New York Times:

After losing $18.8 billion in the first half of this year and facing more red ink for months to come, G.M. is now trying to salvage its future through a possible merger with Chrysler, another deeply troubled American automaker.

I wonder if raising CAFE standards five or ten years ago would have avoided this situation. We can all rest easy knowing that all the money spent by GM on lobbying has paid off so handsomely.

I will say that this series of posts puzzles me. You seem to believe that, on average, business owners are stupid and self serving. And you often chose to express this using a ridiculous straw-map. In any case, I got it, I got it, I got it. And I'm sure that countless other have too.

I'm curious what you are *for*. If, for example, you believe that politicians are uniformly virtuous and selfless, then that could serve as the foundation for a self-consistent belief system. But I don't sense that you feel that way either.

Meanwhile, gas prices are back to where they were a year ago, and demand for gas-guzzlers is way down.

At least the free-market fairies believe that stupid and short-sighted business owners go out of business -- eventually and potentially disruptively. Going further -- as a devil's advocate -- one could make the case that by eliminating fear and the perception of risk and by being susceptible to lobbying, politicians create bad regulations, encourage bad behavior, and foster panic when it becomes obvious that not only can't they eliminate the risk, but they are positively part of the problem.

Posted by Sam Ruby on 2008-10-26

Sam,

It may be that Yoav is right and it may not be stupidity per se.

And you are right that I don't believe that "politicians are uniformly virtuous and selfless".

What I do believe is that markets are just one tool in a long list of tools to be applied to solve problems, and are not an end unto themselves. I also believe that history teaches us painful lessons, and when we then learn from those painful lessons (the great depression, the 1970s energy crisis, the savings & loan crisis) it is the role of government in part to encode that learning in the form of laws and regulations ( banking laws + the great society, CAFE standards, banking laws ). I also believe that government is imperfect and needs to operate transparently so that we citizens can keep an eye on it, a role the fourth estate used to play but has fallen down on the job the past ten or twenty years, and now increasingly done by bloggers.

Meanwhile, gas prices are back to where they were a year ago, and demand for gas-guzzlers is way down.

At least the free-market fairies believe that stupid and short-sighted business owners go out of business -- eventually and potentially disruptively.

If we weren't headed into a recession then I'm sure SUV sales would rebound as high gas prices faded from memory. Sure, SUV sales might eventually trail off as a matter of fashion and in that case GM would still suffer and maybe go out of business, and that's fine, but to be caught flatfooted and go out of business from a situation (energy crisis) that you explicitly lobbied against a law put in place to help prevent (CAFE) is the definition of irony. And let's not go into the fact that their profits in the SUV business were in part predicated on an externality they didn't bear the cost for: increased CO2 emissions.

Going further -- as a devil's advocate -- one could make the case that by eliminating fear and the perception of risk and by being susceptible to lobbying, politicians create bad regulations, encourage bad behavior, and foster panic when it becomes obvious that not only can't they eliminate the risk, but they are positively part of the problem.

Government isn't perfect and that's why we need even more transparency into its operation, but it represents our long term repository of institutional learning and as I hope this series of posts points out, one that we repeatedly ignore at our peril.

Posted by Joe Gregorio on 2008-10-26

For a good look of how GM got into this mess (or rather, shot itself in the foot and failed to get out), watch 'Who Killed the Electric Car?'

Posted by Michael R. Bernstein on 2008-10-26