Back from vacation, I’m catching up on things I missed last week. Dan Ikenson did a fine job on President Obama’s boasting about how he saved the automobile industry. But a few days later Glenn Kessler, the Washington Post‘s “Fact Checker,” was more brutal:

We take no view on whether the administration’s efforts on behalf of the automobile industry were a good or bad thing; that’s a matter for the editorial pages and eventually the historians. But we are interested in the facts the president cited to make his case.

What we found is one of the most misleading collections of assertions we have seen in a short presidential speech. Virtually every claim by the president regarding the auto industry needs an asterisk, just like the fine print in that too-good-to-be-true car loan.

Here’s a sample of the specific analyses:

“GM plans to hire back all of the workers they had to lay off during the recession.”

This is another impressive-sounding but misleading figure. In the five years since 2006, General Motors announced that it would reduce its workforce by nearly 68,000 hourly and salary workers, creating a much smaller company. Those are the figures that generated the headlines.

Obama is only talking about a sliver of workers — the 9,600 workers who were laid off in the fourth quarter of 2008.

And that’s why President Obama’s speech was awarded Three Pinocchios.

President Obama and the Auto Industry is a post from Cato @ Liberty - Cato Institute Blog

• It is false to assume that GM’s earnings report means the auto bailout was a success.
• It is false that, among other things, failing to raise the debt limit means defaulting on our obligations.
• It is false that Osama bin Laden’s death means torture is a good idea.
• It is false that international institutions can deliver what they say they can deliver.
• It is false that oil speculators are to blame for fluctuating oil prices:

Monday Links is a post from Cato @ Liberty - Cato Institute Blog

Media are reporting this morning that the Treasury has decided to hold off on selling any of its remaining 500 million shares of General Motors stock until at least July. The Obama administration had hoped to divest as soon as possible  after May 22, but GM’s stock price hasn’t been cooperating.

As much as the president doesn’t want the odor of nationalization following him on the campaign trail, the administration is equally concerned about having to explain why it took a $10 billion to $20 billion direct loss by divesting when it did. By deferring sales until July, the administration presumably is hoping for a stock price boost from second quarter earnings. But that is unlikely for several reasons, which I explained in the Daily Caller yesterday. Here’s the gist in a few passages from that op-ed:

The soonest the U.S. Treasury can sell the remaining 500 million shares (according to terms of the initial public offering) is May 22, but the administration would also like to “make the taxpayers whole.” The problem for the president on that score is that the stock price — even in the wake of this week’s earnings report — isn’t cooperating. As of this morning’s opening bell, GM stock was valued at $31.07 per share. If all of the 500 million remaining publicly-owned shares could be sold at that price, the Treasury would net less than $16 billion. Add that to the $23 billion raised from the initial public offering last November, and the “direct” public loss on GM is about $11 billion — calculated as a $50 billion outlay minus a $39 billion return.

To net $50 billion, those 500 million public shares must be sold at an average price of just over $53 — a virtual impossibility anytime soon. Why? The most significant factor suppressing the stock value is the market’s knowledge that the largest single holder of GM stock wants to unload about 500 million shares in the short term. That fact will continue to trump any positive news about GM and its profit potential, not that such news should be expected.

Projections about gasoline prices vary, but as long as prices at the pump remain in the $4 range, GM is going to suffer. Among major automakers, GM is most exposed to the downside of high gasoline prices. Despite all of the subsidies and all of the hoopla over the Chevy Volt (only 1,700 units have been sold through April 2011) and the Chevy Cruse (now subject to a steering column recall that won’t help repair negative quality perceptions), GM does not have much of a competitive presence in the small car market. Though GM held the largest overall U.S. market share in 2010, it had the smallest share (8.4%) of the small car market, which is where the demand will be if high gas prices persist. GM will certainly have to do better in that segment once the federally mandated average fleet fuel efficiency standards rise to 35.5 miles per gallon in 2016.

Deservedly reaping what it sowed, the administration finds itself in an unenviable position. It can entirely divest of GM in the short term at what would likely be a $10-to-$15 billion taxpayer loss (the stock price will drop if 500 million shares are put up for sale in a short period) and face the ire of an increasingly cost- and budget-conscious electorate. Or the administration can hold onto the stock, hoping against hope that GM experiences economic fortunes good enough to more than compensate for the stock price-suppressing effect of the market’s knowledge of an imminent massive sale, while contending with accusations of market meddling and industrial policy.

Or, the administration can do what it is going to do: First, lower expectations that the taxpayer will ever recover $50 billion. Here’s a recent statement by Tim Geithner: “We’re going to lose money in the auto industry… We didn’t do these things to maximize return. We did them to save jobs. The biggest impact of these programs was in the millions of jobs saved.” That’s a safe counterfactual, since it can never be tested or proved. (There are 225,000 fewer jobs in the auto industry as of March 2011 than there were in November 2008, when the bailout process began.)

Second, the administration will argue that the Obama administration is only on the hook for $40 billion (the first $10 billion having come from Bush). In a post-IPO, November 2010 statement revealing of a man less concerned with the nation’s finances than his own political prospects, President Obama asserted: “American taxpayers are now positioned to recover more than my administration invested in GM, and that’s a good thing.” (My emphasis).

The administration should divest as soon as possible, without regard to the stock price. Keeping the government’s tentacles around a large firm in an important industry will keep the door open wider to industrial policy and will deter market-driven decision-making throughout the industry, possibly keeping the brakes on the recovery. Yes, there will be a significant loss to taxpayers. But the right lesson to learn from this chapter in history is that government interventions carry real economic costs.

Obama’s GM Quagmire is a post from Cato @ Liberty - Cato Institute Blog

I don’t particularly relish picking on a president who, on virtually every policy front, is showing all the markings of a man in way over his head.  But the president’s actions and statements are becoming excruciating to watch—like a highly-touted Olympic figure skater who can’t complete a maneuver without falling to the ice. 

President Obama’s salutary statement about GM’s IPO yesterday reveals a man so focused on defending his policies that he can no longer conceal the incongruity between his political objectives and the country’s imperatives.

American taxpayers are now positioned to recover more than my administration invested in GM, and that’s a good thing. (My emphasis)

Besides revealing the president’s preference for LIFO accounting procedures, the statement strikes me as sub-presidential.  Shouldn’t the POTUS be concerned about  American taxpayers getting back all of the money invested in GM?  Even though former President Bush is complicit, shouldn’t the sitting president of a country that owes its wealth, freedom, and future to the endurance of the rule of law and the other long-standing, bedrock institutions that were defiled and abused to bail out two automakers issue a statement of regret and reassurance that such extreme measures will never be undertaken again? 

I think President Obama missed an opportunity to make amends, build a bridge, and reassure businesses and investors that the White House will do its part to reduce the economy-stifling problem of regime uncertainty going forward.  But, then again, that might have been too presidential for a politician who appears motivated more by avoiding blame than by advancing the country’s best interests.

President’s Statement about GM IPO Reveals a Defensive Politician is a post from Cato @ Liberty - Cato Institute Blog

There seems to be a lot of confusion about the meaning of GM’s IPO today.  A common narrative in today’s media is that GM’s return to the stock market affirms the wisdom of the auto bailout.  Some tougher customers in the media insist on a higher threshold being met—that taxpayers get back the entirety of their $50 billion investment in GM—before declaring “mission accomplished.” And then there are the rabid partisans who—in their seething animosity toward the Obama administration—reach conclusions devoid of logic and rich only in conspiratorial-mindedness.  For example, yesterday I was contacted by a media outlet vetting this conclusion: “The IPO is evidence of the failure of the bailout because taxpayers were excluded from buying shares at the IPO price and, therefore, denied the opportunity to get their money back.”  Huh?

All of those analyses are wrong.  Let me dispense with the last one first, as it simply betrays a gross misunderstanding of how taxpayers are on the hook.  By divesting of GM (i.e., selling its shares), the government is beginning to make the taxpayer whole.  But just as there were no checks written directly from taxpayers to GM, there will be no checks written to taxpayers, as the Treasury liquidates the public’s share of GM.  Whether main street Americans could participate in the IPO has nothing to do with making the taxpayer whole.  And, by the way, IPOs typically limit sales of shares at the initial price to a chosen few.  So let’s just shelve the canned indignation on this claim.  It’s a distraction.

Here’s the real issue.  Today’s IPO is nothing more than testament to the fact that the government threw GM a lifeline, enabling the company to expunge most of its debts and firm up its balance sheet on terms more favorable than a normal bankruptcy process would have yielded.  That enabled GM to partake of the cyclically growing U.S. auto market in 2010 and turn a profit through the first three quarters.  So what?  Did anyone really think that a chosen company so coddled and insulated from market realities couldn’t turn a short-run profit?  Yes, even GM, under those favorable conditions should have been expected to turn a profit this year.

But at what cost?  That answer—even the question—seems to be elusive in the public discussion of the IPO.  The cost was not only $50 billion—the amount diverted to GM in the first place.  Nor was it that $50 billion minus the proceeds raised in today’s IPO (and minus the proceeds raised later when the government divests entirely of GM – it will still hold 33% of GM after today).  In other words, making taxpayers whole does not absolve the Bush and Obama administration’s for the auto intervention.  Recouping the $50 billion only gets us partially out of the hole.  (And I’m not even sure who “us” includes because the costs are so far reaching.)

Yes, GM is making sales and accounting for market share, but only at the expense of the other automakers.  Had GM been forced to severely atrophy or liquidate, the other automakers would have had greater revenues, more market share, and probably higher profits).  They would have been able to attract GM’s best engineers and line workers.  They would have more money to invest in R&D and to lead the industry into the future.  Instead, by keeping GM in the mix, some of those industry resources remain misallocated in a company that the evolutionary market process would have made smaller or extinct. 

The auto industry wasn’t rescued with the GM bailout.  GM was “rescued.”  By rescuing GM, the government overrode market forces, and there are significant costs to assign for that.  Witness the stagnant economy with 9.6 percent unemployment.  Is it not plausible that businesses are sitting on their cash and not investing or hiring because of the fear inspired by the government interventions starting with the bank and auto bailouts?  It’s more than plausible.  The regime uncertainty that persists to this day was spawned by the GM bailout and other interventions.

What about the weakening of the rule of law?  Doesn’t the diversion of TARP funds by the Bush administration, in circumvention of congress’s wishes and in contravention of the language of the law, represent a cost?  How about the property right of preferred bondholders who were forced to take pennies on their investment dollars under the Obama bankruptcy plan?  Any costs there?  What about U.S. moral authority to dissuade other goverments from meddling in their markets or indulging industrial policy?  That may be costly to U.S. enterprises.  And with the government still holding a third of GM, its hard to swallow the idea that public interest will be the driver of policies affecting the auto industry.  And that suggests even more costs.

But don’t mistake this blog post for an anti-IPO rant.  I’m in favor of the IPO.  It couldn’t have happened sooner.  But I suspect the investment bankers, the administration, and the other members of GM’s Board of Directors reckoned that, with the hype over the new Chevy Volt and the recent newsleak of GM’s $43 billion in unorthodox tax deferrments on the balance sheet, now was the perfect time to go public.

A Successful IPO Does Not a Justifiable Bailout Make is a post from Cato @ Liberty - Cato Institute Blog

NPR’s 9:00 a.m. newscast this morning included this accidentally accurate line:

Government, rather General Motors is expected to announce plans for an initial public offering of stock this week.

The comment can be heard here at about 3:10, but I assume the online hourly report is updated throughout the day.

For more on Government Motors, click here.

“Government Motors”: NPR’s Gaffe? is a post from Cato @ Liberty - Cato Institute Blog

Via General Motors, American taxpayers will soon own a 61 percent stake in a Texas-based company called AmeriCredit.  GM announced plans yesterday to acquire the auto finance firm for $3.5 billion, which management believes will help boost its auto sales and improve chances for an IPO later this year or next. 

Thus, a greater chance for re-privatization later is the rationalization for more nationalization now.

For those who opposed the nationalization of GM for its affront to free markets and the rule of law in the first place, the acquisition presents a dilemma.  On one hand, the deal means that the nationalization virus is spreading to infect another company in a different industry, ensuring that yet more business decisions are driven by political, rather than economic, considerations. (Although, to acknowledge the efforts of Messrs. Bush, Paulson, Obama, Dodd, Frank and others, politics already reigns supreme in the consumer finance industry.) One has to wonder what exemptions, loopholes, and carve-outs might be in store for AmeriCredit, as the administration crafts regulations to implement the just-passed “financial reform” legislation.

And Senator Chuck Grassley (R-IA), who questioned and brought attention to some of GM’s hyperbolic claims about its performance earlier this year, raised fresh doubts about the latest move:

If GM has $3.5 billion in cash to buy a financial institution, it seems like it should have paid back taxpayers first. After GM’s experience with GMAC, which left GM seeking a taxpayer bailout, you have to think the company and, in turn, the taxpayers would be better off if GM focused on making cars that people want to buy and stayed clear of repeating its effort to make high-risk car loans.

On the other hand, a course of action that gets the government out of the auto business as quickly as possible, and makes taxpayers as whole as possible, is probably the least objectionable. Though there are no guarantees that will happen, arguably that outcome is more likely if GM’s revenues and profits are higher.  And, according to auto industry analysts, the absence of a captive financing operation (GMAC, now called Ally Financial, is no longer part of GM) has hurt GM’s sales, especially in the “sub-prime” portion of the market.

The opening paragraph in the New York Times story on this topic yesterday went like this:

General Motors said Thursday that it had agreed to buy a financing company, AmeriCredit, for $3.5 billion so it can lease more vehicles and increase sales to consumers with lower credit ratings. 

According to that story, about 4 percent of GM’s sales go to sub-prime customers.  But GM’s sales could increase by as much as 20 percent if it “aggressively courts sub-prime buyers.”  Hmmm.  Haven’t we seen this movie before?  Is GM stealing a page from the Fannie/Freddie playbook? 

Well, apparently Ford and Toyota and the other big auto producers rely on their own captive financing units to make their vehicles accessible to those who wouldn’t qualify for credit from third-party financers.  But at least those automakers have shareholders to discipline lending behavior that might lead to increased default rates.  They may be more risk-averse or at least risk-conscious than a company spending other people’s money, whose success happens to be in the Obama administration’s best interests.

So where does this leave free market proponents?  Arguably, in the same boat as the Obama administration, pulling for higher GM revenues and profits.  Without successful operations, re-privatizing GM will be very difficult.

Of course, the final indignity—the ultimate heads-they-win-tails-we-lose irony in the GM saga—is that if GM is eventually re-privatized and if the taxpayers are made whole, proponents of similar interventions in the future will have a “success” story to tout.

Grinning and Bearing GM’s Bitter Ironies is a post from Cato @ Liberty - Cato Institute Blog

I’m usually in enthusiastic accord with our friends over at the Competitive Enterprise Institute, but it seems to me they’ve made a mistake by petitioning the Federal Trade Commission (FTC) to crack down on GM’s ridiculous “we repaid our federal loan” ad. Some zealous enforcers would love for the FTC to do more to regulate speech by American business on matters of public concern, and it seems to me the last thing we should do is encourage such a trend.

For those who came in late, General Motors and its CEO Ed Whitmire were widely and rightly assailed here and elsewhere for asserting (in a column whose message was repeated in much-played TV ads) that the company had repaid its bailout loan “in full, with interest, years ahead of schedule.” Actually, as the inspector general of the government’s TARP program readily acknowledged, the firm had merely used one pot of federal money to repay another. Iowa Sen. Charles Grassley helped expose the dodge, and publications ranging from FoxNews.com to the New York Times joined in with scathing coverage.

Yesterday CEI announced that it had filed a formal complaint [PDF] with the FTC urging the commission to investigate the automaker’s ad campaign as misleading. It alleges that the ad campaign “could unfairly dupe consumers into a false, renewed confidence in the company” and that “consumer purchasing decisions can easily be affected by such considerations.” Nick Gillespie at Reason, CEI general counsel Hans Bader, and Todd Zywicki at Volokh have more.

There’s a long history of businesses’ responding to public criticism of their operations or products — and getting in further legal or regulatory trouble because of that very response. In one early case, the FTC went after egg producers for asserting, in the midst of a cholesterol scare that in hindsight appears overblown, that their ovoid wares were not in fact a menace to cardiac health. Sen. Charles Schumer (D-N.Y.) and the Center to Prevent Handgun Violence have asked the FTC to prohibit ads that imply that keeping a loaded weapon on hand will make a family safer. In Nike v. Kasky, a famous case that reached the Supreme Court [Thomas Goldstein, Cato Supreme Court Review 2003, PDF], shoemaker Nike was sued under a California law over the public defense it had put forward of its labor practices in overseas factories. Environmentalists have sought to suppress ads claiming that nuclear power is nonpolluting, and so forth.

Free-market advocates have generally argued that whatever the merits of laws or regulations banning misleading advertising in garden-variety commercial contexts, there are special dangers to the First Amendment and to robust debate generally in letting agencies and courts second-guess the content of “issue ads” and speech on topics of public controversy. To begin with, it encourages advocates to turn to the law to silence disagreeable speech rather than muster their best arguments to rebut it. In one grotesque example, MoveOn.org and Common Cause actually petitioned the FTC to institute a complaint against Fox News over its use of the slogan “Fair and Balanced”, since (they said) the network was neither.

Despite its current dependence on government, GM is in every relevant legal sense a private company, so any precedents forged against it will wind up applying to every other private enterprise that might wish to advertise on matters of public controversy. Which makes it a concern that CEI’s complaint cites with seeming enthusiasm broad FTC interpretations of authority — for example, its authority to suppress speech that might not be in itself false but could leave a potentially misleading impression.

If there is a continuum extending from more or less purely commercial speech (“Our tires last 40,000 miles”) to more or less purely political speech (“Our business is badly overtaxed”), GM’s ad campaign surely falls way over toward the “political” side. CEI’s response to this is to argue that the campaign might influence consumers’ purely economic calculations (as opposed to the political reasons they have to feel angry at GM) by making them more likely to see the company as solvent and thus as capable of making good its warranty promises. The words “strained” and “makeweight” come to mind to describe this argument. Does CEI really want to establish the future principle that a company’s over-sunny talk about its financial prospects will henceforth get it in trouble with two federal agencies, the FTC and SEC, rather than the SEC alone?

It all seems a rather high price to pay in principle for keeping the GM-TARP story in the papers for another day or two.

The FTC and Those GM Ads is a post from Cato @ Liberty - Cato Institute Blog

General Motors chairman Ed Whitacre is appearing in ads on all the Sunday morning shows repeating the message of his Wall Street Journal op-ed, titled “The GM Bailout: Paid Back in Full,” and the company’s full-page newspaper ads:

We’re proud to announce: We’ve repaid our government loan. In full. With interest. Five years ahead of the original schedule.

But wait: In the Wall Street Journal, Whitacre says the company has made a $5.8 billion payment to the governments of the United States and Canada. But don’t I recall that the GM bailout was $50 billion? Shikha Dalmia of the Reason Foundation explains the whole story in Forbes: First, part of the bailout went into an “escrow fund,” and that government money is being used to pay back the small part of the bailout that was officially a loan. Second, GM is asking for another $10 billion loan to retool its plants to meet the stiffer Corporate Average Fuel Economy standards, and paying back one government loan — with other government money — will make it easier to get another government loan.

And finally, of course, most of the bailout money was transferred to GM in return for a 60 percent stake in the company. And the taxpayers will get that money back if and when GM becomes a publicly traded company again, provided that the company’s market capitalization is eventually higher than it’s ever been in history. Don’t hold your breath.

These are called GM ads, but they could just as well be called BS ads.

Don’t Be Fooled — GM Is Still Government Motors is a post from Cato @ Liberty - Cato Institute Blog

In response to the large recalls affecting several Toyota models, Transportation Secretary Ray LaHood yesterday advised Americans to “stop driving” their Toyotas. In testimony before the House Appropriations subcommittee on transportation, LaHood said:

My advice to anyone who owns one of these vehicles is stop driving it, and take it to the Toyota dealership because they believe they have the fix for it.

Later in the day, he elaborated:

I want to encourage owners of any recalled Toyota models to contact their local dealer and get their vehicles fixed as soon as possible. NHTSA will continue to hold Toyota’s feet to the fire to make sure that they are doing everything they have promised to make their vehicles safe. We will continue to investigate all possible causes of these safety issues.

As Transportation Secretary in an administration that is politically vested in the success of General Motors (recall how taxpayers were forced to take a 60% stake in GM for $50 billion+), was LaHood exploiting an opportunity to tip the scales further in GM’s favor? I guess we’ll never know for sure, but as long as GM remains nationalized, any comments by administration officials on matters affecting the auto industry should be viewed skeptically and through this prism, as they can irresponsibly move markets.

Raising an Eyebrow at LaHood’s Toyota Remarks is a post from Cato @ Liberty - Cato Institute Blog

Three items in the news this week remind us why we should be glad we live in a more global economy. While American consumers remain cautious, American companies and workers are finding increasing opportunities in markets abroad:

• Sales of General Motors vehicles continue to slump in the United States, but they are surging in China. The company announced this week that sales in China of GM-branded cars and trucks were up 67 percent in 2009, to 1.8 million vehicles. If current trends continue, within a year or two GM will be selling more vehicles in China than in the United States.
• James Cameron’s 3-D movie spectacular “Avatar” just surpassed $1 billion in global box-office sales. Two-thirds of its revenue has come from abroad, with France, Germany, and Russia the leading markets. This has been a growing pattern for U.S. films. Hollywood—which loves to skewer business and capitalism—is thriving in a global market.
• Since 2003, the middle class in Brazil has grown by 32 million. As the Washington Post reports, “Once hobbled with high inflation and perennially susceptible to worldwide crises, Brazil now has a vibrant consumer market …” Brazil’s overall economy is bigger than either India or Russia, and its per-capita GDP is nearly double that of China.

As I note in my Cato book Mad about Trade, American companies and workers will find their best opportunities in the future by selling to the emerging global middle class in Brazil, China, India and elsewhere. Without access to more robust markets abroad, the Great Recession of 2008-09 would have been more like the Great Depression.

Global Markets Keep U.S. Economy Afloat is a post from Cato @ Liberty - Cato Institute Blog

That is one of the conclusions in my new paper, “Made on Earth: How Global Economic Integration Renders Trade Policy Obsolete.”

For hundreds of years, trade policy has been premised on the assumptions that exports are good, imports are bad, and the interests of domestic producers are tantamount to the “national interest.” Though that mercantilist worldview has never been accurate, its persistence as a pillar of trade policy into the 21st century is especially confounding given the emergence and proliferation of disaggregated production processes, transnational supply chains, and cross-border investment. Those trends have blurred any meaningful distinctions between “our” producers and “their” producers and speak to a long chain of interdependent economic interests between product conception and consumption.

Still, trade policy places the interests of domestic producers above all else even though the definition of a domestic producer is elusive and even though actions on behalf of producers often harm interests along the product continuum, which include engineers, designers, financiers, processors, assemblers, marketers, shippers, retailers, consumers, and others.

In 2008, foreign nameplate automobile producers, employing American workers, paying American taxes, and supporting American businesses, communities, and charities, accounted for almost half of all U.S. light vehicle production. The largest “U.S.” steel producer, Arcelor-Mittal, is a majority-Indian-owned company with headquarters in Luxembourg and Hong Kong. The largest “German” producer, Thyssen-Krupp, is completing a $3.7 billion green-field investment in steel production facilities in Alabama, which will create an estimated 2,700 jobs in that state.

So, who are “we”? And who are “they”?

Are these foreign-named or –headquartered companies not “our” producers because some of the profits they earn are repatriated or invested in operations outside the United States? If so, then shouldn’t we consider U.S. Steel Corporation, which earned 25 percent of its revenue last year on steel produced in Slovakia and Serbia, and General Motors, which has had success producing and selling cars in China, to be “their” producers? Why should U.S. Steel, General Motors, and the unions that organize workers at those companies dictate the parameters of U.S. trade policy, while Toyota, Thyssen and their non-union workers have no input? Why should trade policy reflect a bias in favor of producers—or worse, particular producers—at all? That bias hurts other interests—both foreign-based and domestic—in the supply chain.

Global commerce isn’t a competition between “us” and “them.” It is instead a competition between entities that defy national identification because of cross-border investment or because the final good or service comprises value added from many different countries. This reality demands openness in both directions, which flies in the face of conventional trade policy wisdom, which seeks to maximize access for domestic producers abroad while minimizing access for foreign producers at home.

It is only for simplicity’s sake that a container full of iPods shipped from China and unloaded in Seattle registers as imports from China. But the fact is that only a few dollars of the $150 cost to produce an iPod is Chinese value-added. The rest is mostly value attributable to Japanese, Korean, Singaporean, Taiwanese, and American components and labor. Then iPods retail for about $300 and most of the mark-up accrues to Apple, which uses the profits to support innovation and higher paying jobs in the United States.

From a trade policy perspective, each iPod imported from China adds $150 to our bilateral deficit in “high tech” goods. It is regarded as a problem to solve. The temptation is to restrict.

But from a commercial perspective, each imported iPod supports U.S. economic activity up the value chain. Without access to lower-cost labor abroad—if rudimentary component manufacturing and assembly operations were required to take place in the United States—ideas hatched in American labs would be far less likely to make it beyond the white board. Much higher costs would make it far more difficult to create these ubiquitous devices that have, in turn, spawned new ideas and industries.

Essentially, the factory floor has broken through its walls and today spans borders and oceans, making Chinese and American labor complementary in this and many other industries. Yet, despite all of this integration, despite the reliance of producers in the United States and abroad on imported raw materials, components, and capital equipment, trade policy still pretends that access to the domestic market is a favor to grant or a privilege to revoke. Trade policy is officially ignorant of commercial reality.

Openness to trade in both directions is an imperative in the 21st century. Policies that do not try to channel incentives for the benefit of specific groups but rather provide the greatest opportunities for citizens to participate most effectively in our increasingly integrated global economy are the ones that will maximize economic growth and national welfare. People in other countries should be thought of more as customers, suppliers, and potential collaborators instead of competitive threats.

In the 21st century, instead of serving the exclusive interests of domestic producers, trade policy should be about welcoming investment and attracting and cultivating the human capital necessary to make the United States the location of choice for the world’s highest value economic activities.

Is Trade Policy Obsolete? is a post from Cato @ Liberty - Cato Institute Blog

“Americans are more likely today than in the recent past to believe that government is taking on too much responsibility for solving the nation’s problems and is over-regulating business,” according to a new Gallup Poll.

New Gallup data show that 57% of Americans say the government is trying to do too many things that should be left to businesses and individuals, and 45% say there is too much government regulation of business. Both reflect the highest such readings in more than a decade.

Byron York of the Examiner notes:

The last time the number of people who believe government is doing too much hit 57 percent was in October 1994, shortly before voters threw Democrats out of power in both the House and Senate. It continued to rise after that, hitting 60 percent in December 1995, before settling down in the later Clinton and Bush years.

Also, the number of people who say there is too much government regulation of business and industry has reached its highest point since Gallup began asking the question in 1993.

That might give an ambitious administration pause. The independents who swung the elections in 2006 and 2008 clearly think things have gone too far. An administration as smart as Bill Clinton’s will take the hint and rein it in. Meanwhile, another recent poll, by the Associated Press and the National Constitution Center, shows that

Americans decidedly oppose the government’s efforts to save struggling companies by taking ownership stakes even if failure of the businesses would cost jobs and harm the economy, a new poll shows.

The Associated Press-National Constitution Center poll of views on the Constitution found little support for the idea that the government had to save AIG, the world’s largest insurer, mortgage giants Fannie Mae and Freddie Mac, and the iconic American company General Motors last year because they were too big to fail.

Just 38 percent of Americans favor government intervention – with 60 percent opposed – to keep a company in business to prevent harm to the economy. The number in favor drops to a third when jobs would be lost, without greater damage to the economy.

Similarly strong views showed up over whether the president should have more power at the expense of Congress and the courts, if doing so would help the economy. Three-fourths of Americans said no, up from two-thirds last year.

“It really does ratify how much Americans are against the federal government taking over private industry,” said Paul J. Lavrakas, a research psychologist and AP consultant who analyzed the results of the survey.

Note that 71 percent of the respondents opposed government takeovers, with 50 percent strongly opposed, before the “benefits” of such takeovers were presented.

President Obama is an eloquent spokesman for his agenda, and he has an excellent political team with a lot of outside allies to push it. But as the old advertising joke goes, you can have the best research and the best design and the best advertising for your dog food, but it won’t sell if the dogs don’t like it.

Americans Don’t Want It is a post from Cato @ Liberty - Cato Institute Blog

Reports the Washington Post:

The federal government is unlikely to recoup all of the billions of dollars that it has invested in General Motors and Chrysler, according to a new congressional oversight report assessing the automakers’ rescue.

The report said that a $5.4 billion portion of the $10.5 billion owed by Chrysler is “highly unlikely” to be repaid, while full recovery of the $50 billion sunk into GM would require the company’s stock to reach unprecedented heights.

“Although taxpayers may recover some portion of their investment in Chrysler and GM, it is unlikely they will recover the entire amount,” according to the report, which is scheduled to be released Wednesday.

Well, it’s only money.  And with the taxpayers facing more than $100 trillion worth of unfunded liabilities, what’s a few more wasted dollars?!

So Much for Making Money on the Bailout is a post from Cato @ Liberty - Cato Institute Blog

The First Amendment guarantees our freedom to petition the government, which is one of the reasons why the statists who wants to restrict or even ban lobbying hopefully will not succeed. But that does not mean all lobbying is created equal. If a bunch of small business owners get together to lobby against higher taxes, that is a noble endeavor. If the same group of people get together and lobby for special handouts, by contrast, they are being despicable. And if they get a bailout from the government and use that money to mooch for more handouts, they deserve a reserved seat in a very hot place.

This is not just a hypothetical exercise. The Hill reports on the combined $20 million lobbying budget of some of the companies that stuck their snouts in the public trough:

Auto companies and eight of the country’s biggest banks that received tens of billions of dollars in federal bailout money spent more than $20 million on lobbying Washington lawmakers in the first half of this year. General Motors, Chrysler and GMAC, the finance arm of GM, cut back significantly on lobbying expenses in the period, spending about one-third less in total than they had in the first half of 2008. But the eight banks, the earliest recipients of billions of dollars from the federal government, continued to rely heavily on their Washington lobbying arms, spending more than $12.4 million in the first half of 2009. That is slightly more than they spent during the same period a year ago, according to a review of congressional records.

…big banks traditionally are among the most active Washington lobbying interests in the financial industry, and the recession has done little to dent their spending. …Since last fall, companies receiving government funds have argued that none of the taxpayer money they were receiving was being spent on lobbying.

…American International Group, the insurance firm crippled by trades in financial derivatives that received roughly $180 billion in bailout commitments, closed its Washington lobbying shop earlier this year. AIG continues to spend money on counsel to answer requests for information from the federal government, but the firm said it does not lobby on federal legislation.

The most absurd part of the story was the companies claiming that they did not use tax dollar for lobbying. I guess the corporate bureaucrats skipped the classes where their teachers explained that money is fungible.

The best part of the story was learning that AIG closed its lobbying operation, though that does not mean much since AIG basically now exists as a subsidiary of the federal government. The most important message (which is absent from the story, of course) is that the real problem is that government is too big and that it intervenes in private markets. Companies would not need to lobby if government left them alone and/or did not offer them special favors. Indeed, that was the key point of my video entitled, “Want Less Corruption: Shrink the Size of Government.”

Our Tax Dollars Are Being Used to Lobby for More Government Handouts is a post from Cato @ Liberty - Cato Institute Blog

The logic in Washington is ineluctable.  If government provides money, then it needs to impose regulations.  If the government takes ownership, then it must provide management.

Bail out the banks.  Set bankers’ salaries.  Bail out the insurers.  Decide on corporate bonuses.

And if the government takes over the automakers, then it should run the automakers.  That, of course, means deciding who can be dealers. 

Reports the Washington Post:

Now that the Obama administration has spent billions of dollars on the bailouts of General Motors and Chrysler, Congress is considering making its first major management decision at the automakers.

Under legislation that has rapidly gained support, GM and Chrysler would have to reinstate more than 2,000 dealerships that the companies had slated for closure.

The automakers say the ranks of their dealers must be thinned in order to match the fallen demand for cars. But some of the rejected dealers and their Capitol Hill supporters argue that the process of selecting dealerships for closure was arbitrary and went too far.

Since federal money has been used to sustain the automakers, they say Congress has an obligation to intervene.

At a gathering of dozens of dealers who came to Capitol Hill yesterday to lobby their representatives, House Majority Leader Steny H. Hoyer (D-Md.) and several other congressmen spoke in support of the dealers. More than 240 House members have signed onto the bill, supporters said.

“We are going to stand with them for as long as it takes,” Hoyer told an approving crowd.

What is next?  Congress deciding the prices that should be charged for autos?  The accessories to be offered?  The colors cars should be painted?

I have no idea who should or should not be an auto dealer.  But I do know that it is a decision which should not be made in Washington, D.C.

Intervention Begets Intervention, Which Begets… is a post from Cato @ Liberty - Cato Institute Blog

Time and again my colleagues and I have warned that the government’s takeover of GM would divorce business decisions from economics and wed them to politics ‘til death do they part. But I won’t gloat. Better to be right and satisfied that government is reasonably restrained than right and house hunting in Galt’s Gulch.

We’ve already seen the president insist on the firing of a CEO, design and negotiate a bankruptcy plan devoid of much economic merit, impose preferences about which models to produce, and assure the diabolical, undeserving management of the UAW that GM won’t import small cars from its foreign plants to make space for its U.S.-produced budget-busting green vessels.

Now Congress is attempting to legislate its way into the boardroom. Last month, GM/Obama announced plans to terminate 1,300 dealerships, as part of a larger effort to reduce costs and, ultimately, turn a “profit.” (The term “profit” is, shall we say, imprecise in this case given the amount of production subsidization, fuel taxation, and tax code inducements that will be necessary to sustain GM for the foreseeable future). But many in Congress don’t like the idea. As reported in the Detroit Free Press:

By a unanimous vote, a U.S. House committee has approved a measure that would restore 2,100 dealers either cut or scheduled to be closed by General Motors Corp. and Chrysler Group LLC.

…The bill would turn back the clock to before the companies filed for bankruptcy, restoring the 789 dealers cut by Chrysler and 1,300 dealers GM chose to wind down.

…Executives from GM and Chrysler have both told Congress that cutting dealers was essential to their survival outside of bankruptcy, saving each company billions of dollars a year and strengthen their remaining sales force.

“This legislation, if passed, would put our long-term viability at risk,” said GM spokesman Greg Martin.

I suppose you can’t really blame Congress for trying to impose its wishes on GM. After all, the Constitution is silent on the matter of which branch of government furnishes the CEO of nationalized companies.

But in all seriousness, this legislative effort is an affront to common sense and an insult to our heritage of free enterprise and capitalism. It is stunning enough to watch the slow-motion nationalization of an iconic behemoth like GM, but Congressional meddling at the operational level to stop the company from following through on an obviously wise cost-cutting measures should be a wake up call to all Americans that we are doomed to politically-driven micromanagement of the economy–into the ground no less–unless we register our disgust and dissent now!

What makes these actions evil, and not just stupid, is that Congress really does not care about whether GM is profitable or not. The Henry Waxmans of the Hill only care that GM produces green vehicles, regardless of their exorbitant costs of production and scant consumer demand. And the John Dingells (among whom are included the 200 sponsors of the bill to restore the dealerships) only want GM to provide jobs, regardless of the fact that GM needs to scale back its labor force substantially to even approach the realm of commercial viability. In other words, Congress demands that Americans subsidize GM because GM’s short-term viability is good for their political fortunes.

Enough. Show Congress that you won’t comply and that you won’t be pawns. Boycott GM. Boycott GM until the government relinquishes its grip on the company’s decision making process.

Strike a Blow for Freedom: Don’t Buy GM is a post from Cato @ Liberty - Cato Institute Blog

As my colleague Doug Bandow pointed out this morning, today’s Washington Post has an analysis about the uncertain prospects of GM ever making taxpayers whole again. It is a very similar analysis to the one I gave in this L.A. Times Dust-Up installment four weeks ago, although I find prospects unlikely, rather than just uncertain.

If GM emerges from bankruptcy next month in accordance with the pre-packaged Obama plan (as expected), taxpayers will be on the hook for $50 billion. That $50 billion will buy taxpayers a 60 percent stake in the company, which according to the laws of mathematics means that GM has to be worth $83.33 billion for the taxpayers to get their equity back without making a dime in capital gains or interest.  In the L.A. Times, I asked:

How and when will that ever happen? At its peak in 2000, GM’s value (based on its market capitalization) stood at $60 billion. Thus, the minimum benchmark for “success” will require a 38% increase in GM’s value from where it was in the heady days of 2000, when Americans were purchasing 16 million vehicles per year. U.S. demand projections for the next few years come in at around 10 million vehicles. Taxpayer ownership of GM is something we should all get used to, and the “investment” is only going to grow larger. Think Amtrak.

Attention GM Shareholders (That Means You!) is a post from Cato @ Liberty - Cato Institute Blog

The president and his appointees have expressed their hope that Government Motors will eventually pay back taxpayers for their “forced investment” in the company.  But there aren’t many cases of this sort of lemon socialism actually paying off.

Now most everyone connected with GM is admitting the same thing.  Reports the Washington Post:

If a new General Motors emerges from bankruptcy as planned, U.S. financial aid for the company will expand to nearly $50 billion, but neither the government nor the company is forecasting how much of the public money will be repaid.

It’s sure to be a stretch. For the United States to fully recover its investment, the value of General Motors stock will have to reach levels it has never before attained.

“I’m not going to predict it — that’s not my job today,” GM chief executive Fritz Henderson said in a recent interview.

“I don’t know how much we’re going to recover,” a senior Obama administration official said as the company headed into bankruptcy last month.

This uncertainty stems from the difficulty in valuing the 60 percent GM stake that the United States will receive in exchange for the public investment. The government also gets preferred shares and other compensation.

The stake will be worth enough to fully cover the government’s direct investment only if GM’s stock rises above $68 billion. Even at its recent 2000 peak, GM’s stock was worth only $56 billion.

“I don’t see GM hitting those benchmarks in a very long time,” said Maryann Keller, a veteran automotive analyst and author of “Rude Awakening: The Rise, Fall, and Struggle for Recovery of General Motors,” which was published in 1989.

She noted that global competition will continue to squeeze American automakers. Though the world’s factories can produce about 100 million vehicles a year, demand for them only stands at about 55 million, and the gap will push prices and profits down, she said.

“It’s very unlikely” that the government will recover its money, said David Whiston, auto equities analyst at Morningstar. “GM will be a smaller company after the bankruptcy and there are going to be more foreign automakers entering the market that will make GM’s efforts more difficult.”

Oh, well.  As they say, it’s only money!

Don’t Count on Getting Your “Investment” Back from Government Motors is a post from Cato @ Liberty - Cato Institute Blog

It has been a good run, but it appears government might finally bring America’s love affair with the car to an untimely end, says Cato Mencken Research Fellow P.J. O’Rourke. The author of the new book Driving Like Crazy, spoke at Cato last week about classic cars, government regulation, the takeover of GM and the forthcoming “Obamamobile.”

P.J. O’Rourke on the New “Obamamobile” is a post from Cato @ Liberty - Cato Institute Blog