The View From 1776

A reader, commenting on my recent post wrote:

The post fails to note that GM finished paying back all the money lent in April of this year, and is now operating at a profit. 

So, it is the claim that the administration nationalized the auto industry that is “ludicrous.”

Bankruptcy of the entire auto industry would have been preferable?  I don’t think so. 
The Chevy Volt is actually quite an advance toward shedding our oil addiction.  And yes, early versions of all prototypes tend to be expensive. 

Do you remember the early computers?  The IBM mainframe computer model 360-70 occupied a large room but had less computing power than what today is found on a tiny chip the size of a fingernail.

First:

The Chevy Volt’s being quite advanced is relevant only to the extent that it could command a large, immediate market demand for the product.  It doesn’t.

Contrast the Volt with Apple’s iPad and iPhone 4, which engendered a demand that overwhelmed available supplies.  Apple probably has already recouped its sizable investment in development and manufacturing set-up costs and is making a huge profit from day one on its innovative products.

Worshippers of all-things-green appear to be happier when an investment is money-losing, because Marxian economics tags profits as money stolen from the workers.

It’s true that high initial investments sometimes are required for major products.  But no successful businessman ever invested billions of dollars on a scheme for which careful economic analysis and projections failed to show the realistic possibility of profitable recovery of that investment, generally within five years.  You can be certain that IBM had orders for any early mainframes it built and that the prices it charged at least covered all variable costs.

It’s also true that large corporations sometimes invest considerable amounts of money in basic research.  The old Bell Labs and IBM’s Watson Labs are examples.  But that money was applied to researching concepts that AT & T and IBM were adept at turning into money-making products.  Government Motors’s Volt is not of that sort.

The point is not how large the investment in battery-operated toy cars or how innovative they may be, but whether the investment promises to be profitable.  It is almost certain that Obama’s auto czar, behind the scenes, ordered Government Motors to focus its scarce financial resources and personnel time on this money-losing project. 

Economics is about the most effective employment of scarce resources.  And money, in private hands at least, is always a limited commodity. 

Second:

With respect to Government Motors apparently having repaid its TARP loans, even the New York Times, the socialist paper-of-record, didn’t fall for that PR scam.  See the excerpt below from Gretchen Morgenson’s piece:

Repaying Taxpayers With Their Own Cash
By GRETCHEN MORGENSON
Published: April 30, 2010

As we inch closer to a clearer understanding of the products and practices that unleashed the credit crisis of 2008, it’s becoming apparent that those seeking the whole truth are still outnumbered by those aiming to obscure it. This is the case not only on Wall Street but also in Washington.

Truth seekers the nation over, therefore, are indebted to Senator Charles E. Grassley, Republican of Iowa, who in recent days uncovered what he called a government-enabled “TARP money shuffle.” It relates to General Motors, which on April 21 paid the balance of its $6.7 billion loan under the Troubled Asset Relief Program.

G.M. trumpeted its escape from the program as evidence that it had turned the corner in its operations. “G.M. is able to repay the taxpayers in full, with interest, ahead of schedule, because more customers are buying vehicles like the Chevrolet Malibu and Buick LaCrosse,” boasted Edward E. Whitacre Jr., its chief executive.

G.M. also crowed about its loan repayment in a national television ad and the United States Treasury also marked the moment with a press release: “We are encouraged that G.M. has repaid its debt well ahead of schedule and confident that the company is on a strong path to viability,” said Timothy F. Geithner, the Treasury secretary.

Taxpayers are naturally eager for news about bailout repayments. But what neither G.M. nor the Treasury disclosed was that the company simply used other funds held by the Treasury to pay off its original loan.
Neil M. Barofsky, the inspector general overseeing the troubled asset program, revealed this detail when he spoke before the Senate Finance Committee on April 20.

“So it’s good news in that they’re reducing their debt,” Mr. Barofsky said of G.M. But he went on to note that G.M. was using other taxpayer money to make the loan repayment, according to the transcript of his testimony.

Armed with this information, Mr. Grassley fired off a letter to Mr. Geithner on April 22, asking for details of the transaction. “I am concerned ... that this announcement is not what it seems,” he wrote. “In fact, it appears to be nothing more than an elaborate TARP money shuffle.”