General Motors might not seem like a model bureaucracy—but it could teach the U.S. government a thing or two about denial, disaster, and survival.
GM's last year of business-as-usual was 2006, when the bloated automaker sold 9.1 million cars worldwide and brought in $206 billion in revenue. But like the government, GM was operating at a loss in 2006, and it ended the year $2 billion in the red. While company leaders insisted that a turnaround plan was working, GM's losses swelled to $39 billion in 2007 and $31 billion in 2008. In 2009, of course, GM declared bankruptcy.
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Now, GM's vehicle sales are down by 20 percent from 2006 levels, and revenue is down by more than 25 percent. With less money coming in, GM has killed two of its eight divisions and sold two others. The company has cut its manufacturing base and its workforce by nearly 30 percent. Drastic downsizing and the relief offered by bankruptcy have finally given GM a fighting chance of turning a profit in the next year or two.
Compare that with the operations of Uncle Sam. The amount of money coming in—tax receipts—peaked in 2007 at $2.6 trillion. This year the government's revenue is projected to be 16 percent lower, at less than $2.2 trillion. Yet government spending keeps going up, since the feds can borrow the difference and rack up debt indefinitely. That will produce an astonishing $1.6 trillion federal deficit in 2010. Even after stimulus spending winds down, deficits will still run over $700 billion per year, pushing the national debt uncomfortably high.
Nearly every household and business in America has curtailed spending over the past few years. Some, dramatically. The only place where profligate spending remains popular is in Washington. Politicians wonder what's fueling the rage behind the "tea party" activists who feel the government is out of control. Then they turn around and add another zero or two to the massive debt that taxpayers are responsible for.
The government isn't a business—but what if President Obama were to treat it that way? Obama has proposed a 10-year spending freeze in some government programs, which would save at most $25 billion per year. That represents 1.2 percent of the government's 2010 budget. As trivial as that is, Congress has scoffed; like GM executives in 2006, the lawmakers aren't interested in outside interference with their pet projects.
Having huge battles over incremental change is what doomed, dysfunctional institutions do. Imagine if Obama abandoned incrementalism and proposed that the government undergo the GM treatment: To forestall the risk of default on the gargantuan national debt, the government would cut spending by at least 25 percent. A consulting firm like McKinsey or PWC would rank the effectiveness of every government agency, and the underperforming divisions that land in the bottom quartile would be closed. The federal payroll would shrink by 20 or 25 percent. The millions who receive entitlement payments would have to sacrifice, just like autoworkers who thought they had a job for life and ended up without a career. And there would be a target date for returning the government to the break-even status.
This would not be a pragmatic strategy. It would be remarkably cynical, because any president proposing something so draconian would know it had zero chance of getting through Congress. Charges of populism would fly. Political advisers would panic because of all the Americans whose livelihood would be threatened and votes potentially lost.
But it would delight the tea partyers and lots of other Americans who are appalled at politicians who keep spending taxpayer money, apparently clueless about the privations that many Americans are enduring.
Instead of the GM treatment, Obama wants to set up a bipartisan panel that will study the government's addiction to spending and issue recommendations. The Senate has already voted against setting up its own deficit-reduction commission, so it will probably reject advice from somebody else's panel. The politicians, meanwhile, will keep telling us not to worry, they've got everything under control. Just as GM did.