

I don't get it. But I like it.


Editor's Note: Review of "Unknown," directed by Jaume Collet-Serra. Warner Brothers, 2010, 113 minutes.



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Hyper-Chutzpah

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“Chutzpah” is a great Yiddish term for nerve — as in having the nerve to ask something outrageous. The classic illustration of chutzpah is a man who murders his parents, then at trial throws himself on the mercy of the court because he is an orphan.

But what word would you use to describe the person who not only murders his parents but consumes their body parts, then goes to an adoption agency in search of new ones? I suppose the best we can do is say he has “hyper-chutzpah.”

This is about the best description possible of Bob King, the new head of the United Auto Workers union. A recent Wall Street Journal piece recounts how King is trying to present the UAW as a helpful partner, deserving of adoption by the workers and management of foreign automakers with plants in the US (mainly located in the right-to-work states).

King’s pitch is pure hyper-chutzpah. He avers, “Our mindset is not adversarial. Our agenda is a positive one of shared responsibility and shared prosperity.” His pitch is part of the UAW’s attempt to unionize the foreign-owned plants, something it has consistently failed to do over the past three decades.

It is doubtful that many workers will fall for this transparently duplicitous pitch. Most workers understand that the UAW has a pernicious history. Yes, it got “great” concessions out of the domestic producers: not just outrageously high compensation packages but unsustainable pension and health plans. Also, the UAW extorted contracts that enabled work rules protecting lazy, drunken, or otherwise incompetent workers, as well as featherbedding — including obscene rules that required workers laid off from any plant that should happen to be closed down to be kept on at full pay, sitting around playing cards in holding tanks.

The UAW has nearly destroyed the domestic auto industry. Two of the three companies it drove to the wall had to be rescued at the cost of tens of billions in taxpayer dollars, a transfer from all of our pockets to the pockets of the UAW thieves. In so doing, it has hurt itself. Its membership, once as high as a million and a half, is now only about a third of that. And if its Fairy Godpresident, Obama, loses in 2012, the next administration will be far less willing to rip off the taxpayers and creditors and give it whatever it wants.

In the face of broad public (and worker) awareness of its destructive behavior in the past, the precipitous decline in its membership over the past few decades, and the rapid deflation of the power of its political ark (i.e., the Democratic Party), the UAW is offering some olive branches. It has backed off from the demand for card check legislation (which would eliminate secret ballots in unionization votes), and is offering to help get the long-delayed free-trade agreement with South Korea though Congress.

All this is like Obama’s recent assertions that he wants to work with business, perhaps lowering regulations and corporate taxes a bit. But in truth, it is all a bunch of BA — bland assurance. It is empty happy-talk by people who despise business and the free market economy in which it thrives. The UAW has permanently crippled our domestic auto industry, handing over a major area of manufacturing, in which we once led the world, to foreign companies. Worse, it has used workers' union dues to finance the election of an endless number of leftist Democratic politicians, who have been crucial in crippling our energy industry, taking over our health industry, and hobbling other industrial sectors as well.

We can only hope that workers and management at the healthy foreign-owned auto companies will give the UAW the cold shoulder it deserves. The nation needs to tell this greedy, soulless, statist, power-hungry, job-killing gang of kleptocrats what Cromwell told the Rump Parliament: “Depart, I say, and let us have done with you. In the name of God, go!”




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More Than Just a Pretty Film

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The Illusionist is a lovely animated movie by French filmmaker Sylvain Chomet — a movie that, despite its beauty, has a disturbing message.

Its leading characters are a kindly vaudeville magician and the young working girl whom he befriends. The story is sweet and full of pathos, as the older gentleman sacrifices his own comfort and well being to please the girl. Appropriately, the film is drawn in the soft-edged, old-school style that predates Pixar. Its French pedigree is obvious, from its watercolor backgrounds and exaggerated, non-realistic faces to its impressionistic musical score. The characters communicate with each other through a combination of mime and an odd pseudo-language reminiscent of the way adults speak in the old "Peanuts" TV specials. This adds to the dreamlike quality of the story, although it can be off-putting to those who aren't fans of French animation.

Based on a story by Jacques Tati (1907–1982), the famous French filmmaker, The Illusionist is intended to show the deep father-daughter connection between a lonely old man and an equally lonely young girl. Metaphorically, however, the film offers a powerful, though certainly unintentional, warning look at the relationship between the working class and the welfare class. The magician's relationship with the young cleaning girl begins innocently and sweetly. When her bar of soap slips away from her while she is cleaning the floors, he picks it up and "magically" turns it into a fancy box of perfumed hand soap, offering it to her with a flourish. She is thrilled. The next day she washes his shirt to show her appreciation, and he "magically" produces a coin from her ear to thank her — the way kindly uncles do when they visit little nieces and nephews. Noticing that the sole of her shabby shoe is flapping wildly as she walks, he buys her a pair of bright red shoes.

Before long the magician's gig at the local vaudeville theater ends, and he must move on to the next town. Without being invited, the girl follows him. When the conductor asks for her ticket, she points to the old man, miming her expectation that he will produce a ticket for her out of thin air. Not wanting to disappoint her, the poor man complies, again with a magical flourish. Throughout the rest of the film the girl stays with the man, pointing to new goodies that she wants — a new coat, high-heeled shoes, a new dress, and a coin from her ear every time they part. The man takes on extra jobs to pay for her increasing demands. He sleeps on the couch so she can have the single bedroom in his tiny apartment. Sadly, the girl never catches on to what is happening to the man. You can probably guess where this leads. Small- time magicians, like golden geese, eventually give out.

The film offers a powerful demonstration of what has happened to a whole generation of people who have grown up under the welfare state. They have no idea where money comes from, or how to earn it. They turn to the government for housing, food stamps, education, medical care, and even entertainment in the form of parks and recreation. They seem to think that money can appear out of thin air, and that people who work owe them all the goodies they want. Like the man in the film, tax-paying Americans are becoming threadbare and exhausted. The demands on them are too many, and they're tired of not being appreciated for meeting those demands. At some point they are going to stop working — also like the man in the film. What then?

A friend who teaches middle school in the Bronx asked her students to write an essay about what they want to be when they grow up — pretty standard fare for a middle-school essay. One young man wrote about going to college, becoming a lawyer, and representing clients in court. "I'll make a lot of money, and I'll wear nice suits and carry a briefcase," he dreamed. But he ended his essay with this chilling observation: "If I do that, I'll probably earn too much money and I'll lose my housing and food stamps. So maybe that's not such a good idea." What a self-defeating decision! Yet I see that idea in practice every day as I work with people from Yonkers and the Bronx. They are so afraid of losing their tiny apartments in crumbling buildings on potholed streets in seedy neighborhoods that they won't even consider moving to a different state with a lower cost of living, where they could get a job and provide for their families themselves.

How surprising, that the demise of the American dream would be so skillfully and artistically presented in the form of a French animated film. It is well worth sharing with friends as a cautionary tale of pending disaster.


Editor's Note: Review of "The Illusionist," directed by Sylvain Chomet. Pathé-Django, 2010, 90 minutes.



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That Would Be "Oops!"

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Here’s a wild and amazing bit of news: the Wall Street Journal reports that after a ten-month investigation of the mysterious cases of unintended acceleration reported in Toyota vehicles last year, the National Highway Traffic Safety Administration (NHTSA) (with the help of NASA engineers) has discovered the cause of these events. The vast majority of them were . . . driver error!

Yes, after all the hysteria whipped up by the media and Congress — a hysteria that had the hidden goal of harming Toyota and helping the recently nationalized GM — it turns out that the most common problem by far was that drivers were hitting the accelerator pedal instead of the brakes. Yes, in some cases it was sticking accelerator pedals and improperly cut floor mats that were at fault — and both defects were quickly addressed in a recall by the company — but driver error was the big problem.

In short, Toyota suffered what Audi did many years ago: a media-driven hysteria for something primarily caused by drivers handling their vehicles improperly. In 1986, a number of people sued Audi, claiming that their cars had inexplicably accelerated, despite the brakes being depressed. A wave of prejudicial publicity followed. In the end, however, the NHTSA found that the majority of cases were clearly caused by the drivers pressing the accelerator while thinking they were hitting the brake.

In 2010, leading the charge in bashing Toyota was the Democrat-controlled Congress. Most of the congressmen sitting on the committee that investigated Toyota were recipients of UAW campaign money. Even more out front was DOT head Ray LaHood, who opined at the time that Toyota owners should immediately stop driving their cars.

Questioned about the new report, the now-discredited LaHood got annoyed and refused to use the phrase “driver error.” But he was forced to concede: “We feel that Toyotas are safe to drive.”

This simply will not do. LaHood has been proven unfit for his position. He deliberately hyped a problem the cause of which he was utterly clueless about, scaring the hell out of a lot of consumers, and costing Toyota a fortune in tangible and intangible assets.

If he had even a semblance of dignity, LaHood would resign immediately.




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Assessing the Bailouts

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Here are some libertarian warnings about the government rescue of General Motors:

“The current restructuring plan calls for the U.S. Treasury Department to have controlling interest in General Motors, which amounts to absolute nationalization. In GM's headquarters in Detroit there is a cluster of bureaucrats from the government's task force telling GM how to run its business. . . . Furthermore, the White House fired General Motors Chairman and CEO Rick Wagoner. When the executive branch intervenes in a private business and ousts management, bailout or not, it is a staggering violation of the American ideal of free enterprise. This sets a precedent for unlimited government trampling over the private sector. On March 30th, Obama said, ‘Let me be clear. The United States government has no interest in running GM. We have no intention of running GM.’ If that's the case — and we know it's not — then why scoop up majority ownership?” (Karen DeCoster, LewRockwell.com, May 23, 2009)

And:

“Will GM be run as profitably and efficiently as Amtrak? Will GM be paid not to produce, like the agricultural sector? Will it feed into an economic bubble like Fannie Mae and Freddie Mac? Will it boast the negligible oversight and waste of the so-called ‘stimulus’ package? Will it feature the fiscal irresponsibility of Social Security? Or will we see the runaway costs of Medicaid?” So many options. (David Harsanyi, Reason.com, June 3, 2009)

And:

“GM’s bankruptcy announcement today . . . might well be remembered as the company’s last act of capitalism. If GM emerges from bankruptcy organized and governed by the plan created by the Obama administration, it is impossible to see how free markets will have anything to do with the U.S. auto industry. With taxpayers on the hook for $50 billion (at a minimum), the administration will do whatever it has to — including tilting the playing field with policies that induce consumers to buy GM or hamstring GM’s competition or subsidize its costs — in order for GM to succeed.” (Daniel Ikenson, Cato@Liberty, June 1, 2009)

And:

“The more the Treasury lends, the more GM will come to be Government Motors. In Obama's America, that will mean becoming a development project for electric cars, plug-in hybrids, or whatever it is the politicians want. The result might be wonderful, but the history of state-controlled companies suggests boondoggles are more likely. The best thing is to let GM do what failing companies have always done: reorganize if possible, liquidate if necessary. . . . Let it go, and let investors put their money where the odds are better.” (Bruce Ramsey, The Seattle Times, April 1, 2009)

That last excerpt is, of course, by me. I didn’t condemn the firing of Rick Wagoner, because I would have fired him, too. But on the main point — that so much government money risked turning GM into a money-losing government pet — I agreed.

It hasn’t happened that way. As I write, the new GM has had three quarters in the black, the latest one earning five and a half cents of operating profit on each dollar of sales. That’s quite respectable. In November 2010, GM became a public company again with a stock offering. GM planned to offer the stock at $26 to $29, depending on the market, but demand was so strong that it sold the shares at $33; and as I write, the stock is trading above that. The stock offering reduced the Treasury’s stake in GM from 60.8% to one-third. If the US government can sell its remaining stock at $53, it will break even.

Chrysler hasn’t done as well, but it is also in the black, and looks like it will make it.

Of course, disaster could yet strike and turn the pessimists into prophets. But let’s be honest: so far, the affair has turned out much better than we feared. We ought to know why, especially if we expect to oppose the next bailout.

One place to start is Steven Rattner’s book, Overhaul, subtitled An Insider’s Account of the Obama Administration’s Emergency Rescue of the Auto Industry. Rattner, 58, was President Obama’s “car czar” on the GM and Chrysler rescues. Rattner is a Wall Street guy; he was a founder and partner of the Quadrangle Group, a leveraged buyout firm. Before that he was a reporter for the New York Times, which explains why his book reads so well.

Of course, you are free not to believe his account. I haven’t seen it contradicted, so I take it at face value. Reasons may come along to change that. So far they have not.

I don’t share Rattner’s politics. He is an Obama man. He has raised money for Democrats, and his wife Maureen is a former national finance chairman of the Democratic Party. He says in the book that he is a Democrat because “the Republicans had favored the rich at a time of growing income inequality, abandoned fiscal responsibility, and held unfortunate positions on social issues such as a woman’s right to choose abortion.”

The GM affair has turned out much better than we feared. We ought to know why, especially if we expect to oppose the next bailout.

As “car czar,” Rattner was leader of Team Auto, a group of people, mostly from outside government, whom he recruited. His bosses were Larry Summers, President Obama’s chief economic adviser; and Tim Geithner, Obama’s treasury secretary. Rattner says his task “was not designed to further a particular economic theory,” but was strictly to save those parts of GM and Chrysler that could be made economically viable. He says that in his meeting with Obama on March 26, 2009, the president told him, “I want you to be tough and I want you to be commercial.”

Rattner focused on GM. When his work began, in January 2009, the company already had been given billions by the Bush administration and was burning through it at a bonfire rate. The economy was in panic. The Dow Jones Industrial Average was shriveling to 6,600, the figure it would touch in early March. GM was no longer a viable enterprise. On his judgment of GM, Rattner sounds much like the libertarian accountant Karen DeCoster, who had been saying on LewRockwell.com for several years that GM was an ongoing industrial disaster.

Rattner is no partisan of unions; he recalls his days at the New York Times when the Newspaper Guild defended featherbedding and incompetents. But he does respect unions, and he doesn’t blame them for what happened at GM. It’s management that runs a company. As a leveraged buyout guy, he had expertise in firing, hiring, and evaluating managers — and at GM he was appalled by what he saw and heard.

“From Wagoner on down,” he writes, “GM seemed to be living in a fantasy.” To executives, the problem was entirely the recession, not the GM product line or the way the company was run. GM management’s idea, Rattner says, “seemed to be to trim only what was easily achieved and absolutely necessary, and use taxpayer dollars to ride out the recession.”

But GM had been bleeding market share continually for 33 years. After rebates, its cars sold for thousands of dollars less than their European and Japanese counterparts — a market measure of the people’s esteem for the products. For management not to see that was a kind of sickness. GM had a culture of excuses, of institutionalized failure.

Rattner’s killing comment: “No one at GM thought like an owner.”

Team Auto’s idea was that government money would come only with big changes to make GM viable, including sacrifices by management, labor, bondholders and creditors, and with a major mind readjustment at the top. The place to begin was the CEO.

There was a hullabaloo in the press because the government fired Wagoner. So it had; but the government was the investor, and an investor may put conditions on his investment.

“After nearly a decade of experience as a private equity manger, I believe in a bedrock principle of that business: put money behind only a bankable management team. To my mind, no private equity firm on the planet would have backed Rick Wagoner or GM’s current board. . . . A CEO who leads a company into a state in which its only recourse is a government bailout shouldn’t be in his job.”

And that’s right. There was a hullabaloo in the press because the government fired Wagoner. So it had; but the government was the investor, and an investor may put conditions on his investment. He who pays the jukebox calls the tune.

The critics wanted GM to be put into bankruptcy — either Chapter 11, in which creditors are partly stiffed and the company survives, or Chapter 7, in which the creditors are given the carcass. The critics tended to gloss over the fact that each of these procedures involves the government, in the form of a federal bankruptcy court. Each involves the breaking of private contracts. The difference is that in a bankruptcy the decisions are made by a judge (appointed by other judges) rather than by a politician or direct political appointee. The other difference is that a bankruptcy judge does not have a pipeline to public money.

Those are important differences, but it’s still the government.

An ordinary Chapter 11 would have taken perhaps 18 months, and Rattner says there was no way GM could get debtor-in-possession financing from a bank for such a period. Wagoner had waited too long, and GM was too weak. Wagoner told Team Auto that once the company was in bankruptcy, he believed nobody would buy its cars, because customers would be worried about warranty coverage. Because of that, Wagoner said, he had done no preparation for a Chapter 11. The warranty problem was real, but this was also a self-excusing argument from a guy lining up for a bailout.

There was a different kind of Chapter 11 called a Section 363. It had never been tired on an industrial company the size of GM or Chrysler. A Section 363 allowed Team Auto, the new investor, to fashion a new GM from the assets of the old, leaving creditors to fight over the bones of Old GM. In that way, Team Auto brought out what Rattner calls “Shiny New GM” in a little more than a month.

Maybe that tells something about bankruptcy. Critics write as if bankruptcy were a fixed thing, like the Ten Commandments. But it is a human institution, and may be changed so that it works better or worse.

In the GM case, the stockholders would get nothing, which is what they would have gotten anyway. The bondholders would get a share of New GM worth about 35 cents on the dollar — an amount Rattner says was more than they would have received in a straight liquidation and therefore too much, because the government wasn’t intervening on account of them. The workers’ medical benefit trust would get a piece of the new company in exchange for releasing the new GM from all of its retiree medical obligations, which, unlike pensions, are not guaranteed by the Pension Benefit Guraranty Corp. The United Auto Workers would get a seat on the GM board. The Canadian government, also investing capital, would get a 12% stake.

Given the choice, taking the equity was the right decision. If you’re going to pay the money, you may as well get something for it.

And the US Treasury would get almost 61%. That was a problem. Contrary to all the muttering about Obama being a socialist, the president didn’t want the government to own GM, nor did any substantial constituency in the Democratic Party. And yet, when the decision came about taking shares of stock, it was this, according to Rattner: “We can either get nothing for something or we can get something for something.”

Given that choice, taking the equity was the right decision. If you’re going to pay the money, you may as well get something for it. The Treasury did, and the result of that decision a year and a half later is that the taxpayers have been made one-third whole, and have a chance of coming out entirely whole.

And compared with things two years ago, that is an economic success.

Rattner wants to say there were no politics involved in these decisions, but he can’t quite do it. The choice to undertake the project in the first place was political. And always there was what Rattner calls “the Washington Post Test”: don’t do anything that you don’t want to see written about in theWashington Post.

But the bounds of the politically possible left a large space, and within this space Team Auto had discretion. Rattner writes, “No one in the Obama administration ever asked us to favor labor for political reasons.” Indeed, one of his chapters is called, “F**k the UAW,” a quotation he attributes to White House Chief of Staff Rahm Emanuel.

Organized labor took its lumps in the rescue — at GM it lost almost one-third of its North American jobs. But it came out ahead of where it would have been with no rescue, and it preserved its pensions and high wages for older workers by pushing pay far down for new workers.

With GM, Team Auto assumed from the start that there was a commercially viable core. This wasn’t obvious with Chrysler. It was smaller than GM, and Rattner says the economic case for saving it was much weaker. Obama’s economist, Austan Goolsbee, argued that Chrysler ought to be liquidated: the net loss of US jobs wouldn’t be so bad, because many of Chrysler’s customers would buy their cars from GM and Ford. Better to have two strong companies than three weaker ones. At one point Team Auto considered a plan to transfer Chrysler’s top brands — Dodge Ram, Jeep, and Chrysler minivans — to GM, and shut down the rest.

The political interference after the deal was announced came from Congress, on behalf of car dealers.

Team Auto was divided on whether to subsidize a deal with Fiat to save Chrysler. Rattner voted to do it, but he sounds as if he wished he hadn’t. The matter finally went to Obama, who said to do it. That is when Obama told Rattner to be “tough” and “commercial”—advice that Obama was not exactly following, himself.

The main theme of Rattner’s book is that the GM deal — the big one — was done much as a private investor would, if the investor had decided already to do something. Team Auto’s aim was to make the company profitable. That meant a new CEO, a new chief financial officer, a new chairman, and several new members of the board. It meant shedding Pontiac, Saturn, Hummer, and Saab, and narrowing the product line to Chevrolet, Buick, Cadillac, and GMC Trucks. It meant shedding almost 30,000 jobs. And it meant cutting out 1,124 GM dealers.

The political interference after the deal was announced came from Congress, on behalf of dealers. Each member had imperiled dealers in his district. Sen. Kay Bailey Hutchison, Republican, held up a war-funding bill on behalf of Texas car dealers. House Majority Leader Steny Hoyer, Democrat of Maryland, went to bat for a dealer who had sold only three Chryslers in all of 2008 — and later told Rattner he’d let the companies keep too many dealers alive. Or so Rattner says. Rep. Gabrielle Giffords, Democrat of Arizona, went to bat for a Chrysler dealer, Rattner writes, and “repeated her talking points over and over.”

The intervention by Congress, Rattner writes, was “an enormous, pointless distraction for the two companies at a critical time. Its interference left me wondering what in the auto rescue Congress might like to micromanage next — choosing factory locations or deciding which executives and workers stayed and which had to go?”

That’s politics. The incentives facing elected officials are alien to the imperatives of business. Of course, members of Congress would not have had the ability to intervene so easily if there had been no intervention by the executive branch.

Which gets back to the original question. Obama is an elected official. Why did he let this be done in a mostly businesslike way?

Rattner doesn’t ask the question, but the answer that floats to the surface is that Obama is responsible for the whole country, not just congressional districts with GM and Chrysler assembly plants.

But it was more than that. Probably the strongest reason why Obama didn’t politicize the bailouts to the extent that libertarians feared — and a reason not in Rattner’s book — is that the American people, Republicans and Democrats included, hated the bailout. The polls were clear about that. The first demos of the Tea Party showed it. So did the rise in the reputation of Ford, which became America’s most popular car company because it never took a bailout. There simply was little political gain for Obama in creating Government Motors, and much political hazard.

Probably the strongest reason why Obama didn’t politicize the bailouts to the extent that libertarians feared is that the American people hated the bailout.

So he didn’t do it. By the standards of capitalism — the standards of the market — the bailouts have turned out well. The new General Motors and the new Chrysler are viable companies. Libertarians have to admit that.

When they do so, they should also point out that much of this was due to luck, and not anchored in the nature of things. This time it worked out; but once you allow politicians to run about fixing broken industries with public money, all sorts of bad incentives are created. There is the bad incentive to be a Rick Wagoner, and wait to be saved. There is the bad incentive for the bailers-out not to be tough and commercial, but to be political instead, in order to get votes. In the spring of 2009 Obama wasn’t over a barrel for the electoral votes of Michigan and Ohio, but a future president might be. Rattner alludes to these problems, but his book is about the specific case, not a general case.

A car company rescue also gives the politician a chance to be tinkerer-in-chief. Obama isn’t a car guy, but I can think of politicians who would use the opportunity to push the Chevy Volt, or to go beyond it. Rattner is blunt about the Volt: it costs $40,000 to make, and it competes with cars that cost half as much. He writes, “There is no scenario under which the Volt, estimable as it may be, will make any material contribution to GM’s fortunes for many years.”

In his epilogue, Rattner compares the auto rescues, which resulted in two viable companies, with Obama’s “stimulus” package, which cost 10 times as much and spent the money “without anything like the rigor that private equity or venture capital investors apply.” He says that Americans “we will be disappointed by how little lasting benefit we got for those dollars.”

That is so. It is also a low standard for measuring government spending.

Libertarians still have strong reasons to oppose corporate rescues generally. But each case has its own facts, and sometimes a bad idea delivers good results.

I’m glad it came out well — I guess.


Editor's Note: Review of "Overhaul: An Insider's Account of the Obama Administration's Emergency Rescue of the Auto Industry," by Steven Rattner. Houghton Mifflin Harcourt, 2010, 320 pages.



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Federalism in Action

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The greatly imperiled traditional view of federalism has it that among the other mechanisms for the balancing (and hence constraining) of powers in our government, the states require substantial power to balance that of the federal government.

One of the benefits of federalism is that it allows the various states to experiment. If Texas wants to try fiscal discipline while California engages in fiscal incontinence, the rest of the states can watch and judge which fiscal policy is most productive of wealth and happiness for citizens generally.

We see this happening now before our very eyes, as most of the states grapple with budget deficits. Different states are pursuing different policies.

We see, for example, Illinois jamming through a two-thirds hike in personal income taxes and a nearly 50% rise in state corporate taxes to deal with its budget deficit. But in Georgia, a bipartisan tax commission has recommended to the state legislature that it cut its personal and corporate tax rates from the present 6% down to only 4%. As one of the commission members — economist Christine Ries of Georgia Tech — put it, “Our over-riding goal was to get the income tax rate down as low as possible, because the evidence is so clear that this is the biggest driver of growth and jobs.” The commission proposes to cover the tax loss by expanding the application of Georgia’s 4% sales tax to many purchases (such as groceries) now exempt from it.

Shifting corporate and personal income tax to consumption tax seems like an economic no-brainer if you want to encourage the creation of jobs, although as the Wall Street Journal notes,the logical thing would be for Georgia to eliminate the income tax altogether (as nearby Florida and Texas have done).

Again, it is nice to be able to contrast the behavior of, say, California with Utah. Newly-installed California Jerry Brown, the aging Moonbeam whose original decision (1978) to let public employees unionize and collectively bargain was a major reason for the state’s massive overspending today, and who owes his election to massive spending by those same unions, has proposed a plan to deal with the state’s budget deficit. It calls for dramatic increases in taxes and some cuts in spending, but does nothing to address the ridiculously bloated salaries and pensions that state employees receive. He intends to use the prospect of cuts in services to cow the citizens into raising taxes.

This is the typical statist ploy: threaten cuts in public service to get what you really want, which is always more taxes, while leaving the underlying problem (ballooning compensation and pensions for government workers) untouched. At least the miserable Governor Schwarzenegger tried, at the beginning of his regime, to address the public employee pension problem, by floating an initiative that would have put all new hires on defined contribution plans (such as 401k), before being whipped into a girly-liberal by the public employee unions.

Illinois is another case of the statist response to the pension crisis. Governor Pat Quinn, just a month before the November election and in the face of a huge state budget deficit, gave the public employee unions a guaranteed two years of no layoffs and even cost of living increases. With their support he squeaked through to reelection. After winning, he jammed through massive tax increases.

Now, Utah has taken a different tack. The state pension plan was fully funded back in 2007, but suddenly, by 2009, it fell to only 70% funded, meaning that the state faced a pension funding gap of $6.5 billion. This gap was one and a half times the debt allowed by the state constitution. But the constitution makes changing the pension plans of current workers virtually impossible.

So the Utah legislature made a reasonable choice, under the circumstances. It set up a defined contribution plan for all hires, starting this year, the state donating a generous 10% of the employee’s salary. The plan allows employees a defined benefit option — but again, the state’s contribution is capped at 10%.

For workers, the nice thing about the plan is that they have a fully portable plan, and one whose assets they own personally, so they can’t be “borrowed” by government and used to buy votes in the way that Social Security funds are, or appropriated by a union and used to buy politicians.

The nice thing for taxpayers is that this plan will eventually cost them only about half what the old system would. It shields them from having to cover the costs of any future stock market declines.

Legislatures in Montana and a dozen other states are looking at this model.

That, dear reader, is truly federalism in action.




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