Saturday, March 19, 2011

GM: An Update

When I wrote a series of blogs against the government bailout of General Motors, I never really explained the theory behind my position.  In economics, there is a separation between public and private goods.  A park is a public good.  It is built by he government for public use.  GM is a private good.  It was built by private capital for private profits. 

In the GM bailout and all through the discussion on TARP this distinction was lost.  The press never discussed the difference between a public and a private good.

GM is a private good. I love GM cars.  We have had eight of them over the years.   But GM should not have been spared the consequences of bankruptcy without government intervention, because the GM bankruptcy did not follow the normal bankruptcy procedure.  The rule for a private corporation is that reorganization under bankruptcy involving a sale of assets goes to the debtors and shareholders. 

In contrast to the normal process, the only interest group that profited from the government bailout was the union labor when this administration treated GM as a public good.  The owners of GM, namely the stockholders and bondholders, did not receive the proceeds from the dissolution of old GM that were due them.

That said, now for an update.  The government is planning to sell its remaining shares in GM, even at a loss.  The news affected the stock so much that it fell below the opening price of the original IPO shares that were put on the market a few short months ago.  The price needed in the sale of the remaining 33% of stock that the government holds is $53 and the price on Friday was almost $32. 

Also, last month GM announced a $4 billion annual profit.  Its first profit in years.  However, GM won’t have to pay tax on that profit like other corporations.   Corporations have the ability to apply past losses to current profits and reduce tax liabilities.  Normally, when a corporation goes through bankruptcy, it sacrifices this ability to carry forward past losses, but not GM.   GM can apply its past losses up to a $14 billion tax benefit.  That is lost revenue to the government during this current period of extreme deficits.  We need the money.

All of this is happening a year before the next presidential election.  Perhaps Obama wants to avoid an issue next year by selling the GM stake at a loss this year. 

Now, the final update.  One of our GM cars had built up about 109 thousand miles.  No complaints.  We loved it, but we had reached the point in a car’s life where we just didn’t know.  Would it continue to be the reliable car we knew?   Well, when the time came to answer that question, we traded.  And we traded for…a Ford.

Monday, March 14, 2011

The Evaluation: What I Learned Writing This Blog

When I began this blog, I wrote that it was an experiment.  Well, all experiments need evaluation, and it is time to evaluate this one.  Of course, I am not the best for this type of thing.  I am biased.  Let’s just talk about it anyway.

I believe that I have been true to the original principles that are discussed in the second post such as pursuing reason, which has resulted in moral good, a country of principles, laws, and faith.  But I set out to educate, and offer the reader some background on the real issues of the day.  To do this, I developed themes, and wrote long posts that explained the trade-offs inherent in the issues of the day. 

I thought about these posts for long periods of time.  What I found is that the long posts, though purposeful and rich in information, were not read that much.  There are ways to gain readership such as making the posts smaller, and making points more succinct with less information.   Also, discussing popular people and subjects attracts more readers.   I once put together a post on Barrack Obama and Christine O’Donnell and the readership tripled. 

People who know blogging say that context, information, proper foundation to an argument don’t attract readers.  Well, the style will change not because I want to attract readers, which I do, but because I don’t have the time I once had to spend on writing posts.  Therefore, I will try to be more succinct and efficient in making my points.

But the real lesson that I have taken away from this exercise is about the quality of our political debate.   Neither side really listens to the other, and most enlightening, each side has its own facts.  We are shouting at each other and no one is listening. 

If we don’t have common facts that all sides accept, how can we reason together?  The common path will never come. If we listened we would agree on a common set of facts on any issue. 

I also place responsibility for some of our uncommon facts on our press.  If some of the press takes sides and chooses facts different from the broadcaster on the next channel, and the other channel does the same, then the press has failed to educate, which is a responsibility that really can only be achieved as long as independence, fairness and objectivity reign as the standards of the press.  When I started this blog my thought was that it was okay to listen to any side as long as I was confident that I could filter out the bias.  Now I believe it is necessary to listen to both sides and filter out the bias.  Without both sides, one will never have the whole story.

That leaves the politicians.  I learned that they do not know enough on any issue, especially economics.  In fact, politicians know frightenly little about economics.  Economics is an incomplete science.  There are many flavors of macro theorists, and it seems that each political side picks and chooses its flavor of the month, then takes their advice, and, like magic, we have bad public policy.  Lately, it seems like we swing from one bad economic policy to another.  And we have no one to blame but ourselves.   We vote for politicians who talk a good game, but under a good cross-examination, don’t really have a clue.