I’d meant to comment on this yesterday but it got past me. Illinois’s junior senator, Barack Obama, has made yet another splash by proposing a deal that’s part bail-out for U. S. automobile makers, part subsidy to retired autoworkers, part subsidy to farmers, and part fuel economy reform:
WASHINGTON – Trying to jump-start gains in auto fuel efficiency after decades of inaction, Sen. Barack Obama, D-Ill., is proposing an unusual swap for the Big Three U.S. carmakers: Washington would pay some of Detroit’s multibillion-dollar health costs in exchange for it making cars that get higher gasoline mileage.
The federal government would pay 10 percent of the $6.7 billion in annual health costs for retirees that are weighing down General Motors, Ford and Chrysler if they’ll commit to building more fuel-efficient cars, Obama proposed in a speech Tuesday before a panel at the National Governors Association conference. He called it a “win-win proposal for the industry.”
Obama, a charismatic freshman senator, is under growing pressure from liberal Democrats to raise his profile nationally. His choice of this issue as his first claim to national leadership is revealing. It features a traditional liberal’s approach of government help for a troubled blue-collar industry and environmental conservation, but it adds a requirement that the industry meet a performance standard in exchange. Democrats haven’t pushed this kind of public-private “industrial policy” since the 1980s.
Equally significant, Obama’s proposal breaks with liberal orthodoxy by shunning a call for Washington simply to order automakers to raise fuel-economy standards via federal regulation. That may signal a shift toward the political center, matching a similar move by President Bush last month.
After years of pushing greater production as his answer to America’s energy needs, Bush stressed conservation, framing the issue dramatically: “Here we have a serious problem: America is addicted to oil.”
Together, experts say, the president and Obama may be signaling movement by both sides in America’s long-stalemated energy-policy wars. Fuel economy standards for cars are at 1985 levels.
“Look at the Obama thing not in the specifics but in the broad idea of thinking outside the limits of the debate,” said Henry Lee, a Harvard energy professor who served as energy secretary to Democratic and Republican governors in Massachusetts.
Kevin Drum notes, undoubtedly correctly, that the modesty of the proposal (along with its “free beer” quality, of course) renders it politically doable.
We’ll have to wait to see the final form that the proposal takes in terms of legislation but I’ve got genuinely mixed feelings about it. On the one hand I’d really like to see improved fuel efficiencies and economically sound alternative energy. And I do think that the retired autoworkers are getting a raw deal from the auto manufacturers.
But on the other hand I’m not sure that this proposal does much about any of these things. Both Ford and GM have already announced their intentions of producing more hybrids and more flex-fuel vehicles (our more recent car purchase—a Ford—is already a flex-fuel vehicle). Is it the best use of limited resources to subsidize companies for doing something that the market is already impelling them to do? Will it speed the process or retard it as they wait for promised government subsidies?
I’m also not convinced that auto manufacturers are particularly deserving of subsidies to compensate for the bad management decisions they’ve made over the years. Won’t subsidizing the results of those decisions suggest to them that the decisions were right to begin with?
The one result that the proposal will definitely have is to put another gold star in the ledger of Barack Obama as the Next Big Thing for the Democratic Party.
Why stop at Detroit? We might as well add GE to the list if they make fuel efficient jet engines. Don’t forget Caterpillar and John Deere. And tractor trailer, generator, and boat manufacturers. And I’m sure there will be plenty more businesses rushing down to K Street to hire some former senator to make sure they get their hand in the bag too.
Any time there is a problem which government action is proposed to fix, it is wise to look at the cause of the original problem. It is often the case that the original problem was caused by earlier government action, in which case undoing the original action is much better (generally) than taking new government action.
In this case, the cause of the original problem was government laws and regulations to “protect” unions that in effect gave unions privileged negotiating positions. This led to the unions getting concessions from the auto makers that were unsustainable, which led to the current crisis. The better solution is to remove the unions’ privileged negotiating position, and let the automakers reform their future benefits provisions. This would put an end date on the bleeding, and make more likely the auto makers’ eventual recovery.