It’s often joked that finding a person of color in an Abercrombie & Fitch catalog is like playing Where’s Waldo? Likewise, in a country that is only 80% white, it is always suspicious to see political movements that suffer a demographic skew.

While browsing photos of this weekend’s anti-World Bank and anti-IMF protests, we noticed a particularly Vermontish tinge to the protest crowd.  Other than the Metropolitan Police Department officers keeping order, can you spot the non-white protesters?

Not here:

Source: Michael Temchine, The Washington Post

Nor here:

Source: Michael Temchine, The Washington Post

Nor here:

Source: CNN

Pony-tail, check.  Flag desecration, check.  Birkenstocks, maybe. Diversity, nope.

Source: Alex Brandon, Associated Press

Black Bandanna: $5.  Che Guevara shirt: $36.  Criticizing the system from which you lavishly benefit: priceless.

Source: Alex Brandon, Associated Press

“I hear the Gap is having a sale!”

Source: Agence France-Presse

There he is!  Look to the right side of the photo; sail your eyes through the White Sea and there you will get your first glimpse of diversity.

Source: Agence France-Presse

Again!  Just behind ‘NO’.  Almost, missed him, didn’t you?

Source: Alex Brandon, Associated Press

In all seriousness, though, the protest crowd’s lack of diversity is typical for Washington’s protest movements. One might expect this sort of whitewashing on the Right, but from the Left it has become commonplace too.

On the Left, the typical narrative of world oppression a well-worn tale of woe: privileged white society relentlessly oppresses everyone else. Indeed, these protesters seem to aim their anger at the IMF and World Bank for being the ultimate manifestations of this struggle. Unfortunately, under the protesters’ narrative, their own lack of diversity belies their sincerity; they themselves are the privileged set—who, after all, can afford to travel to Washington on such a frivolous pretext?

In addition to demographics (i.e., entirely white, with one or two “exotic” faces), these protest movements also share the same frivolity and ephemeral imagination of an Abercrombie catalog.  Watch as privileged youth frolic on a warm spring day, all dressed in themed couture, exhibiting a casual solidarity.

And, like those models in the catalog, when the seasons change, they’ll move on to the next fashion.

We never thought we’d agree so ardently with Joseph Stiglitz, but he appears to be among the few voices on the Left willing to call out President Obama on the flimsier elements of his economic plans.

We have noted before (to deaf ears, alas!) that the Obama Administration is no stranger to Wall Street.  Not only did Wall Street types donate twice as much to his campaign than to McCain’s, but Mr. Obama then hired Larry Summers as his chief economic adviser.  Before returning to Washington, Mr. Summers, as we noted earlier, “earned” a princely $5.2 million advising the hedge fund D. E. Shaw one day a week for the past two years.  (Talk about lavish executive pay!)

Anyway, Stiglitz, too, has pointed out the blatant conflict of interest in the administration:

“America has had a revolving door. People go from Wall Street to Treasury and back to Wall Street,” he said. “Even if there is no quid pro quo, that is not the issue. The issue is the mindset.”

Stiglitz is also critical of the administration’s stimulus package, since only a fraction of it is destined to be spent in 2009.

The Cold War’s mutually-assured destruction has given way to a one-sided assured destruction: Russians are dying off.

Not only are birth rates far below the replacement level, but the living are drinking, smoking, poisoning, and murdering themselves to early graves.  While most rich countries have managed to reduce deaths from chronic diseases (heart attacks, cirrhosis, etc.) from already low levels, Russians have managed to increase their deaths from higher levels to yet even higher levels.  The average Russian life expectancy today is lower than that of 1950.

Low birth rates and shorter lives are leading Russia to a population decline much faster than those of Germany, Italy, and Japan, which all enjoy long life-expectancies.  Yet unlike Germany, Italy, and Japan, Russia is rich in land and resources, making it an attractive option for investors of the next century.

How does a country manage its population decline smartly?  As the age distribution places a greater portion of people into retirement, per-capita GDP may decline as there are fewer workers.  Additionally, the elderly will require greater care, thus diverting a greater portion of national wealth to their own care.  To compensate for this strain, a slowly dying nation might consider the equivalent of a reverse mortgage, selling off parts of itself to foreign powers and corporations interested in its resources.

Global warming will make Siberia a much more attractive buy over the next few decades and Russia might consider selling parts of it to pay for its increasingly elderly and debilitated population.  China seems like the natural buyer, desperate as it is for oil resources, but perhaps timber companies will place offers, too.

The more interesting question involves what to do with a nation when its citizens have gone entirely extinct, having died off naturally.  The government will have dissolved already, but what will the international community do with the “estate”?

Larry Summers on ABC's This Week

As we have noted before, hedge funds, private equity firms, and their employees donated nearly twice as much to the Obama campaign as they did to the McCain campaign.  After the election, the new administration appointed some of its backers and friends on Wall Street to oversee TARP bailout money.  Few have given much scrutiny to this obvious conflict of interest until now.

On Friday the White House released the financial records of some of the administration’s top advisers.  As it turns out, President Obama’s chief economics adviser, Larry Summers, “earned” $5.2 million advising a New York hedge fund one day a week for the past two years.  Though the President desperately yelped to express his “outrage” at excessive AIG bonuses, he has remained conspicuously mum on the Mr. Summers’s lavish executive pay for such little work in an industry he now oversees.

Some have wondered why the administration has been so harsh on Detroit, threatening bankruptcy and executive firings, while only gently nudging Wall Street banks.  The fact that the administration has drawn so many warm suits and generous contributions from Wall Street suggests Mr. Obama holds his friends in finance to a milder standard.

When the Bush Administration let oil companies draft energy policy and let pharmaceutical lobbyists draft the Medicare drug benefit, Democrats cried foul, and rightly so.

Now Mr. Obama surrounds himself with smart bankers and economists who frequently spin around the revolving door between government and the finance sector, having made a fortune on risky bets and now seeing that the taxpayers are left to clean up the mess.

George Will sarcastically notes that the fuel-efficient-car-of-tomorrow boosterism is moot now that gas is cheap again:

The two best-selling vehicles in America this year are large pickup trucks (Ford F-Series and Chevy Silverado). In February, Toyota sold 13,600 Tundra and Tacoma pickups and 7,232 Priuses. It sells the Prius at a loss, which it can afford to do because it makes pots of money selling pickups. Has the Car Designer in Chief, a.k.a. the president, considered the possibility that what he calls “the cars of tomorrow” will forever be that?

The American car-buyer likes big cars, regardless of fuel-efficiency. If the president wants Americans to move away from gas profligacy—a position that seems to be politically popular—he might suggest raising the Federal gas tax to make fuel efficient cars more financially attractive. Though I think this is a wise idea eventually (raising taxes right now in a recession is unwise), I still hold that a Congress bowing to popular will (as it typically should) will handily defeat any such proposal.

The public may agree with statements that the country is too dependent on oil, but its behavior suggests the complete opposite.  The Obama energy agenda may not be as popular as he might think.

Hastily laying off workers, outsourcing work to temp firms, banning union activities, and reclassifying workers to disqualify them from organizing.  Sound like Walmart?  Actually, it’s what SEIU, one of the nation’s largest labor unions, is accused of doing to its staff.

Perhaps only the most dedicated of philosophers ever asks the meta question as to who will unionize the unions.  In fact there is a meta-union called the Union of Union Representatives (UUR), which has filed a complaint with the National Labor Relations Board accusing SEIU of Walmart-esque labor practices.

SEIU claims it is laying off workers from its DC headquarters so it can reorient its DC operations to lobbying and influence-seeking, rather than such trivial activities like, you know, organizing.

The DC office will not guarantee jobs for organizing employees if they move to local chapters, but if they are hired by locals, the DC office will pay their salaries.  These employees, however, will not be eligible for membership in the meta-union.  The employees may keep their job (though located elsewhere) and get paid by the DC office, but they won’t be able to remain in UUR.

Employees picketed SEIU headquarters recently, thus giving the union’s chief, Andy Stern, a taste of his own medicine.

Public anger over the bonuses paid by AIG was well-deserved, but the resulting tax action by the House was unwise.

The House voted 328 to 93 on Thursday to confiscate via the tax code 90% of retention bonuses paid by recipients of TARP funds.  Though it is a moral hazard to reward bonuses for huge losses, the White House has even admitted that nothing in the TARP rules prohibits recipients from writing out such hefty retention checks in the first place.

Rep. Charles Rangel, the chairman of the House Ways and Means Committee, the committee that writes the tax code, was at first possessed by a rare fit of good judgment in cautioning his colleagues against using “the [tax] code as a political weapon.”  However, as public outrage mounted, Mr. Rangel himself sensed which way public opinion was going and introduced the confiscation measure.  (Mr. Rangel himself is beset by his own tax, rent-control, mortgage, and car scandals, but that’s “none of your goddam business.”)

This tax risks poisoning the TARP program altogether since banks will balk at terms that require them to abrogate existing contracts and that force them to lose necessary talent to competitors. It also sets an example that all future business decisions are subject to political, not economic, scrutiny.  Though it is fair that recipients of public money be held to public standards of accountability—as politicized as that may be—it is important that Congress and the Treasury view these banks as investments; when they lose, the public loses.

Even if both houses pass the measure and the President signs it (his press secretary says he’s open to the idea), it will face Constitutional challenges in the courts for several reasons:

It is a bill of attainder, which punishes people or a group of people without the benefit of a trial.  Since Members of Congress have already publicly expressed that the purpose of the bill is to punish a particular group of people, they may have unwittingly proven the case to a court that their intention was never to set a national tax policy, but rather to react against an act that benefited a short list of people.

Similarly, the bill denies due process.  The Fourteenth Amendment stipulates that the government may not “deprive any person of life, liberty, or property, without due process of law.”  However unwise the bonuses were, they were lawfully distributed, and an explicitly confiscatory tax against this group of recipients without any sort of trial deprives the recipients of any sort of due process.

Furthermore, the tax is an ex post facto law, confiscating income already lawfully distributed.  Though Congress certainly has the authority to tax and to tax income already distributed (i.e. existing wealth), the power to tax involves the power to destroy, and there is no doubt as to the inention of this onerous 90% tax rate.

The bonuses amount to a tiny fraction of a sliver of the TARP, but as we have argued before, even a small portion misspent is still irresponsible.  Nonetheless, some commentators on the Right have labeled this row “cosmic myopia” and a “bonfire of the trivialities.”

Ideally, Congress and the Administration would tie future compensation packages to performance, but in the rush for due accountability, we cannot ditch the rule of law.

Photo: Susan Walsh, AP

The revelation of AIG’s extravagant bonuses is renewing calls for the Treasury to replace the leadership of bailed-out firms.  If these people brought their banks to such dire circumstances in the first place, so the thinking goes, they have proven their incompetence.  Fire them all, many say.

Though Monumentality hardly defends failed enterprises, one must wonder if the latest calls for executive firings would bring about the same calamity as de-Baathification did in Iraq.

When in 2003 the Coalition Provisional Authority, under L. Paul Bremmer, dismissed all senior officials of Saddam Hussein’s government, the result was a national Iraqi government devoid of leadership.  By categorically branding former officials as tainted, their replacements— a melange of political hacks, amateurs, and empty seats— ran the new Iraqi government FEMA-style.  We all know how that turned out.

Similarly, in the frenzy for well-deserved executive accountability at AIG and other firms, the Treasury should avoid repeating the mistakes of Baghdad.  Though executive boards and management (and the rank-and-file, too, to some extent) oversaw dodgy deals, they are ipso facto the people with the most knowledge of what deals need undoing.

Certainly it is possible for new-hires to gain the necessary institutional knowledge to lead these firm to a recovery, but it takes time.  Though the President is fond of solving all problems all at once, retribution and recovery are best served in separate courses.

The Treasury must not damage the viability of its (well, our) investments tomorrow for the sake of exacting a pound of flesh today.

Larry Summers on ABC's This Week

The hypocrimeter dinged loudly this morning when Larry Summers, the President’s top economic adviser, described the folly in rewriting bailout terms with A.I.G.  after the ink had already dried.  George Stephanopoulos brought up a breaking story that A.I.G., which had received a bailout loan from the Federal Reserve in late 2008, was issuing $1b in bonuses to some of the same employees who drove the company to the brink.  Since the terms of the Federal bailout did not preclude such compensatory profligacy, Summers said it would not be possible to force the company to withold the bonuses.  Summers told Geroge Stephanopolous on This Week,

Look, if you start changing the rules ex post [facto] on financial contracts— these kinds of contracts— you may get a feeling of satisfaction in the short-run, but the President said something very, very important, George, in his state of union speech: he railed and spoke very powerfully against what has happened, then he said but we can’t govern out of anger. And what’s being done here— no one wants to be doing these things, no one wants to see money going for this purpose with all the needs that our country has— but at the same time if we don’t, um, contain this situation, if we don’t respect laws on which people reasonably rely, the potential chaos, disruption, lack of credit, resulting unemployment will be that much greater.  Those are the agonizing judgments that our financial authorities have to make.

Summers is right.  Upholding contracts is a key part to upholding the rule of law and it reduces the risk of economic ventures.  When contracts are enforced properly, both parties have greater faith in the system and are thus more willing to invest in ventures whose risk would otherwise discourage investment.  If debtor banks learn that the terms of their bailout loans will blow with the political winds, banks will be less likely to take the necessary loans and stockholders in existing banks will lose faith and sell their shares.

The hypocrisy, however, lies in the Administration’s support of “cram-down” provisions that would allow bankruptcy judges to modify the loan terms (principal and interest rates) of mortgages for bankrupt homeowners.  If it is calamitous to rewrite financial contracts ex post facto, as Summers says, why does the Administration support rewriting the financial contracts between lenders and bankrupt borrowers?

A cram-down provision raises the uncertainty of mortgages, since a bankruptcy judge could rewrite the terms in a way unfavorable to a lender.  Lenders will likely respond to this added risk preemptively by adding a risk premium to interest rates.  Thus, to save some current insolvant borrowers, future borrowers must suffer.  But as we have written before, handing out political favors now at the expense of the future is easy. After all, the future can’t vote yet.  At least the Administration will, to quote Summers, “get a feeling of satisfaction in the short-run.”

Robert J. Samuelson in the Post reiterates my point (though I doubt he reads Monumentality) on how the President’s budget, entitled A New Era of Responsibility, is anything but responsible.

If Obama were “responsible,” he would conduct a candid conversation about the role of government. Who deserves support and why? How big can government grow before higher taxes and deficits harm economic growth? Although Obama claims to be doing this, he hasn’t confronted entitlement psychology — the belief that government benefits once conferred should never be revoked.

Is it in the public interest for the well-off elderly (say, a couple with $125,000 of income) to be subsidized, through Social Security and Medicare, by poorer young and middle-aged workers? Are any farm subsidies justified when they aren’t essential for food production? We wouldn’t starve without them.

Given an aging America, government faces huge conflicts between spending on the elderly and spending on everything else. But even before most baby boomers retire (in 2016, only a quarter will have reached 65), Obama’s government would have grown. In 2016, federal spending is projected to be 22.4 percent of GDP, up from 21 percent in 2008; federal taxes, 19.2 percent of GDP, up from 17.7 percent.

I’m still waiting for a President willing to tell the truth: that we should pay the higher taxes necessary to fund the services we demand, or, more broadly, that we can’t always get what we want.

Now that would be an act of responsibility.

When real estate prices deflate and consumer spending dives, does gentrification wither? In real estate, sale prices and rents are “stickier” when falling than when rising. Thus, rents and prices should not fall as fast as a drop in consumer spending warrants. Consequently, shops suffer this gap between revenue declines and rent declines, causing them to go out of business much faster than they otherwise would.

The New York Times discusses an example of this unfortunate process playing out right now in the once-gentrifying Eagle Rock neighborhood of Los Angeles.  The paper notes that

The deep recession, with its lost jobs and falling home values nationwide, poses another kind of threat: to the character of neighborhoods settled by the young creative class, from the Lower East Side in Manhattan to Beacon Hill in Seattle. The tide of gentrification that transformed economically depressed enclaves is receding, leaving some communities high and dry.

However, these gentrified neighborhoods did not just change economically.  They changed socially, too, attracting a base of residents with the  job skills, education, and worldly curiosity to support a variety of local retail shops.  Even when these shops that opened under brighter economic times shutter their doors due to a souring neighborhood economy, the intrinsic demand sparked by the changing neighborhood culture does not disappear.

When happy days are here again, these neighborhoods will likely sprout coffee houses, soap shops, thai restaurants and the like rather than pawn shops, tatoo parlors, and car repair shops of the long-gone decades of disinvestment.

Are you running up hefty credit card bills on expensive dates to impress women?  Dude, careless extravagance is so 2007.  This economy is impairing the dating scene for America’s go-getters, as more Ivy League  i-bankers exchange coke lines for bread lines:

“It’s been incredibly stressful for me,” said Neil Welsh, 27, the guy in the suit, who until last year was marketing director for a booming real estate company. “I was so used to using my financial situation to leverage my dating.”

The horrors!  While some families worry about buying groceries, ambitious, single twentysomethings fret that potential mates might have to judge them on personality and character instead of W-2 forms.

Though this economy is inflicting real pain on millions of people, one small benefit is that it’s forcing our society to re-evaluate our priorities and materialistic attitudes.

It’s official.  The White House now picks winners.

After the Senate failed to agree to auto bailout legislation, President Bush today announced that the Treasury will lend $17.4 billion to GM and Chrysler (two will likely merge) to prevent their imminent collapse.  Though their collapse would have disastrous economic consequences in certain rustbelt states, the action marks yet another step in the unwitting construction of a national industrial policy.

Though the loans’ terms require the companies to restructure their operations drastically, the public should remain skeptical.  If politicians employ the specter of increased joblessness to justify such an unprecedented level of Federal intervention, these same reasons can be used to modify these loan terms to preclude substantive restructuring.  Any decent analysis of the auto industry will conclude that GM and Chrysler, in order to survive, must make several politically unpopular steps: they must lay-off employees right away to reduce production to meet lowered demand, they must produce cars people actually want to buy, and they must cut the wages and benefits of their new-hires and those of their  long-time employees and those of their retirees.

Now that public money is put at risk to assist two poorly run companies restructure, many will view this public investment as an excuse to demand the automakers not make the necessary job, pay and benefit cuts.  After all, why should laid-off employees pay taxes to fund their own layoffs?

What a shame that the Administration in its decision to pick winners has picked two losers.

South Sea Bubble, by Edward Matthew Ward, hangs in the Tate.

A widespread financial calamity in an election year lends itself more to the scapegoating of Wall Street than to the pursuit of a calm, reflective truth.  After all, the rich and powerful few are an easy target since their numbers are small and society does not deem them to be bearers of legitimate social grievances.

Harry Truman, who left office almost as unpopular as Pres. Bush, jokingly demanded a one-handed economist since all those presented to him offered nuanced explanations of causes and consequences.  Price floors ensured affordability on one hand but reduce the supply on the other hand.  Much of economic thought is a dialectic of trade-offs.  Consequently, economic decisions resemble the moral evaluations of a Utilitarian philosopher: the rightness (or wrongness) of an action depends on its net benefit after accounting for both sides of the equation.

Basic market theory is premised on the freedom of contract and the scarcity of goods and services desired.  Economic transactions require the complicity of more than one party.  When the buyer and seller willingly and knowingly accept a price, a rightful exchange occurs.

Since public opinion (and office-seekers pandering to public opinion) have leveled enough criticism at the masters of Wall Street, I will be among the few voices willing to suggest that it takes two to do the tango mercado.

I came across several writers of the past few weeks referring to Scottish journalist Charles Mackay’s book Extraordinary Popular Delusions and the Madness of Crowds.  This 1841 book recounts numerous popular follies, hoaxes, myths, and deceptions.  The first three chapters are popular among economists for their descriptions of three different early-modern economic bubbles: France’s Mississippi Company (Compagnie du Mississippi), the Netherlands’s Tuplipomania, and Britain’s South Sea Company.

The South Sea Company in Britain issued stock in the early 18th century promising vast riches in trade with the Spanish colonies in South America.  Never mind the fact that Spain, a strict mercantilist empire, had no desire for free trade with European competitors.  Speculators bought the company’s stock and drove the price to unrealistic heights.  The company’s revenues were a pittance compared to its share price, but the temptation of getting rich quick didn’t temper the public appetite one bit.

Finally, the stock price crashed, nearly wrecking the British financial system in its fall.

With the a lecturing tone, Mackay writes:

Public meetings were held in every considerable town of the empire, at which petitions were adopted, praying the vengeance of the Legislature upon the South-Sea directors, who, by their fraudulent practices, had brought the nation to the brink of ruin. Nobody seemed to imagine that the nation itself was as culpable as the South-Sea company. Nobody blamed the credulity and avarice of the people,—the degrading lust of gain, which had swallowed up every nobler quality in the national character, or the infatuation which had made the multitude run their heads with such frantic eagerness into the net held out for them by scheming projectors. These things were never mentioned. The people were a simple, honest, hard-working people, ruined by a gang of robbers, who were to be hanged, drawn, and quartered without mercy.

Likewise, neighborhoods of $800,000 McMansions sprang up in far-flung exurbs and few seriously questioned the true value of these homes, that, in sober times would have likely fetched half the price.  The builders sold at prices that buyers would tolerate and borrowers agreed to lending terms that banks would tolerate.  Never mind that the highly-leveraged houses people were buying were terribly overpriced—when credit is easy and housing prices continue to rise at unrealistic rates, the only restriction is personal caution.

When the housing prices plummeted (falling the fastest where they rose the fastest), one could hear the moans of those unwise buyers, who, not too long ago presumed perpetual price appreciation, threw caution into the wind and signed sales agreements for homes that were fundamentally overpriced.  Now they were stuck with white elephants caged in far-out cul-de-sacs of dubious intrinsic value.

The populist howls could be heard from Captiol Hill and it took little time for Members of Congress to pull out their compasses and point their fingers norteastward at Wall Street.

Aside from cases of predatory lending, the blame of unrealistic housing price inflation rests mutually with lenders and borrowers.  Those who bought houses at unrealistic prices abetted the price increases and did their part to inflate the bubble slightly more with each purchase. Even when the rent-versus-buy formulas clearly pointed in favor of renting, the desire to hitch one’s fortunes to soaring prices overruled better financial judgment.   Mortgage lenders repackaged their loans and passed them on to investors. What did it matter to them if what they were passing on wasn’t as strong as they had claimed? Likewise for borrowers: what would it matter if a house were overpriced if it could be sold quickly at an even more outrageous price?

Careless lending gleefully skipped hand-in-hand with careless borrowing. Now that prices are drifting downward to realistic and sustainable numbers, Mackay’s successors may end up chronicling the opening years of the twenty-first century as a time when the American Dream became reality, and, as many are now learning, a time when that reality was really a dream.

Here are three varying takes on the potential GM bailout.

On the Left, Jeffrey Sachs believes the Detroit automakers are indispensable employers in several rustbelt states whose economic decline would severely damage the rest of the national economy.  He fails to explain why this is or how Michigan, in economic decline for many years, didn’t manage to bring down the entire national economy with it.

Sachs also claims that there is huge global growth in auto purchases, but somehow assumes that foreigners, like Americans, would be reluctant to purchase vehicles from a bankruptcy-protected company.  That remains to be seen.

Sachs also partly absolves Detroit from the blame of the decades of mismanagement:

Some want to see the industry punished for its neglect of energy and environmental realities, but we should acknowledge that the SUV era reflected poor judgment across society. Yes, the industry ignored warnings about energy insecurity and climate, but so did the public and politicians.

Curiously absent from Sachs’s article is any mention of Toyota and Honda, two companies that invested in and started producing low-emissions and hybrid vehicles even when gas was significantly cheaper.  One wonders why GM, Ford, and Chrysler didn’t do the same.  Perhaps a lack of vision even when the increase of oil consumption was clearly outpacing the increase in supply?  One cannot so easily blame Detroit’s decline on “the system” when both Toyota and Honda are a part of the same system and not flirting with bankruptcy.

What is Sachs’s motive?  He seems intent on nationalizing Detroit automakers as a means of promoting various pet projects such a fuel cell cars, a new technology GM is within two years of producing—so they say.  If such a great revolution is within short reach, certainly there are private investors willing loan the company money for fuel cell vehicle production.  However, many doubt GM’s claims on the fuel cell Volt and Sachs wishes the government to act as an investment house for ideas that, if they were good on their own merits, could easily fetch private investment without the help of the Treasury.

Sachs mentions nary a word on the political realities the government money in any bailout.  Such funds would inevitably be directed to over-employ and over-pay people in politically powerful districts to produce cars that simply won’t sell.  State capitalism is not capitalism as any investment will inevitably be held hostage to various vocal political constituencies.

The Washington Post’s center-right economist Robert Samuelson lukewarmly advocates a bailout.  He asserts that a bankruptcy, even under Chapter 11, will damage the economy (again, unexplained).  However he also asserts that any bailout must not suit political goals (as Sachs would prefer).  Samuelson writes,

But neither does it make sense simply to heave taxpayers’ money at automakers. The goal is not to rescue the companies or workers; it’s to shore up the economy and improve the U.S. industry’s competitiveness. A bailout won’t succeed unless other things also happen.

He lists three things that must be done in order to make a bailout worthwhile to the taxpayers:

1. GM must shutter plants it does not need.
2. Workers’ lavish pay, benefits and pensions must be renegotiated to compete with other automakers.
3. The government must mandate lower fuel consumption, either through mandated increases in efficiency or through hikes in gas taxes.

But the devil is in the details, Mr. Samuelson.  How exactly does Samuelson expect the a recipient of public funds to lay-off thousands of taxpayers?  GM will find it hard to make business decisions that hurt separate communities when their public investment itself was premised on saving “the economy.”  If you’re in a town whose GM plant is about to close, surely you’d think that the closure is not saving your economy.

Furthermore, just as the Bush administration retained close ties to its corporate backers, the Democrats now coming into power will remember who funded their ascent: Big Labor.  Samuelson quotes the UAW President as saying that a bailout is necessary “so that auto companies can meet their health-care obligations to more than 780,000 retirees and dependents.”

At least the UAW is honest in its assessment of GM.  General Motors is an HMO that, by the way, just so happens to produce a few automobiles on the side.

Finally, government mandates for higher fuel efficiency have always met strong opposition from both Detroit’s auto executive and the UAW, the latter fearing that such standards will put their members out of work.  It’s unlikely the UAW is suddenly going to drop its opposition in the name of the public interest.

On the Right, NYU Law School professor Michael Levine, a former airline chief (probably familiar with bankruptcy!), makes a compelling case that Chapter 11 is the most thorough way to free the company from various laws and labor agreements that have served to increase the industry’s employment while diminishing the industry’s efficiency.  The obstacles GM faces are intimidating and better overcome through bankruptcy protection than through political goodwill, which, let’s face it, often favors sound-byte populism to sound macroeconomics.

Levine lists several of the challenges:

GM has about 7,000 dealers. Toyota has fewer than 1,500. Honda has about 1,000. These fewer and larger dealers are better able to advertise, stock and service the cars they sell. GM knows it needs fewer brands and dealers, but the dealers are protected from termination by state laws. This makes eliminating them and the brands they sell very expensive. It would cost GM billions of dollars and many years to reduce the number of dealers it has to a number near Toyota’s.

Foreign-owned manufacturers who build cars with American workers pay wages similar to GM’s. But their expenses for benefits are a fraction of GM’s. GM is contractually required to support thousands of workers in the UAW’s “Jobs Bank” program, which guarantees nearly full wages and benefits for workers who lose their jobs due to automation or plant closure. It supports more retirees than current workers. It owns or leases enormous amounts of property for facilities it’s not using and probably will never use again, and is obliged to support revenue bonds for municipalities that issued them to build these facilities.

The political pressure to resist any change to this stifling system is too powerful and will inevitably ruin the solvency of any nationalized (and thus politicized) automaker.  If GM were to receive government money, what’s to stop it from demanding even more cash six months later?  Twelve months later? Two years later?

•••

Lots of people see GM and project onto it different ideals.  Some see a social service provider obligated to provide what the state does not and never did.  Others see it as an environmental and geopolitical silver bullet to reduce environmental strain and reduce the power of oil dictators.  Others see it nostalgically as a symbol of American manufacturing prowess.

A bankruptcy judge is best positioned to see GM in a different view—not GM as cradle-to-grave patriarch, not GM as Jonas Salk of the skies, not GM as Winston Churchill of oil politics, and not GM as Neil Armstrong.  A bankruptcy judge is best suited to view GM in a new light, i.e. as a car company.