Government Intervention In The Auto Industry

While I have qualms about the wisdom of the approach, I have frequently mocked those on the right who consider the government’s investment in GM as evidence that Barack Obama is a socialist. Conservatives have a way of pointing out, and often exaggerating, any Democratic act which intervenes in the free market while often ignoring similar actions coming from Republicans. I’ve often receive responses to my criticism of anti-market action by George Bush from the right with claims that Bush was not a true conservative. Pointing out that Richard Nixon  brought the ultimate perversion of the free market, wage and price controls, has been met with responses from younger conservatives that Nixon is ancient history. (Such conservatives should look at how their views differ from those of Barry Goldwater.) While the conservative movement has moved so far to the extreme right that they are actually at odds with pretty much every former Republican leader they tend to continue to worship Ronald Reagan. They have apparently forgotten Reagan’s intervention in the automobile industry.

Conor Clarke points out that the previous time there was major government intervention in the auto industry it came from Ronald Reagan:

It doesn’t get mentioned much, but in 1981 the Reagan Administration asked Japanese automakers to impose a “voluntary export restraint” (VER), which capped at 1.68 million the number of cars Japan could send to the United States each year. Reportedly, this was under threat of an outright tariff, but the VER accomplished just about the same thing. Prices of Japanese cars went up, which allowed American manufacturers to raise their prices too. (This was great for the protected industry — in the short run — and bad for the American consumer.)

In the long run it led to foreign manufacturers building a lot of plants in the US, since cars manufactured here were exempt from the VER. From the Federal Reserve Bank of Chicago (pdf): “Having agreed to limit the level of vehicle exports to the U.S., the major Japanese automakers all started producing vehicles in North America. That development resulted in a rather dramatic shift in production by the foreign carmakers from overseas to North America.” So when you think dramatic market interventions that fundamentally changed the face and stability of the American car industry, please, don’t forget Ronald Reagan.

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5 Comments

  1. 1
    Fritz says:

    Nice article by George Will in the WashPost:

    http://www.washingtonpost.com/.....02835.html

    “What we are not doing — what I have no interest in doing — is running GM,” says the president who, when not firing GM’s CEO, purging its board of directors and picking new members, is designing new products (imposing fuel economy requirements that will control size, weight, passenger capacity and safety). The president, overcoming his professed reluctance to run GM, resembles the journalist Don Marquis when, after a month on the wagon, he ordered a double martini and exclaimed: “I’ve conquered my goddam willpower.”
    Washington mandates that Detroit must build cars for which there is much less demand than Washington demands that there be. Then Washington tries to manufacture demand with a $7,500 tax credit for purchasers of the electric Chevrolet Volt, supposedly GM’s salvation. So, GM is to be saved by a product people will not buy without a cash incentive larger than the income tax paid by 83.4 percent of America’s families.

  2. 2
    Fritz says:

    Don’t hold your breath about the government selling its stake in GM and recouping the taxpayer investment.
    http://www.washingtonpost.com/.....05_pf.html
    If a new General Motors emerges from bankruptcy as planned, U.S. financial aid for the company will expand to nearly $50 billion, but neither the government nor the company is forecasting how much of the public money will be repaid.
    It’s sure to be a stretch. For the United States to fully recover its investment, the value of General Motors stock will have to reach levels it has never before attained.

  3. 3
    Joe says:

    a few fringe cases doesn’t mean Reagan liked government intervention, if this post makes Reagan sound the way he was then he’d be the favorite president of libs. That is obviously not the case

  4. 4
    Ron Chusid says:

    Joe,

    The point is that until recently even conservatives such as Reagan realized that sometimes government intervention is necessary. Many current conservatives take any government intervention as a sign of socialism.

  5. 5
    Eclectic Radical says:

    “For the United States to fully recover its investment, the value of General Motors stock will have to reach levels it has never before attained.”
     
    While I am not entirely sanguine about the direction the auto bailouts have taken, the bailout loan to Chrysler during the Reagan administration was paid back in full and with interest… ahead of schedule. At the time, people said it was impossible that Chrysler would ever be able to pay the loan back and should be allowed to fail. So there is some reason to be skeptical about cries of doom in response to the auto bailouts.

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