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Tuesday, June 2, 2009

Obama's GM Albatross

Now that the federal government owns GM, they own GM in everyway political, economically, along with structurally. The GM bailout is now the most unpopular domestic policy of the Obama administration (GITMO is his most unpopular foreign policy). For President Obama, it will only get worse.

Byron York wonders today if "GM Bailout Will Be Obama's Tipping Point".

Observers across the political spectrum have marveled at Barack Obama's ability to maintain a high job approval rating even as the public grows skeptical about some of his key policy initiatives. There's a feeling, among Republicans at least, that sooner or later he’s going to reach a tipping point between his personal popularity and the unpopularity of his proposals, and that his job approval rating will suffer. That moment will come when Obama has to actually stand behind specific proposals -- when he has to put his name on a health care plan that will lead to the rationing of medical treatment, or an energy plan that will lead to significantly higher electrical bills.

There is no doubt that this time next year, either Obama's policies will be as popular as the president, or Obama will be as unpopular as his policies. By this time next year, either Obama will have broken his promise on GITMO or he will have moved forward with a policy overwhelmingly opposed by the public. By this time next year, we'll either still be in the middle of a recession or we'll face massive inflation stimulated by the recovery. So, Obama faces serious threats to his popularity.

Ultimately, the fate of the economy is tied entirely to just how badly Obama will be hurt politically by running GM. That was one of the things debated on the O'Reilly Factor last night. O'Reilly doesn't think that Obama will be hurt as long as the economy recovers. Of course, that's a big if.

What's more important is that by running GM, President Obama is advancing bad economic policy. It's not only that it will ultimately be bad for GM. What's worse is that by tying himself so tightly to GM, the president now makes GM's survival a major portion of his overall economic policy.

The real problem with the government running GM is that you will simply not get around not only politics confronting economics but the inherent conflicts of interest of all of this. For instance, is there any doubt that government fleets will now buy GM not Ford? We got a preview of how this will work when the Congress pressured the president who pressured GM so that a plant wouldn't be closed and moved to China. What will happen the next time GM tries to move jobs overseas in order to save money? The politics of such a move are simply unacceptable and you can bet the president will veto any such action. Will powerful Congress persons be able to force a plant to stay open in their district?

The president is well aware of the political problem with all of this. That's why two members of his task force wrote an oped to insist that the government will be a passive investor in GM. It's impossible for this to happen. It's one thing if I invest in a company and become a silent partner. In this case, it's the public's money. Will the president really do nothing the next time it's reported that GM execs go off on an expensive weekend? Will the administration really stand by if GM tries to build cars that aren't fuel efficient?

With every decision, the Obama administration will be that much more married to the company itself. GM is a long way away from being profitable. Furthermore, it will be made worse by government intervention. Each and every decision will be yet another example of the government running the company despite saying they aren't running the company. It will wind up a drip factor that gets worse with every decision made by the government. By November of 2010, the economy is not likely to look good and the government's takeover of GM can be used as a bludgeon against the administration's economic policies as a whole. The public is already against the bailout. This will only get worse as the administration actually begins the long process of actually running the company. The policy is very unpopular and it will only get more unpopular as it unfolds.

1 comment:

Anonymous said...

You have to think that at some point the government is going to offload its shares in GM.

I know the UAW already said they were going to do that because they can't afford to just sit on their shares when they have pension and health payments to make.