He Who Pays The Piper

By William Murchison (Archive) · Tuesday, December 9, 2008

The market liked the prospect of an auto bailout. On Monday, General Motors stock soared 21 percent; Ford's jumped 24.3 percent. Up shot the market as a whole. From the smoke and ruins came hoarse cheers. The sound of a bugle blowing "Charge" rode the wind. Hooray -- today's U.S. cavalry, wearing banker's gray and red stripes, had come to lift the siege of Detroit.

And so it may come to pass. And so may much else for which the general population may eventually show itself less grateful.

There comes to mind a cautionary slogan I first heard in the '60s: He who pays the piper calls the tune. Indeed, and why not? Is government, in the end, a philanthropic entity? For what it does, it wants a return. Taxpayers should expect no less.

The auto bailout is setting up the auto industry … for what? Probably the reverse of success. Possibly its marginalization by Toyota and Honda and Nissan and Daimler Benz and Volvo. This is for sound reasons originating in that piece of wisdom about the piper and his tune.

The auto rescue bill sent to the White House for review on Monday predictably -- and you might say properly -- sets the federal government up as grand overseer of the auto business, with plenary powers to decide what the industry needs and what it should do.

The president (read: Barack Obama) is to name an executive branch functionary who will supervise the bridge loans to Detroit. By the end of next March, the industry will submit to this worthy a restructuring plan "for long-term viability and international competitiveness, including repayment of government financing, compliance with federal and state fuel efficiency requirements, achievement of positive net present value, rationalization of costs, capacity and proposals for restructuring existing debts. "

This functionary -- called "President's Designee" -- "will request from Congress additional powers and authorities he deems necessary to avoid disruption to the economy or to achieve a negotiated plan." Or he can submit his "own plan for long-term viability."

There's more to it than that. The proposal calls for a tight rein on executive bonuses; for a ban on so-called golden parachutes; for divestiture of company-owned aircraft. Ah. And "Presidential Designee will prioritize allocation of funds to Auto Manufacturers."

In the meantime, Sen. Christopher Dodd says GM should dump Rick Wagoner as chairman.

Much could change before perfection of the bailout proposal. The oversight component could be scaled back. For that matter, it could be intensified, and the automotive wrist bent farther and farther back. We see at least the lay of the land: Our government plans, on the condition of loaning money, to fix a major American industry; maybe "fix" it so definitively it never again stands upright.

None of which is to characterize the congressional proposal as wholly lunatic. A creditor's right to get his money back is due some respect. On the other hand, what qualifies a presidential "designee" to figure out when long-term viability has been achieved, or when costs and capacity have been "rationalized"? It all sounds like the early New Deal, or more ominously, like Britain, as it shucked capitalism in the late 1940s.

Only the marketplace, for all its blunders and miscalculations, figures things out with anything like efficiency, inasmuch as the marketplace alone is rational: the sum of individual decisions related to noncalculated, noncalculable needs, interests, intuitions, wild guesses, dumb calls and brilliant hunches, supported by private resources.

No "designee" can read the marketplace's mind; the marketplace somehow sniffs out what it wants, and what it wants five years from now, in the face of Washington's plans, could be … foreign-built cars, not American ones.

Wouldn't that be a hoot? Federal oversight eventuating in the demise of the industry federal dollars had been deployed to save? Actually, it wouldn't be a hoot at all. It would be one more sign of failing nerve and morale on the part of the world's formerly most creative, most inventive nation.

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