Chrysler Meets Obama, Man of the System

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The most telling remark from an Obama administration official about the Chrysler bankruptcy came a week before the Chapter 11 filing, when President Obama’s Environmental Protection Agency Administrator, Lisa P. Jackson, told a radio interviewer: “What this country needs is a single national road map that tells automakers who are trying to become solvent again what kind of car it is they need to be designing and building for the American people.”

Of course, foreign car makers operate very successfully in the United States without such a road map from government. But never mind. Jackson doesn’t understand the car business any better than our president does. But she does understand the power of the federal government. So since she and President Obama aim to dramatically increase the miles-per-gallon requirements of American cars, the President and his auto advisors put together a rescue deal for Chrysler that gives Italian-car maker Fiat a big stake in the bankrupt automaker in exchange for Fiat’s technologies for producing fuel-efficient cars.

But this is only the beginning, not the end, of all the levers that the federal government is going to have to pull to save a persistently-troubled company. To work this deal successfully Washington has to intrude on and upset established bankruptcy law. It must extend its role as financier of last resort. It may have to do something about those pesky foreign-car competitors to Chrysler (who will no doubt use their superior brand names, marketing and technology to parry and thrust new Chrysler initiatives). The government may have to find a way to discipline recalcitrant American consumers who disdain the Chrysler brand (and barely know Fiat’s), especially when it comes to small, fuel efficient cars that the company will now produce. And government may be called on to remedy Chrysler’s big cost-disadvantages, a product of its high wages and benefits, without upsetting union allies (one gander at the paltry “concessions” the unions have so far granted indicates how much work is still to be done on this issue). And that’s only the beginning, only the obvious moves based on recent history. Beneath the surface are effects and circumstances which will show themselves at each step of the way, and which must be managed to Chrysler’s advantage. And for how long? After all, we’ve already bailed this company out once?

When President Obama took office he faced an epic crisis of confidence in our economy that seemed unprecedented in recent history. Given the scope of the problem, there was room for reasonable debate on the right course of action. But every day since, and especially now with Chrysler and General Motors, President Obama reveals himself to resemble more and more what Adam Smith called “the man of system,” ready to work the levers of government to try and position large swathes of the economy to his liking or advantage.

In his Theory of Moral Sentiments, the book that preceded and laid the groundwork for Wealth of Nations, Smith wrote of the risks of the man of system in government because he “seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them.”

Far from being warned away from the man of system by Smith, by the 20th century many people embraced the notions of central planning and micro-managing of broad economies and individual industries. The Nobel Prize winning economist F. A. Hayek called this the ‘fatal conceit’—men believing they could ascertain and direct all the forces at work in society. And despite its failures, central planning remains attractive in the 21st century, especially among the elite because, as Hayek wrote, “intelligent people will tend to overvalue intelligence, and to suppose that we must owe all the advantages and opportunities that our civilisation offers to deliberate design.”

And so it goes with Chrysler. Since our auto industry is part of a world-wide network that is not so easily managed by government, saving Chrysler will involve more than just some tinkering here or there. It may well involve sweeping and persistent actions to herd consumers, tame the competition and rewrite our laws in the process. How much will be acceptable? And what will be the criteria for determining other American industries which government must similarly try to save?

It’s enough to jar even your typical National Public Radio reporter. Interviewing EPA administrator Jackson last month, it was an NPR reporter who, after listening to Jackson’s rift on government guidance to car companies, naively responded, “That doesn't sound like free enterprise.”

When did they start getting ideas like that over at NPR?

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