Is Obama Seeking Revolution In Capitalism?

Marc Ambinder: The President's Handling Of GM Reflects The "Creative Destruction" That's At The Heart Of Capitalism's Success

(CBS)  The "On The Marc" column is written by The Atlantic's Marc Ambinder, CBS News' chief political consultant.

---

Barring a sunrise at night, General Motors Corp. is headed for an orderly bankruptcy, and the Obama administration is about to be handed the keys to a venerable corporate institution. Again.

And again, the administration seems to be rewriting the rules of capitalism to fashion a deal to its liking.

Purists - and virtually every academic economist one happens to encounter - wonder what happened to the once inviolate principle of rewarding risk-takers. Unsecured creditors will get less of a stake in the new GM than its employees, and you can forget about poor unadorned stockholders.

As in the deal with Chyrsler's bondholders, the administration muscled its way through the negotiations and used its considerable leverage to convince secured debtholders - the highest class of investors - to accept a fixed return that was significantly less than many of those investors had expected when they put money into the falling company. Who benefits? The question isn't very apt, because everyone is losing something. But, on balance, the unions are getting a better deal.

The unions, who support Democrats - and whose work rules arguably hastened the collapse of the American auto industry.

Asked whether the Chrysler and GM bailouts were sops to unions at the expense of secured creditors, administration officials answer the subject of the question. That may be the case, they respond, but the other choices were untenable. As to the charge that the Obama economic team is redefining capitalism, erasing incentives for investors and acting like a gangster, I would wage an hour's worth of UAW productivity that officials, in private moments, would concede that these things are so. But they'd argue that, where critics see a contempt for capitalism, what's actually taking place is a revision of the informal rules that governed capitalism into the ground. A cultural revolution, if you will.

It is absolutely true that there are exigent circumstances; that the domino effect of two major auto company failures would cascade into a catastrophe even greater than the one we've experienced. At the same time, though, the Obama team is pushing a policy outcome that will advance Mr. Obama's economic worldview, one which treats the era of money capitalism, and all of its rules, as suspect.

The pattern is clear: threats from the government to abrogate employment contracts....public repudiation of the Wall Street bonus structure....proposals to change tax rates for corporations doing business overseas....the equating of hedge fund managers with "speculators," a term rife with history - and a word which came out of the president's mouth during the frenzied Chrysler negotiations.

Note that, aside from threats and suasion, the administration hasn't done anything. The bondholders (with notable exceptions) agreed to these two deals. No laws have been broken. Everyone has sacrificed. And the unions have already given up a great deal - and, in doing so, put their trust in the administration. Here's the Obama perspective on these deals, in six bullet points.

1. Secured debtholders were the blood cells of the money economy, and they're very important now. But employees ought to be valued by the market system, even if there is no way to measure their contribution. The Obama administration supports the union movement. Mr. Obama ran on a platform of empowering unions. This move empowers unions.

2. The administration believed that, absent tough talk, hedge funds and debt holders would have driven GM into bankruptcy; they'd get paid by, say, stripping down and melting the metal beams from the factors, and everyone else would get screwed. Incentives, in this case, would not have saved GM.

3. Chrysler, a much smaller company, might well have left to die. But its failure at the time when the decision needed to be made -- its failure, in other words, in the context of a collapsing economy, would have been much more catastrophic. The administration believes that its intervention will buy Chrysler a few more years. If it fails in a few years, that's bad -- but not destructive.

4. Unions aren't getting off scot free. They've got to reorganize the company. They're going to have to meet aggressive profit goals. They're now responsible for the legacy benefits. And investors aren't necessarily going to be willing to put money in GM now, especially given the precedents set by the government. The UAW may be on its own.

5. Here's a version of this argument, by private equity manager Scott Sperling:

"Far from harming capitalism, the Obama administration's policies concerning GM and Chrysler are very much in line with the process of "creative destruction" that the economist Joseph Schumpeter described as the active heart of capitalism's success. The government has been willing to support an important industry -- but only on the condition that all stakeholders make the tough choices necessary for the companies to succeed in the long term. This is capitalism at work."

This argument may not buy Obama good will on Wall Street, but it faithfully represents what he's thinking.

[JackGarvey]

hoofhearted is making the comment, that although Bill Clinton is a democrat, many, if not all republicans, were pleased with his decisions concerning their financial well being.

[JackGarvey]

The quickness for the failing of the American auto industry is not correctly placed at the feet of unions. If my company was making a product that was starting to see an increase of purchases by customers for a product made by foreigners, wouldn't I be concerned ?
Most people comment about our failure to respond to Japanese cars, well, what about the Volkswagon bug ? Ford responded with the Maverick, and I vouch for that car, because after being twelve years old, it rode me through four years of college. It was a 1969, and I graduated from college in 1985.
My guess is that the profits weren't there, so they produced the nightmare causing Pinto, enough said. Yes, I babble, but the medical company I worked for, Becton-Dickinson, is
still making a quality product, one that is in statistical control, and that is why they can compete in a world economy. This statement will hurt me, but during the time I worked there, B-D was without a union. A workforce wants to know that their employer not only wants to compete, but seek victory.

[loyalto1]

CLINTON WAS A DEMOCRAT !!!

[hoofhearted0]

The LAST GOOD republican for the economy, was Eisenhower.
Posted by hungry1968-15 at 11:59 AM : May 28, 2009
- - - - - - - - - - -

I always thought the last GOOD republican for the economy was Clinton. He was the best republican president since Lincoln. Alan Greenspan said that Clinton was "the best republican president we've had in a while."

Look at all the things that Clinton "accomplished" that republican presidents only dreamed of: Destroyed welfare; passed NAFTA (and thousands lost their jobs); allowed the dismantling of affirmative action; Operation Gatekeeper and thousands died; sold out to many corporations; and he gave a lot of tax perks to the wealthy; etc.

[sjc_1]

"...would concede that these things are so..."

The author takes a lot for granted here. This is not journalism but more biased opinion pretending to be journalism. Just report the facts and quotes, let the readers come to their own conclusions.

[louiville2]

Socialist states don't manage the companies - they dictate the social welfare fo the state and use the income of companies and individuals to pay for those programs. Much of western europe is what is called democratic socialist states - cradle to grave care if needed but individuals and companies decide compensation and income.
Posted by jimmyc1955 at 2:51 PM

Nice post but I disagree, most people when defending socialism point to Sweden as a shining example, they always overlook the dark side of socialism that most socialist states face. Example look at Zimbabwe today who cannot feed their people or Venezuala that once exported food and now must inport food.

My son, an engineer, is currently working for a international company in Koln, Germany. They imported him because of the shortage of engineers, why? Because there has been a brain drain of qualified engineers from Germany to better paying countries like the USA. He currently pays about 65% of his pay in taxes and for what? Some extra time off, a good public transportation system, and long waiting time for health care (OF WHICH HIS COMPANY HAS TO PAY FOR SINCE HE'S NOT A GERMAN CITIZEN).

He recently went to have a kidney stone removed, spent a month on the waiting list, when he finally went in they had lost all his records and had to redo his tests then wait another week for the surgery in constant pain. The operation, had it been done here, would have been a arthroscopic surgery and a couple day stay. Instead they cut a foot long opening over his kidney and he spent three weeks in recovery.

Also most people don?t know that Hillary?s health care plan that failed in the early 1990?s had a provision in it that allowed the government to not only set wages for doctors etc? but also dictated as to where and who they could work for, why? Because Doctors would have moved to the rural countryside towns, towns where they would be paid them same as in a city without the massive patient load and crime. In other words the ?Socialist Government? program would have as I stated controlled their very existence.

In case you missed it thousands of British doctors fled Briton to the US, when Briton socialized medicine. This is why the majority of Socialist countries inevitably start constricting the movement of their people to the point of building walls. That?s why even the smallest bureaucrat has the ability to ruin your life. Leaving you only one real option to leave the country if you can.



"De facto government ownership of the means of production, as Mises termed it, was logically implied by such fundamental collectivist principles embraced by the Nazis as that the common good comes before the private good and the individual exists as a means to the ends of the State. If the individual is a means to the ends of the State, so too, of course, is his property. Just as he is owned by the State, his property is also owned by the State.

But what specifically established de facto socialism in Nazi Germany was the introduction of price and wage controls in 1936. These were imposed in response to the inflation of the money supply carried out by the regime from the time of its coming to power in early 1933. The Nazi regime inflated the money supply as the means of financing the vast increase in government spending required by its programs of public works, subsidies, and rearmament. The price and wage controls were imposed in response to the rise in prices that began to result from the inflation."-http://www.mises.org/story/1937

[louiville2]

First of all, you need to learn how to express your views intelligently. Please leave the sarcasm at home. Secondly, that is your opinion of socialism.... Where you in Russia when it was built? Has the govermment taken your whole paycheck away and ruined your life? If you have not experienced this first hand, that your argument holds no water. There is no right or wrong, only opinion on this blog. If you can't express yourself without the cheapshots, you can find someone else that will play that game with you.
Posted by blog_fever2 at 2:53 PM


Ummm you first LOL. What a Gomer. "Cowboy up cupcake" I see you spent 9 month trying to get out of the womb and now you want to crawl back into a government womb.

Don't take my word for it, just read Mises and Hayek they both lived through the rise of socialism to totalitarianism in Europe. Hayek wrote "The road to serfdom" in 1945 while hiding out from the the socialist Nazis.

Big smile Big smile

[hoseobama]

It looks like Barry is well on his way to bankrupting the US. There is more than one way to take money from the rich.

Make their money worthless.

[blog_fever2]

So do you blame the 20 game winner for the $150 million dollar 4 year contract or the owner willing to pay him that salary?
Posted by jimmyc1955 at 2:43 PM : May 28, 2009
*****************************************************
No how can I blame him? But to add on to that, what happens when a player doesn't fulfill their obligations under the contract, do they get to keep the money? Just like you said in your previous post, "Somebody is willing to pay for performance" and Americans are no different. My argument is stating that when the person not making the performance is the head-honcho, and still takes the money and makes the employees, contractors, customers, etc. pay for their greed and lack of leadership, that is where the system is flawed. I respect your opinion about the government intervention, but if there is nobody that has the authority to step in, how does the problem get fixed? Committees only work in public companies, what about all the private ones?

[blog_fever2]

That's why Socilist states like russia built walls to keep their human cattle from bolting to another country.

In other words a socilist state looks at you as it's property (slave).
Posted by louiville2 at 2:44 PM : May 28, 2009
*************************************************
First of all, you need to learn how to express your views intelligently. Please leave the sarcasm at home. Secondly, that is your opinion of socialism.... Where you in Russia when it was built? Has the govermment taken your whole paycheck away and ruined your life? If you have not experienced this first hand, that your argument holds no water. There is no right or wrong, only opinion on this blog. If you can't express yourself without the cheapshots, you can find someone else that will play that game with you.

[jimmyc1955]

louiville2 - Uhhh - I was behind you till that post.

Socialist states don't manage the companies - they dictate the social welfare fo the state and use the income of companies and individuals to pay for those programs. Much of western europe is what is called democratic socialist states - cradle to grave care if needed but individuals and companies decide compensation and income. I worked for a swedish company and I know for a fact that they could hire and fire without any government oversight.
Now the tax load per individual was extrodinarily high - well over 50% when VATs, Federal and county taxes and fees were totaled. But if you wanted to get a better job you were free to do just that when ever you wanted.

Keep in mind though, few did decide to change because once you fell into the social welfare trap it was very hard to escape again. It was a reduced standard of living and for the ambitious it was a nasty place to be - but for those who lacked a desire to improve their lot in life it was easy pickings.

[louiville2]

No it's not new to Obama, but Obama is taking us with actions like this one twords a totalitarian government one that tell where people can work, how long they must work and much they will be paid. This has been done over and over mostly to failure.
Posted by louiville2 at 2:27 PM : May 28, 2009
************************************************
This is your whole argument?
Posted by blog_fever2 at 2:30 PM


This will probubly go over your head but at least I tried.

Let say you work for one of those evil capatilist millionares who tell you when how and how much you will be paid when you work for him, OK. You get mad and find a new job, a better job, right cuz your free to make that choice. Still with me?

Socialisum comes in and takes over everything, suddenly you answer not to a capatlist pig but to some lowly bureaucrat who now has the same power as the millionare over your life but also has the ability to ruin your life. Why because you no longer have the ability to move to another job unless he/she says so. The bureaucrats power is to the power of ten at least of any millionares power.

That's why Socilist states like russia built walls to keep their human cattle from bolting to another country.

In other words a socilist state looks at you as it's property (slave).

[blog_fever2]

Your trying to merge the local and the federal and that is where we will fundiementally differ.

Socialism is by definition focused on the equality of condition of citizens. Our representative republic sees the condition of each citizen as his or her own responsibility with programs to provide temporary aid when needed. That is not the same as a cradle to grave system as used in much of Europe - that is slowly failing after about 40 years of effort.
Posted by jimmyc1955 at 2:36 PM : May 28, 2009
*****************************************************
So police, firemen, public schools, etc. are not focused on the condition for all citizens? I disagree with you on this. It seems like the whole basis of your argument is determined by who controls the program. If it is control by the state/county/city, it is a social program, but if it is controlled by the federal government, it is socialism? Is this the point you are making?

[jimmyc1955]

blog_fever2 - though I agree executive pay is out of all reasonable bounds it is out of bounds for the same reasons that professional athletes salaries are out of control and celebrity incomes are ludicrous. Somebody is willing to pay for performance.

Succesful chief executives are highly valuable because they bring experience and talent that is rare and hard to find. They negotiate (not much different than collective bargaining) a compensation package and agree with an executive compensation comittee.

You may not like that but I firmly believe that government intervention in this will in fact just create worse problems.

Yes - compensation should mirror performance - and in many cases it does. Investment houses, banks and sales executives are usually the exceptions because they are always heavily bonus compensated. they do indeed make some ridiculous incomes that are hard to justify - but they often perform as expected or better.

So do you blame the 20 game winner for the $150 million dollar 4 year contract or the owner willing to pay him that salary?

[mrzerato]

We need burro representation in the blogging rules.
Posted by TheMasses05

My burro is sensitive. He is called names by the other burros. They call him little burro or burrito;

Yes a ruel about burros, donkeys and jackasps should be covered

[blog_fever2]

blog_fever2 - So if that same executive pulled down $40 million the first year, had a boom year and the company expanded he is not greedy. If he pulls down $40 million the second year but an economic downturn cut his companies sales and new competitors appeared driving down his margins and he had to lay off employees he is now greedy?

The word greed is relativistic. It only fits your model when used in a situational vacuum.

there was a great deal of discussion about how to limit escallating executive compensation which you can read if you scroll back.
Posted by jimmyc1955 at 2:24 PM : May 28, 2009
*****************************************************
That's how "performance-based bonuses/incentives". Leaders have to sacrifice more than anyone. If your company does not perform, while should only the employees suffer? That, to me, is greedy. If the employees were not there, no matter how the economy is, the executive would not have made his millions anyways. In my opinion, executive pay should be modest at best and performance incentives should be tracked on long terms, not short gains. Of course, that's my opinion, what's yours?

[jimmyc1955]

blog_fever2 - No I don't agree we can striken the word because many of the "social" programs you mention are local in nature. Fire departments, schools and police are indeed social services - but they are local social services funded locally and under the direction of the local people.

Your trying to merge the local and the federal and that is where we will fundiementally differ.

Socialism is by definition focused on the equality of condition of citizens. Our representative republic sees the condition of each citizen as his or her own responsibility with programs to provide temporary aid when needed. That is not the same as a cradle to grave system as used in much of Europe - that is slowly failing after about 40 years of effort.

[mrzerato]

LOL I guess you'll be riding the donkey or is that a jack*ss.
Posted by louiville2

I will have you know that I ride a burro and I am insulted that you would call it a donkey

[mrzerato]

Now, our teams meet on the field. Okay, Comrade, which team do you think has a better chance of winning?
Posted by BigOrange92

Now we know you have no idea what is socialism . Should have kept your mouth shut

[louiville2]

This is your whole argument?
Posted by blog_fever2 at 2:30 PM

I guess you lost me LOL cuz your argument that capitalism just feels bad to you so it should go LOL.