So desperate for a government takeover of the U.S. auto industry, some on the left are now stooping to borrowing rhetoric from Vice President Dick Cheney to make their case for the bailout of Detroit’s Big Three. Commenting on Cheney’s warning that “If we don’t do this, [the GOP] will be known as the party of Herbert Hoover,” The Washington Monthly‘s Steve Benen writes:
The Neo-Hooverite caucus apparently seems willing to wear the label with pride.
Well let’s just see who else, besides conservatives, has called for the auto companies to go through Chapter 11 instead of receiving a federal bailout. Let’s start with lefty hero and Stanford law professor Larry Lessig:
I’m willing to be persuaded that intervention is necessary there. But the more I read about the auto industry, the less I am convinced.
People speak about this as if not bailing out Detroit means automobile production in America ends. That’s not what failing to bailout Detroit means. Not intervening now would be these automakers would enter bankruptcy. And bankruptcy means the assets of these dinosaurs get reorganized: Someone else buys these companies, at a price the market sets, and runs them profitably, because of the price the market set.
Obviously, that change would not be painless. And I’m all for minimizing the pain where the pain is doing no good — with workers, or others depending upon these industries. But I’m against interventions designed to minimize the pain where the pain would do good — by radically changing how that industry is managed. The whole justification for insanely high executive compensation is, in part, so they can weather such storms. I don’t see why the government should be in the business of building safety nets for the (relatively) well off.
So Larry Lessig is now a neo-Hooverite. Let’s see who else we can add to the list. How about John Bates Clark Medal winner and progressive favorite Joseph Stiglitz. He writes:
The US car industry will not be shut down, but it does need to be restructured. That is what Chapter 11 of America’s bankruptcy code is supposed to do. A variant of pre-packaged bankruptcy – where all the terms are set before going before the bankruptcy court – can allow them to produce better and more environmentally sound cars. It can also address legacy retiree obligations. The companies may need additional finance. Given the state of financial markets, the US government may have to provide that at terms that give the taxpayers a full return to compensate them for the risk. Government guarantees can provide assurances, as they did two decades ago when Chrysler faced its crisis.
With financial restructuring, the real assets do not disappear. Equity investors (who failed to fulfil their responsibility of oversight) lose everything; bondholders get converted into equity owners and may lose substantial amounts. Freed of the obligation to pay interest, the carmakers will be in a better position. Taxpayer dollars will go far further. Moral hazard – the undermining of incentives – will be averted: a strong message will be sent.
The Heritage Foundation warmly welcomes Lessig and Stiglitz to the neo-Hooverite club. And we also hope the left enjoys continuing to borrow their talking points from the Bush White House.