Monday, March 30, 2009

Most Government Involvement Since the Great Depression

Rick Wagoner, the chairman at General Motors, has resigned, apparently forced out by the Obama Administration. According to a New York Times article, the decision caught both Detroit and Washington by surprise and also indicated , "...a level of government involvement in business not seen since the Great Depression."
My first blog posting had to do with all the times we hear today about the "worst since the Great Depression." We may now get other phrases in connection with the last part--since the Great Depression. It seems clear that the new administration wants government involvement at greater levels that we have seen, at least since Reagan's election. (Robert Reich had a recent opinion piece in which he argues that Obamanomics isn't about big government, but I don't find his arguments persuasive.)
A question remains as to how involved the government will be in operations and strategies of GM given that GM has asked for and received federal money. To hear some politicians, including Obama while a candidate and Rep. Pelosi on numerous occasions, the auto firms just need to become more green and profits will return. How to do so remains a bit of a mystery. Ronald Coase, a Noble-winning economist, described how as a student he and classmates were discussing policy in the oil industry, and how wasteful American oil firms were. (This was in 1930). Arnold Plant, the professor of the class, led them through a discussion that implied that the government knew more about running an oil firm than the executives of the oil firms, and further, that they as students knew more about running oil firms than the executives knew. Coase notes that the foolishness of the implications were obvious at that point. (See R. H. Coase, "The Nature of the Firm: Origin," Journal of Law, Economics, & Organization, 4 (Spring 1988), p. 6.)
GM has made a lot of mistakes, and perhaps it deserves to fail. But if GM had followed the path Pelosi or other politicians opt for, that failure would have come even sooner.

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