Government Motors: No way to run a railroad.
How do you feel about Barack Obama effectively being the chief executive officer of General Motors and voting 60 percent of the stock?
I hate it.
I wonder what Milton Friedman would say. Milton Friedman was a celebrated economist whose views on taxation, monetary policy and business regulation informed the likes of Ronald Reagan and Margaret Thatcher.
Mr. Friedman was in Asia and was taken to a job site where workers were digging a canal. He was shocked to see that there was no heavy machinery, no earthmovers or giant backhoes. All he saw was workers with shovels. When he remarked on this his guide said, “This is a jobs program.” “Oh,” said Friedman, “I thought you were building a canal. If it’s jobs that you want, you should take away their shovels and give them spoons.”
I share this with you as we consider the manufacturing icon whose name was once synonymous with American manufacturing might.
With our stake at $60 billion, what hope do we have of success?
Well, first, let’s do some math. A 60 percent stake in General Motors purchased with 60 billion dollars means that the company will have to have a $100 billion market capitalization in order for the 60 percent of the stock to be worth what was paid for it. In other words, all of the stock in the company would have to be worth $100 billion on the open market for there to be sufficient capitalization to cash the taxpayers out.
The trouble is that at no time since 2000, even when GM was still making money and had a larger market share than it has now or will have going forward, was it worth more than $56 billion. So it’s hard to see any market scenario under which the taxpayers get their cash out of GM.
That brings us to history. We have some history with respect to the federal government taking over and operating a failed business. It’s called Amtrak.
The best description of Amtrak came from Ronald Reagan. He called Amtrak a ‘mobile money-burning machine.’
Amtrak was formed in 1971 in order to preserve jobs for politically powerful union railroad workers as passengers left the railroads for the airlines.
Amtrak is not all bad. Amtrak’s service in the so-called Northeast Corridor is great. I use it all the time. The trains are clean, they run on time and they’re full. Amtrak, if confined to the densely populated and congested corridor between Boston and Washington, would be a moneymaker, and thus not need government subsidy to survive.
But Amtrak’s real board of directors is Congress. And thus we all pay for unnecessary, money-losing trains through congressional districts all over the United States (including service that passes through Longview every day).
Amtrak isn’t a passenger railroad. It’s a union jobs and benefits program funded by the taxpayers – that incidentally operates passenger trains.
The same has been true for General Motors for decades. To its great detriment, General Motors allowed itself to become a union jobs and benefits program that incidentally built cars.
The opportunity to correct this problem through bankruptcy has now been foreclosed by the Obama administration. Instead, GM bondholders have been kneecapped. Hundreds of GM dealers are being put out of business with no compensation. And yet the union workers who bear a high percentage of the blame for GM’s failure have given up very little. Even after the trauma of bankruptcy, when companies are supposed to purged of such sins, GM is still principally a jobs and benefits program for union autoworkers.
And soon I fear, the government will be telling GM to build little green clown cars that nobody wants just as it tells Amtrak where its empty trains must run.
Amtrak has burned through hundreds of billions of dollars in losses since its inception. It should be sold to the highest bidder with no stipulation as to where to operate trains.
Similarly, with respect to GM, we should not pretend we’ll ever get all of our $60 billion back. At the first opportune moment, we the taxpayers should cut our losses. GM should be sold in a well-timed,orderly process for what it will bring (which if shed of uncompetive union contracts would be considerable) so that it can win or lose in the open market rather than suffer the indignities and the staggering losses attendant to being the auto-manufacturing version of our dismal failure in operating a railroad.