Former Car Czar Pulls A George W. Bush

The Arrogance and Delusion of the Car Czar and President Bush

Well its official! The Iconic auto maker, General Motors, is now fixed and likely to have a bright and prosperous future to look forward to. At least that was the rosy picture painted by Steven Rattner, the man that President Obama picked to head up the Federal Government's bailout of the auto industry. Indeed, Rattner sounded very confident about GM's future when talking with Aaron Task and Dan Gross of Tech Ticker. Though many experts have pointed to a rough road ahead for GM, the former car Czar (as he came to be known while navigating the Government's restructuring of the auto industry) seemed wildly optimistic in comparison. Rattner sharply contradicted the critics of GM's bailout and future prospects. According to Rattner's view, the Obama administration is credited with saving the failing auto giant and there is every reason to be bullish on GM's prospects after the IPO. He tells Aaron and Dan in the interview that "With all things being equal in the market and the economy there's only upside in this stock". Of course it shouldn't be surprising to anyone that Rattner has a favorable view of the turnaround efforts that he was assigned to by the Obama administration and is spinning GM's future to be filled with potential. After all, he was in charge of these efforts so he has every reason to defend the necessity and quality of the actions taken. However, in a surprising moment (at least I thought so) in the interview, Rattner goes beyond just being bullish on the future business prospects of General Motors or spinning the politics of the Government bailout that he managed. The moment I am referring to comes when Rattner utters a statement that I find to be very reminiscent of President George W. Bush's now infamous "Mission Accomplished" speech, given in 2003, shortly after the Iraqi invasion was initiated. Just as Bush projected a sense of arrogance and delusion by making this boastful, announcement, Rattner also reeks of hubris when he says "I think we can declare victory". Now just take a step back and realize that he is referring to the Government managed turnaround of General Motors. Yes, you read correctly, Rattner is clearly saying that the Government bailout was an unequivocal success. Going, back to my earlier comparison to Bush, I think the similarities are striking. Bush of course climbed aboard the USS Abraham Lincoln aircraft carrier to inform the public that major combat in Iraq had ended. In reality the Iraq conflict was just getting started and our military is still risking life and limb to maintain security in Iraq. I think it is likely that Rattner's recent declaration of victory will eventually look just as out of touch with reality as Bush's victory speech.

Reality Check!

Real life is way different than Mr. Rattner seems to believe it is. Or at least it is way different than he would like us to believe it is! Although GM has been able to re-build some momentum (Thanks to US Taxpayers), most sane people with any knowledge of the situation would agree that Rattner's assessment is extremely premature. GM did just post a $2 billion profit in the 3rd Quarter and their upcoming IPO is expected to raise an additional $10 billion of additional capital. All of this sounds great, but GM hasn't even paid back 25% of $50 billion that they owe to the U.S. Taxpayers yet. Rattner even concedes in the interview that taxpayers may never be paid back in full (Yet, somehow he still considers this a victory?). Other problems include the fact that there is no evidence that Government support and intervention did anything to solve the problems with GM's organizational culture and structure. The company is still burdened by a costly unionized labor force that is paid substantially higher wages than the competition's average worker. They also still have the problem of an underfunded pension plan and an executive management team that really doesn't have that great of a track-record at solving problems. Then there is the issue of the Chevy Volt. This is the much hyped plug-in hybrid electric vehicle that GM is staking its reputation on. Scheduled to come out in 2011, the early media coverage of test drives have not been that positive. In fact, most of the reports I have read about the Volt have been pretty negative so far. Plus GM thinks they can sell this thing for $40,000 or more. That brings me to my last point about the reality facing GM. The U.S. Economy is still extremely weak and it is very possible that it will remain weak or even go into a free-fall again. In order to grow sales of new cars, especially those priced at $40,000, GM needs the economy to stage a major recovery. This may not happen for some time. Of course Rattner ignored all of these risks to GM's viability going forward. He is convinced that the Government won the struggle to save General Motors and proved that an interventionist strategy can, not only work, but be preferable. Either that or he is just a liar. Regardless, victory is anything, but a sure bet.

Government Needs to Step Back

I think there is a valuable lesson that should be learned from this unexpected comparison between Bush and Rattner. This lesson would be that Government is not qualified to correct the failures of private enterprise (or re-build nations, but that is a topic to be looked at more deeply another time perhaps). One of the key reasons is their perception (or misperception) of victory. Politicians and various appointed officials are often vastly overconfident about the capacity of Government to solve problems. Despite the fact that many in Government haughtily, think businesses need their help and that consumers need their protection, the truth is much different. The incentives that drive Government are profoundly, misguided, leading to a false perspective on victory. The Government's view of "Victory" and "Success" is very different from that of the individual citizen or the small business owner. A logical individual would never forcibly take money (taxation) from members of his community, loan it to some person or organization, and then declare his actions to be profitable after only 20% had been paid back. Assuming we are discussing a rational, honest human being, this person would only consider success to be full payment of the borrowed funds (probably with interest). Also, this individual would not just take the money, they would offer up a plan in order to solicit the funds from those willing take the voluntary risk. Most small businesses, private charities, and even large corporations operate on the basic principal that achieving success means providing value to customers and generating returns for those willing to invest in their activities. True not everything always ends up perfect in the private sector either. Individuals are capable of fraudulent activities and businesses are not always 100% honest. Even if they are their business plans do not always pan out. If they did GM would have never gotten into trouble in the first place. However, assuming a free-market system, at least there are forces that work to correct and minimize bad results and bad behavior. Dishonest or unnecessary businesses will eventually lose customers and fail, making more room for the honest and competent to succeed in the market. Some will always fail to learn and resort to bad behavior or short cuts to succeed in the market, but overall there is an overriding incentive to do things the fair and honest way. Again this is assuming a free market economic system, free of expensive Government subsidies and oppressive regulatory controls that manipulate behavior and disrupt both consumer and business activity. Unfortunately, Government is a much different story. There is little in the way of consequences to hold Government accountable for misdeeds and even outright corruption. In fact many in Congress and in the White House are rewarded with high profile jobs at lobbying firms, regardless of how things went during their time in office. This leads into my earlier point about the incentives of Government appointees and politicians being completely warped and detached from what they should be. There are a myriad of other reasons as well, but one big thing that distorts the incentives of those in Government is the culture of lobbying that is prevalent in Washington. Money from lobbyists influences elected officials and their appointees to support and implement policies that ultimately benefit the interest groups bankrolling (bribing) the campaigns. You can see evidence of this in Rattner's assessment of GM. Given that unions and the United Auto Workers (UAW) in particular are such an important funder and voting block for the Democratic party, it is not hard to see why Rattner is so quick to declare himself and the Government victorious. In his eyes, millions of union jobs have been saved from the consequences of a poorly managed enterprise failing and that is all that matters. The fact that taxpayers are not yet paid back and may never be is just a side note. After all, the Government just borrows and prints to pay their own bills anyway, so why worry if a politically sensitive company doesn't ever pay back what they owe to the American people. The other point I will make about the distorted incentives of those in Government is the impact of the election cycle on their perspective. Because elections must be won by convincing the public to vote for your side, political types are often very short-term in their thinking. Quick fixes, and schemes that are designed appease the popular beliefs gripping the masses at any given time, are of much more value to the politicos than long-term planning and commitment. Again the whole situation with GM and the auto industry is a great example of this. GM still has many long-term problems, but that doesn't matter to Obama or Rattner, they are both happy to save GM for now, pat themselves on the back, and let the real problems continue until they end up blowing up in the face of another administration later. Obama is likely to spin this as one of the successes when he is up for re-election in a couple of years and Rattner of course is already bragging to boost his own image. Yeah, both men are probably smart enough to realize that there are still long-term problems left un-addressed, but so what the unions will remain in the pockets of the Democratic party and the Obama administration doesn't have to worry about coming up with a real economic plan to create jobs for the 3 million plus that would have been unemployed.

Citizen Beware!

So, just remember, next time you see some public servant (LOL!) commending themselves and their political bosses for a giant "success" or "victory" that has been supposedly achieved, take it for what it is. Victory for the Government is often the opposite of victory for the country as a whole. Due to the unbalanced motivations of Washington a Government official's victory is probably your loss!