Should the U.S. government be running the affairs of automakers?

No

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by Michael Greaney

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In 1829 a man named William Cobbett wrote a book to help convince people trapped in the English wage and welfare system that they could better their lives and become small proprietors instead of "wage slaves" by emigrating to the United States. The book, "The Emigrant's Guide," presaged Alexis de Tocqueville's magnificant "Democracy in America" by six years, but both works point out the distinguishing characteristic of life in America in the early nineteenth century: in America, instead of being effectively owned by others, you could be an owner; that the chief thing distinguishing Americans from all other people was their habit of doing things for themselves in free association instead of waiting for the government to do something.

The current situation with the American automakers demonstrates just how far we have come from the society chronicled by Cobbett and de Tocqueville. From being a virtual utopia where anyone could get ahead (or at least believe that he could get ahead, which was better than the utter hopelessness and social stratification that characterized England), the United States has become a country of dependents, who look first to the State to do everything for them, a nation of infants who need looking after ... or so the media and the major political parties would have us believe.

The effective takeover of the American "Big Three" automakers (while at present restricted to General Motors and Chrysler, with Ford "only" being threatened) is the most graphic illustration of just how far America and Americans have fallen, both in their own eyes, and the eyes of the world. Instead of being welcomed with open arms, recent immigrants tend to be characterized even by themselves as coming to America only to get the better benefits doled out to wards of the State, while citizens more and more resent new people coming into the country as representing a greater burden on the social welfare system or "job thieves" out to take away what "rightfully" belongs to workers already here.

Far from being the best agency to run the automakers, we have to seriously question whether the United States federal government, as currently structured and run, is competent to run anything. A public entity that has run up a deficit of over $10 trillion dictating to private sector companies who have lost "only" billions how to carry on business? Aside from the fact that it is far outside the State's competence to do anything other than look after the common good of society (not the individual good of every citizen) by passing and enforcing laws, protecting property, and providing for the common defense, the federal government's record of fiscal and monetary irresponsibility under the dictatorship of the Great Defunct Economist Lord Keynes hardly suggests that federal government control of anything will be successful, any more than socialism has ever been.

What is the alternative? Or is there even an alternative? Yes, there is. The "American Auto Workers' Ownership Committee," a small group of concerned members of the United Auto Workers union and former management are making a last-ditch effort to save the automakers both from the federal government socialization of the industry, and from union policies that drive up costs without lasting benefit to the workers. The basic idea is that the automakers should go through a Chapter 11 reorganization. This would cancel all existing equity, write down unserviceable debt, and set up an "Employee Stock Ownership Plan Trust" to own all the new equity on behalf of the workers and retirees of each company. It may even be feasible to break the automakers into smaller companies to lessen the impact of any future failure or bankruptcy, but that is a step that can be taken after the initial reorganization.

Rathe r than go to foreign sources for financing, the central bank of the United States (the Federal Reserve System) has the power under Section 13 of the Federal Reserve Act of 1913 to "discount" (i.e., buy) qualified loans made for productive capital projects and create money for that purpose. Under the "Real Bills" doctrine under which the Federal Reserve was organized (and which was rejected without explanation by Lord Keynes who was convinced that a bank cannot create money except for the State), creating money for capital projects that pay for themselves out of future income (a process called "forced savings") does not result in inflation, for the new money that was created to finance the project is cancelled when the loans that created it are repaid.

Once the loans are repaid, workers can gain the bulk of their income from profits rather than wages. This will enhance the profitability of the autoworkers because it will allow them to keep fixed costs low, while the increased profitability will directly benefit the workers as beneficial owners of the companies, rather than foreign investors or domestic speculators and gamblers.

A worker buyout on these terms might not be the only viable alternative to a State takeover and transformation of the United States into a fully socialist country, but it beats anything else that's been discussed.

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