Capital Commerce

Matthew Continetti in the Weekly Standard on the GM takeover:

There simply was no way a pro-labor Democratic president from a Great Lakes state was going to allow GM and Chrysler to vanish and the gold-plated benefits the UAW had secured over the generations to disappear as well.

But it seems clear that the pro-Employee-Free-Choice-Act, Republican president from a deep red state who just left office would have supported the government takeover as well. Last December, Bush fully embraced the "too big to fail" view of GM and Chrysler and gave them $17.4 billion in loans. Now, maybe if Bush was still in office, he would not have opposed GM's creditors as much as Obama, nor put as much of a focus on "green" vehicles. But his record suggests that the basic policy Continetti is criticizing--government getting cozy with industry--would have continued.

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Paul Krugman wrote a column earlier this week with that provocative thesis. He argued that the Garn-St.Germain Despository Institutions Act was the most important step leading up to the 2008 financial crisis because it deregulated mortgage lending, allowing "alternative" transactions such as lending with little money down. Reagan is to blame because he supported the bill and it passed under his watch in 1982 (never mind that many Democrats also supported the bill, such as Congressman Fernand St. Germain, one of the cosponsors.

It's a narrative that might appeal to many on the left--but even some of Krugman's intellectual allies are disagreeing with him. Robert Scheer writing at The Nation's website says that Reagan's loosening of mortgage lending was not a sufficient step in creating the housing bubble, and that Clinton-administration deregulating was more important.

Reagan signed legislation making it easier for people to obtain mortgages with lower down payments, but as long as the banks that made those loans expected to have to carry them for thirty years they did the due diligence needed to qualify creditworthy applicants. The problem occurred only when that mortgage debt could be aggregated and sold as securities to others in an unregulated market.

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A few other people have pointed out the ongoing evidence that the rest of the country's economic pain has meant Washington's gain. The federal government's takeover of General Motors is just a microcosm of what's been happening. The private sector is losing job, but meanwhile, the bureaucracy (and jobs dependent on the bureaucracy) is swelling.

The latest piece of evidence is Kiplinger's 2009 Best Cities list, which seems to really mean Best Cities For Employment. The methodology is based on number of jobs, job growth potential, quality of jobs, and the city's ability to hold on to those jobs in the long run. Washington DC comes in at third on the list.

"Only" about one in eight workers in the DC metro area work for the federal government, but many other jobs are contractors employed by the government, Kiplinger's points out.

The federal government also has tremendous influence on the only two towns Kiplinger ranks above DC: Huntsville, Alabama (a NASA town), and Albuquerque (Sandia National Laboratories is one of the biggest employers).

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Did a "trade imbalance" contribute to the financial bubble and crisis? Max Fraser in The Nation says it did, and that we need renewed industrial policy to check future imbalances:

This three-pronged approach to protecting autoworkers' jobs--fuel-efficient automotive production, public transportation and renewable energy--can be a model for the green manufacturing economy of the twenty-first century. Much experimentation will be needed to determine the innovation, skill training and capital investment necessary to make these industries competitive. But that's what national industrial policies are designed for--to nurture high-value industries, protect industries from the downward pressure created by global competition and guard against unsustainable trade imbalances, like the one that fueled the American system of debt-financed consumer spending that has plunged the world into recession.

What if Dubya had pursued aggressive industrial policy and pumped up exports in an attempt to balance out the trade deficit? We would have seen a stronger dollar from greater foreign demand for U.S. goods. That means more expensive exports, rebalancing changes made to the trade deficit.

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