Roubini Advocates Nationalization Of Auto Industry

You know, Nouriel Roubini is smart. I’ve long believed that we should never treat those in opposition* like dullards, because that leads to sloppiness in fighting them. But I just don’t know how a smart person — an economist — can advocate the nationalization of our auto industry with a straight face.

“We’re spending $2 trillion to bail out financial institutions,” the economist notes. “What’s the fairness of not giving say $50 billion of low interest loans to automakers to help them restructure?

But Roubini is no ally of the auto industry CEOs currently making their case in Congress. He says any government aid must be “highly conditional” and only occur after a prepackaged bankruptcy that includes:

  • Replacement of current management
  • Concessions from both the UAW and automakers
  • A wipeout of existing equity and debt-holders
  • Temporary nationalization of the auto industry

The appointment of a “car czar” is clearly a touch subject but Roubini says those worried about moral hazard and issues like free enterprise are fighting the last war.

“There’s already massive amounts of government intervention in the economy, we’ve [crossed] that bridge,” he says. “The question now is, what are we doing to do right? If it takes an auto czar to really structure these firms, so be it.”

Have our “drug czar” or “poverty czar” or “education czar” ever solved a damn thing in their respective fields? No? So why think that an “auto czar” would actually improve things. Who’s to say that — once they get their hands in the cookie jar — the nationalization of the industry would be “temporary”? While it may not be a de jure nationalization in the future, I could see the industry going the way of the GSE’s, nominally private but publicly regulated.

Roubini seems to be offering the argument that only nationalizing some industries while letting others fall is “unfair”, as if nationalizing anything is fair. He wants the government to come in and bail out the automakers — throwing their owners [the shareholders] out the door — and take over… Just like Fannie… And he actually thinks this is a good idea?!

I’m sticking with my original instinct — let them survive or fail, hit bankruptcy if necessary, and go through the painful but required reorganization according to market economic principles. If you put an auto czar in charge, the reorganization will be done according to political principles, and we taxpayers will be saddled with these industries — and all the protectionism that goes with state-owned industries — for perpetuity.

* Of course, I wouldn’t necessarily consider Roubini in “opposition”, as an academic economist. He was rather prescient about not only the cause but the shape of our current financial meltdown. However, when someone suggests that we should have Washington appointees try to fix our ailing auto industry, I consider that a point worth opposing.

  • Akston

    One of the potential hazards of being an intelligent person is to assume that intelligent people can use their massive intellect to “fix things” for all those other poor stupid people. Elitism can be born this way. This condition can easily afflict members of diverse philosophical and political groups.

    Elitism of thought is pretty commonplace, here on the Internet. I fall victim to it as easily as the next guy, off and on.

    Elitism leading to action: there’s the dangerous stuff.

    I often have tremendous respect for a public thinker, yet vehemently disagree with his or her prescription for action.

    …let them survive or fail, hit bankruptcy if necessary, and go through the painful but required reorganization according to market economic principles. If you put an auto czar in charge, the reorganization will be done according to political principles, and we taxpayers will be saddled with these industries — and all the protectionism that goes with state-owned industries — for perpetuity.

    I wholeheartedly agree. First, it’s not the constitutional role of the federal government to own portions of any industry. Second, government bureaucrats are no better qualified to run an automobile company than anyone else (and arguably much worse). Third, auto companies have failed in the past and will fail in the future (if the government maintains its proper role) – the world will not end, and companies may restructure or be born with far more reasonable labor constraints, etc. Fourth, if Mr. Roubini wants to run a car company, perhaps he should invest in one with his own money.

  • http://coldwarproductions.blogspot.com/ Richard Posner

    Anyone who can voice any defense whatever of “free” market capitalism at this point is beyond delusional. Try completely psychopathic.
    “The proof of the pudding” as they say. We’ve had this trickle down b.s. shoved down our throats far too long.
    It’s true that government interference is largely responsible for the current disaster we’re facing. Deregulation has allowed the criminals that run corporate amerika and wall street to do whatever the hell they please with absolutely no thought of any consequences. Even after driving the country into bankruptcy they are being handed something like $2.5 trillion to make sure they won’t suffer any undue inconvenience for the catastrophe they caused.
    After virtually millennia of repeating the same mistakes you might expect rational beings to “get it”. Apparently this isn’t true. The human race seems content to keep repeating the same cycle of exploitation, oppression and bloody revolution over and over ad nauseam.
    A species as destructive, arrogant and self-serving as homo sapiens should not have survived even this short time. Our extinction is overdue. Just keep on with business as usual. Nature will see to it that we are dispensed with in due course.

  • http://www.thelibertypapers.org/author/tarran/ tarran

    Richard, sweetie,

    You complain that the managers of these companies were permitted to run their companies with no thought to consequences, and then claim that they should be shielded from the consequences of their actions?

    In a free market these guys would have been long bankrupt. You know why the managers were able to screw their stockholders over for so long? Why CEO’s command such high pay? Because, thanks to SEC regs it is almost impossible for stockholders to fire the management of a company when they are fucking up. Remember the late 1980’s when corporate raiders were taking over poorly run companies, firing management, reducing costs and increasing the efficiency of the companies? Remember when the media was crying what a terrible thing it was? Don’t lecture me about exploitation mate… it’s guys like you who are begging for the chains to be clamped around your wrists.

    Oh, and anybody who thinks that George Bush ordered thermite to be placed inside the WTC towers, that his men carried out his orders without the people working in the towers noticing is pretty seriously delusional.

  • http://pith-n-vinegar.blogspot.com/ Quincy

    Richard –

    Whatever you’re on, give me some.

  • http://www.thelibertypapers.org/author/tarran/ tarran

    I think you can find it at the spray-paint section of the hardware store.

  • http://pith-n-vinegar.blogspot.com/ Quincy

    I think you can find it at the spray-paint section of the hardware store.

    Not in California. They do a background check and impose a 6-week waiting period for it.