Government Motors - now that's Socialism

May 27, 2:07 PMEconomic Policy ExaminerJoseph Hight

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Ed Montgomery, President Obama's Director of Recovery for Auto Communities and Workers, right, speaks as Michigan Gov. Jennifer Granholm, left, listens during a news conference in Detroit, Tuesday, May 26, 2009. (AP Photo/Paul Sancya) 

President Obama won’t nationalize big insolvent banks, but he is about to own General Motors.

The President has thus far ruled against nationalizing some of the nation’s largest banks, when a case can be made that it is the most direct way of fixing the financial mess caused by the break down in the market for mortgage backed securities and fanciful credit derivatives like credit default swaps – the toxic assets we continually hear about.

Nobel Prize winning economist Paul Krugman has argued for nationalizing these banks. 

And it is established practice that modern industrial nations maintain control of changes in the amount of money in circulation or risk interest rates at levels that can cause or prolong recessions at one extreme, or risk excessively rising price levels and inflation at the other.

Since banks are in the money business, their lending activities lead to increases or decreases in the nations stock of money. To manage the nation’s money supply, modern governments must regulate and manipulate bank behavior. It is only the extreme free market economist who would insist that government stay out of the business of controlling and regulating banks. It is not socialism to nationalize insolvent banks in order to get them on a sound footing before returning them to private, but regulated control.

But while the Obama administration is won’t to nationalize banks that are vital to ensuring liquidity to the economy, it is racing very fast towards buying up General Motors, a private car company.

In an editorial, The Washington Post refers to a thus salvaged car company as ‘Government Motors,’ stating

“It is now clear that there is no real difference between the government and the entity that identifies itself as GM.”

During the campaign for the Presidency, some in the opposition posed the question: “Is Obama a Socialist?”  He is not. He is a pragmatist who is devising and pushing policies that he believes might best solve political and social problems, without worrying about ideological labels. But on this one, he is dangerously close to getting the U.S. government deep into the business of making cars.

And the deal gets worse, as one looks at it more closely. In a news article, the Washington Post reports about a pending proposal,

“Aside from the United States and Canada, which would together control about 72 percent of GM, the union's retiree health trust would hold a stake starting at 17.5 percent that could grow to 20 percent.”

So what we would get is a car company owned by government and a union trust fund. How would that work?

It is looking more and more like we should let GM go to bankruptcy court and let the court order a deal between GM, its creditors, dealers and the UAW, leaving a restructured, slimmed down company comprising Chevrolet, Cadillac and Buick to sink or swim in the market place without government ownership.