Bailouts and Stimuli: the Hubris of Centralized Control

Lynne Kiesling

Last Monday Mike asked “do you know what the car company of the future should look like?”

The various politicians and bureaucrats who have been wrangling over the auto bailout requests think they do. The management of the “Big Three” have a vision that their shareholders have authorized them to pursue, but for much of the past decade consumers in the market have been telling them that they don’t have the best answer to Mike’s question. GM, in particular, has done a particularly bad job of both shaping and forecasting future trends; they missed compact cars, they missed minivans, they missed SUVs, and they missed hybrids.

Mike’s excellent question points out the combination of hubris and opportunism that are driving the auto bailout dynamic. The right answer to Mike’s question is that nobody knows what the car company of the future should look like. Nobody. No one person or group of people has or can acquire the knowledge to be able to figure that out. That’s the root of the bureaucratic hubris, or the “fatal conceit” in Hayek’s words, in the auto bailout discussion. Congress and other bureaucrats believe that they know what the car company of the future should look like, and they will use political processes and coercion to implement their vision. That is an inappropriate use of power. And the auto companies that are requesting bailouts are, not surprisingly, being extremely opportunistic.

The same kind of hubris shows up in the New-Deal-style public works economic stimulus proposal that President-elect Obama discussed this past weekend:

Mr. Obama’s plan, if enacted, would be in part a government-directed industrial policy, with lawmakers and administration officials picking winners and losers among private projects and raining large amounts of taxpayer money on them.

It would cover a range of programs to expand broadband Internet access, to make government buildings more energy efficient, to improve information technology at hospitals and doctors’ offices, and to upgrade computers in schools.

“It is unacceptable that the United States ranks 15th in the world in broadband adoption,” Mr. Obama said. “Here, in the country that invented the Internet, every child should have the chance to get online.”

Ummmm … last time I checked, dialup Internet access is still available. Is “broadband in every home” the 21st-century version of “a chicken in every pot”?

UPDATE: Pete Boettke and I are on the same wavelength:

… All of these economic realities were a consequence of the socialist aspirations and neo-Keynesian policies that dominated the world of economic affairs since WWII.

We have never really shaken off these intellectual blinders. Hayek argued that the source of the intellectual error was an unhealthy alignment of statism and scientism, and I would just add that the alignment is self-reinforcing due to opportunistic behavior on the part of intellectuals, politicians and economic actors. …

So this morning I am listening to news discussions of Obama’s fiscal stimulus as laid out this weekend, and listening to clowns like Chris Dodd and Carl Levin talking about the need for government oversight of private enterprise because we cannot trust for-profit businessmen to make the right decisions, and finally the head of the UAW talk about the reason why the US auto industry is suffering is due to our lack of universal health care, our lack of an industrial policy, and our failure to erect protections against foreign auto producers. As Adam Smith might have put it, the sophistry of the special interests combine with the arrogance of the statesmen to produce much ruin.


3 thoughts on “Bailouts and Stimuli: the Hubris of Centralized Control

  1. Technically, GM did not miss the compact car. Their response, unfortunately, was the Corvair. While technically brilliant on many levels (reflecting GM’s engineering culture at the time), it had fatal handling flaws that Ralph Nader used to become famous and build the trial lawyer and “consumer protection” industries from scratch.

    GM actually has the best hybrid technology out there. Their “mild hybrid” technology is much more cost effective than Toyota’s. GM just needs to make it a part of every 4 cylinder car they build, not just a separate model that they sell a couple thousand of every year.

    GM also seems to be much farther along with “Homogenous Charge Compression Ignition” technology than Honda or Toyota is (although Mercedes is even farther along than GM is. This technology will give gasoline engines almost diesel like efficiency, without the cost of scarce diesel fuel.

  2. Technically, GM did not miss the compact car. Their response, unfortunately, was the Corvair. While technically brilliant on many levels (reflecting GM’s engineering culture at the time), it had fatal handling flaws that Ralph Nader used to become famous and build the trial lawyer and “consumer protection” industries from scratch.

    GM actually has the best hybrid technology out there. Their “mild hybrid” technology is much more cost effective than Toyota’s. GM just needs to make it a part of every 4 cylinder car they build, not just a separate model that they sell a couple thousand of every year.

    GM also seems to be much farther along with “Homogenous Charge Compression Ignition” technology than Honda or Toyota is (although Mercedes is even farther along than GM is. This technology will give gasoline engines almost diesel like efficiency, without the cost of scarce diesel fuel.

  3. ‘Ummmm … last time I checked, dialup Internet access is still available. Is “broadband in every home” the 21st-century version of “a chicken in every pot”?’

    Ummmm…yes, that’s exactly what it is.

    Information is education, education is productivity.

    Obama is right, it is a joke that our children aren’t using lighting fast internet connectivity to learn, solve problems, play, and grow.

    The internet is a public good that create positive externalities. Let’s get back to basic of micro and macro economic theory and stop pretending the internet is magic. It’s a public utility, just like all other communication and transportation infrastructure technologies before it.

    Whoo!

    All of the 20-something year olds are just waiting for all of the old people to retire so we can start actually fixing the mess that has been made by folks that think TCP/IP is actually magical incantation.

    Strap on your awesome helmet and get your awesome pants on because that’s where we are headed, USAwesome.

    -steve
    Madison, WI

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