A Car Wreck Made in Washington

Can Democrats afford to let Detroit succeed?

• By HOLMAN W. JENKINS, JR.

The wrong folks were in the witness chairs in last week's congressional hearings on auto doom. A fantastic moment was Massachusetts Rep. Stephen Lynch assailing Rick Wagoner about whether GM was asking China for a bailout too. The implication seemed to be that GM can't afford its inflated UAW pay packages because it's squandering money to build cars in China.

AP Photo/The Dallas Morning News, Michael Ainsworth

The General Motors assembly plant in Arlington, Texas.

Mr. Wagoner mildly answered that GM's China operations are profitable. They actually help to underwrite the massive losses in the U.S.

Mr. Lynch showed no sign he was actually listening, having illustrated his disapproval of foreigners. He didn't ask the obvious question: If GM can make cars profitably in China, why doesn't GM import them to the U.S.?

For that matter, any of the brainpans on the Hill might have asked why Ford and GM managed to build viable auto businesses all over the world but not in North America.

You don't need the Hubble telescope to tell the answer: The UAW is present only in the U.S., not all over the world.

What you wouldn't know is that the single biggest factor in preserving the UAW's monopolistic power has not been labor law but Congress's fuel-economy rules. These effectively have required the Big Three to lose tens of billions making small cars at a loss in UAW factories. Not only were the companies obliged to forgo profits they might have earned importing such cars, but CAFE deprived them of crucial leverage to control labor costs by threatening to move jobs to a factory in Spain or Taiwan or Poland. (Let's face it, that's what other successful U.S. manufacturers do.)

All this was deliberately designed to give the UAW the means to defend uncompetitive wages in the face of a globalizing auto business. It had nothing to do with making sure Americans have high-mileage cars. Yet not a single legislator last week breathed a hint of recognition that something might be behind Detroit's woes other than an improbable series of "stupid decisions" (as another Massachusetts congressman put it) by 18 CEOs over 30 years.

There's a larger lesson here for the Obama administration. A whole lot of Rube Goldbergism is coming home to roost, in the auto business, in the mortgage market, in the health-care market, in farm policy. We need to simple-down. The economy has a giant adjustment ahead, paying off debts, going from a heavy absorber of foreign capital and goods to a rebalanced relationship with the world.

The good news is that we have a natively resilient, flexible economy capable of making these adjustments -- unless bound up in Rube Goldbergian mandates. Barack Obama, bless his heart, may or may not be ready for what's coming his way. Yet his objectives are perfectly amenable to the simple-down approach.

He asked on Monday for Detroit to deliver a "plan" somehow to reconcile, at long last, the fantasy life of Washington, with nobody losing a job, with super energy-efficient cars, and yet somehow all this being done at a profit to Detroit.

Here's a plan, but it requires Mr. Obama to play a role too, finally relinquishing such chronic free-lunchism where autos are concerned. He should simply get rid of the CAFE rules and impose a gasoline tax to move the country to a "new energy economy," if he really believes in panicky climate predictions and/or that "energy independence" would be a net improver of American welfare. And be prepared for Detroit to shift jobs offshore if the UAW won't concede competitive labor agreements.

Not acceptable? Here's an alternative plan: Buy out the UAW with taxpayer dollars and free the Big Three to staff their factories with nonunion workers the way Toyota and Honda and BMW do. Last week's Hill circus notwithstanding, the negotiation that really needs to take place now is between Democrats and their union allies. The Big Three executives are just in the way.

Of course, Mr. Obama may have ideas of his own. His climate speech last week was Rube on steroids, aimed at creating whole client sectors of the economy dependent on his favor and endlessly flowing subsidies. It would be a poor excuse indeed of an economic depression that didn't create demagogic opportunities to boss around entire patches of the economy and extract political rents for doing so. There will be plenty of scope for Mr. Obama to head in this direction if he chooses.

Then again, he might just hand the next election cycle to the GOP, assuming Republicans can figure out that they're supposed to be the party of non-Rube-Goldberg government.

Obama's Rich Revelation

Peter Orszag's mission improbable.

Barack Obama yesterday introduced his new White House budget director, Peter Orszag, vowing to conduct a "line by line" review of the federal fisc. Most incoming chief executives promise that sort of thing. But here's a detail that really caught our eye: As part of his plan to kill government programs "that have outlived their usefulness," the President-elect singled out farm subsidies for the rich.

AP

President-elect Barack Obama and Peter Orszag.

If he really means it, this would be big news. Mr. Obama cited a recent Government Accountability Office report that found that of the 1.8 million people receiving farm payments from 2003 to 2006, nearly 3,000 had incomes above $2.5 million, which ought to make them ineligible for aid. Nevertheless, they cashed in to the tune of some $49 million. Having written 40,000 or so editorials against this corporate welfare over the years, we'd love to see a Democrat join the fight.

However, there is the small matter of where Senator Obama was on this issue when we really needed him. The 2008 farm bill -- which set national policy for five years -- was a perfect chance for real change thanks to surging crop prices, record farm income and a President unconcerned about re-election.

President Bush actually sought a $200,000 annual income cap on subsidy payments, but Congress couldn't bring itself to vote on anything below $750,000. And even that got killed by the likes of Senate Budget Chairman Kent Conrad, who as it happens helped Mr. Orszag get his current job running the Congressional Budget Office. The Members ended up passing a $300 billion bill in which nearly every crop, from corn to sugar, won subsidy increases. Mr. Bush vetoed it in May but was overridden.

The vote in the Senate was 82 to 13. Mr. Obama missed the roll call, issuing a campaign statement saying that the bill was "far from perfect" and would have preferred "tighter payment limits." However, he added that "with so much at stake, we cannot make the perfect the enemy of the good." And he then went on to rake Mr. Bush and John McCain (who opposed the bill) for "saying no to America's farmers and ranchers, no to energy independence, no to the environment, and no to millions of hungry people." In other words, given the chance to support cuts in farm subsidies for the rich, Mr. Obama chose instead to attack his Republican opponents for doing precisely that.

The Office of the Presidency can be educational for its occupants. So perhaps Mr. Obama has had a revelation now that he knows he will soon be responsible for any excessive spending. Given his plan to spend some $500 billion to $700 billion on "stimulus," he's going to need every penny in savings he can get. We can't wait to see Mr. Orszag lead the charge against his former patrons on Capitol Hill.

GOP senators hail Obama's economic team

By Alexander Bolton

Senior Senate Republicans who battled former President Clinton on budget and tax issues are applauding the return of his economic team to President-elect Barack Obama’s White House. Sen. Judd Gregg (R-N.H.), a leading congressional Republican on economic issues, lauded Obama’s appointment of Timothy Geithner as Treasury Secretary and Lawrence Summers as head of the National Economic Council. Summers served as Treasury Secretary and Geithner also worked at Treasury during the Clinton administration, when the nation saw booming economic growth. Geithner served under Summers as undersecretary for international development. “I think the choices he’s made so far are extraordinarily strong,” Gregg told The Hill in an interview. He said the picks would soothe anxious financial markets. “Summers and Geithner, I’ve described them as putting Manny Ramirez and David Ortiz in the lineup,” said Gregg, drawing an analogy to two sluggers who played together on his favorite baseball team, the Boston Red Sox. “It sends a message to the market that there will be continuity of the effort” by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke to stabilize the markets, he said. Sen. Chuck Grassley (Iowa), the senior Republican on the powerful Finance Committee, also praised Obama’s first moves. “During the campaign, the kind of change that the president-elect promised was so undefined it made me nervous,” Grassley said in a statement. “Now that he's appointing familiar faces from the Clinton administration to very high-level positions, I'm less concerned.” Grassley said the return of senior officials from Clinton’s administration eased his concern about Obama’s ability to handle the economic crisis. Gregg, the senior Republican on the Budget Committee, worked closely with Paulson and Bernanke to craft a Wall Street stabilization package in September. Some Republicans and Democrats have criticized the rescue package as a waste of taxpayer money. Gregg and Grassley also touted Obama’s selection of Peter Orszag to head the Office of Management and Budget. Orszag is now director of the Congressional Budget Office. “Larry Summers and Peter Orszag were part of the Clinton administration, where they saw up close how the tech bubble developed,” Grassley said. “They also responded constructively to pressure from the Republican-led Congress to restrain spending and put in place pro-growth and pro-family tax relief policies.” Gregg compared Orszag to Red Sox star second-baseman Dustin Pedroia, who won the American League’s most valuable player award for 2008. Separately, Gregg urged Bush administration regulators to take fast action on so-called mark-to-market rules that he said could have a strong negative impact on the financial markets. The rules require financial institutions to value assets at what they would fetch immediately on the market. Gregg and other experts worry these strict rules would require financial companies to report their holdings at artificially low values and send stocks plunging even lower. Gregg said regulators should allow financial companies to determine the “reasonable value” of these assets. “This is something that can be handled by the regulators,” said Gregg, who said the Securities and Exchange Commission also should take action to discourage short-selling, which experts have blamed for driving down markets. Gregg suggested the SEC reinstitute the so-called uptick rule, which requires speculators to short a stock that is going up instead of going down. The rule, which was repealed several years ago, was intended to discourage short-selling stampedes among investors who seek to earn a profit by driving down the values of otherwise solid stocks. “I think they should reinstitute the uptick rule so people have to cover,” Gregg said. “People are betting short, short, short without having to cover. “It would be best if the Congress didn’t have to act,” he said. “The SEC has all the authority and it should act.”