Bailout Logic Bubbles Over In Chicago

Several industry commentators have chided the Obama Administration for its recent “Mission Accomplished” tour of the auto industry, arguing that we’re all still a long ways from knowing the bailout’s true effects, and that declaring victory is grotesquely premature. But by now the logic of bailout has so taken hold that the White House knows it need not even prove that the bailout was a success. The point that is made over and over again is that opposition to bailouts can be motivated only by nihilism. On each stop of his recent tour of auto factories, Obama has emphasized that he “refused to walk away” from the auto industry. He did something when no one else would. What tends to escape notice is how quickly the logic of “doing something” can make otherwise smart people stop questioning the actual impact of government intervention. And as two stories today illustrate, that’s a recipe for the worst kinds of waste.

Bloomberg reports that the town of Fenton, MO was given $2.1m as part of the effort led by Director of Recovery for Auto Communities and Workers Ed Montgomery, in order to

lift up the hardest-hit areas by using the unprecedented levels of funding in our Recovery Act and through the government to create new manufacturing jobs and new businesses where they’re needed most.

But with Montgomery leaving his position for a spot at Georgetown University, it seems that most of Fenton’s federal cash pile is still sitting unused… because Montgomery and the White House never explained how it should be spent. In the era of the pork-barrel earmark, it’s simply astounding to read the mayor of Fenton saying

We’re really struggling with what exactly we’re going to use that money for.

So far, Fenton has spent a small portion of the money trying to sell its abandoned Chrysler plant, and last month it commissioned a study to determine how it should spend the remaining money. Yes, really. All of which makes one wonder what exactly Montgomery’s $177k annual government salary was buying… other than the perception that something was being done.

The same could be said for today’s announcement of a $250m loan guarantee to help Ford export more vehicles. In his speech today at Ford’s Chicago assembly plant, Obama described the guarantee’s many benefits in glowing terms, saying

it’s going to help us reach the goal that I set in my State of the Union address, which is we are going to double America’s exports of goods and services over the next five years. We’re tired of just buying from everybody else — we want to start selling to other people, because we know we can compete.

That’s how we’re going to grow our economy. That’s how we’re going to support millions of good jobs for American workers to do what they’ve always done: build great products and sell them around the world. Our workers can compete with anybody — and America is going to compete aggressively for every job out there and every industry out there and every market out there.

But the loan isn’t supposed to be used to export to Europe or China, but Canada and Mexico. Because apparently boosting inter-NAFTA exports are the key to a revitalized export base. This despite the fact that auto-sector production and employment has been dropping in both the Mexican and Canadian markets as well, raising the likelihood of retaliatory measures from the Mexican and Canadian governments. And inter-NAFTA competitive issues aside, Ford’s sales have been reasonably healthy in both Canada and Mexico. Besides, the link between stimulating exports and increasing manufacturing jobs is hardly well-proven.

As with Ed Montgomery’s Fenton, MO debacle, the lesson seems to be that spending money regardless of the marginal benefit is more politically palatable than being seen as a passive steward of the American economy. As long as that remains the dominant paradigm, we can expect more and more money to be wasted on these Potemkin bailouts. Instead of trying to legitimize last year’s bailout by simply spending more money, the Obama Administration should be careful to make sure any further money spent on the auto industry is well-justified. Because when Obama says things like

And to all those naysayers in Washington, what we call the “just say no” crowd who said that investing in you would guarantee failure; who said we should just walk away from this industry; who said that standing by America’s automakers was “the worst investment you could make”; who tried to block us at every turn — I wish they were standing here today and saw what I see. I wish they could see the pride you take in building these great cars, American-made cars.

he doesn’t realize that pride can’t be bought with public money. The industry has been saved, but if it wants to inspire real pride in America’s citizens, it needs to stand on its own two feet.