The Obama Administration’s economic policy is beginning to take form and I genuinely wonder if those who supported his election are beginning to have second thoughts. The auto production commissars have decided to limit Chrysler’s marketing expenses:
DETROIT (AdAge.com) — Chrysler wanted to spend $134 million in advertising over the nine weeks it’s expected to be in bankruptcy — the U.S. Treasury’s auto-industry task force gave it half that.
So if GM, which is wrestling with the possibility of a Chapter 11 filing itself, is wondering how much influence the task force will have over marketing, the answer is: plenty. However, transcripts from the U.S. Bankruptcy Court for Southern District of New York, where the Chrysler case is being heard, proved for the first time that the task force at least understands that advertising is a necessary expense — even if it doesn’t think Chrysler needs $134 million for nine weeks of car ads.
while the financial sector commissars are determining how those working in the sector should be compensated:
WASHINGTON — The Obama administration has begun serious talks about how it can change compensation practices across the financial-services industry, including at companies that did not receive federal bailout money, according to people familiar with the matter.
The initiative, which is in its early stages, is part of an ambitious and likely controversial effort to broadly address the way financial companies pay employees and executives, including an attempt to more closely align pay with long-term performance.
Administration and regulatory officials are looking at various options, including using the Federal Reserve’s supervisory powers, the power of the Securities and Exchange Commission and moral suasion. Officials are also looking at what could be done legislatively.
Among ideas being discussed are Fed rules that would curb banks’ ability to pay employees in a way that would threaten the “safety and soundness” of the bank — such as paying loan officers for the volume of business they do, not the quality. The administration is also discussing issuing “best practices” to guide firms in structuring pay.
Should we expect newspaper commissars, aerospace commissars, women’s wear commissars?
I don’t have any idea how much Chrysler should spend on marketing or how people in the financial sector should be paid but I seriously doubt that a group of people who have been career politicians, party apparatchiks, academics, and holders of sinecures and have never met a payroll or run a business do, either. I’ve got to admit that I do have some ideas on financial sector compensation schemes, however. I don’t have any objections to people receiving any level of compensation that they’ve actually earned. However, I believe that commissions on the sales of complicated financial instruments should be sold based on the life of the instruments rather than year to year. At least that’s something that can be measured rather than the unmeasureable quality. How a group of amateurs however talented are able to determine best practice is beyond me.
The obvious retort to that is that the professionals haven’t done such a hot job. That’s a non sequitur. It does nothing to establish that the Obama Administration can do a better job.
I can say with confidence that industrial policy whether in Soviet Russia or Japan or even today’s China has never been successful at creating prosperity. There are well known reasons for this. As I’ve noted before economics is a descriptive science not a predictive one. Its limitations in predicting are pronounced. We know how to produce scarcity; we know significantly less about how to produce abundance.
For those who doubt my predictions about China, I’d like to remind them that Soviet Russia was once the economic wonder of the world, too. It didn’t last. I’m quite confident that the post mortem of the inevitable collapse of China’s system will reveal the deep-seated problems that lead to that collapse.
I’m similarly certain that industrial policy will be found wanting much more quickly in the United States. I do have a certain amount of sympathy with the Obama Administration, however. What are they to do if they can’t allow unsalvageable businesses to fail? Under those circumstances the temptation to micromanage are irresistible.