GM shows Obama is no Vulcan
– James Pethokoukis is a Reuters columnist. The opinions expressed are his own –
Here’s why the U.S. government’s growing control over General Motors — Uncle Sam may soon own some 70 percent of the troubled U.S. automaker — is so vexing: This is supposed be the “no drama, no emotion” White House, a place where cool, calculating reason holds sway.
If George W. Bush was the presidential version of the impulsive Captain Kirk of “Star Trek”, then Barack Obama’s supposed counterpart is the superbrainy, hyperlogical Mr. Spock. (It’s a much-bandied about analogy here in Washington, one that the current president says he’s aware of. Indeed, he actually seems to dig it.)
Then you have the highly regarded White House economic team. It’s a bright group steeped in the latest behavioural economics research, a revolutionary field which theorizes that human decision-making is riddled with “cognitive biases” (such as seeing patterns in random sequences of information) and psychological quirks. Homo economicus and rational agents we usually aren’t, say behavioural economists.
Given all that intelligence and self awareness, it’s surprising to find Team Obama’s approach toward GM (and Chrysler, for that matter) marbled with so much illogical economic policy that could have a terrible long-run impact:
1) Bullying creditors. Yes, bondholders may well accept General Motors’ new proposed offer of 10 percent of a reorganized company and warrants to purchase another 15 percent. But that doesn’t change the topsy-turvy reality of unions being favoured over creditors.
Coming out of bankruptcy, the government could own 72.5 percent of the automaker, the United Auto Workers 17.5 percent and creditors 10 percent.
Did the GOP capitulate on healthcare?
– James Pethokoukis is a Reuters columnist. The opinions expressed are his own –
You can’t beat something with nothing” often passes for political wisdom in Washington. In 1994, Republicans defeated Bill and Hillary Clinton’s healthcare reform plan with pretty much nothing — well, at least with nothing positive.
Republican congressional solidarity, along with help from business group attack ads and the Clintons’ own political miscues, were enough to doom the landmark legislative effort. Back then, “No” was sufficient.
But 2009 is not 1994. A “Just say no” strategy seem laughably insufficient this time around. Economic anxieties are much higher, the Democrat president more popular, the Democrat-controlled Congress more committed and aggressive.
Want even more evidence of the changed economic and political landscape?
Just take a look at the 248-page Patients Choice Act, a comprehensive GOP healthcare reform plan drafted by Senators Tom Coburn and Richard Burr, and Representatives Paul Ryan and Devin Nunes.
A big feature of the plan calls for redirecting the $300 billion-a-year tax exclusion for employer-based health benefits into refundable tax credits to purchase private plans.
The real reason healthcare is so expensive is because healthcare companies decided that we should pay more to increase their shareholder value and executive pay. How can so many of these companies tell us that over the past years that healthcare costs would climb anywhere from 7% – 17% and then have their stock prices soar from less than $10 per share to some as close as $100 per share? It’s quite obvious where the money went. Look at UnitedHealth Group Inc. Chairman and CEO William McGuire’s 2006 compensation. He received $1.6 billion in unexercised stock options. The Wall Street Journal reported that the timing of McGuire’s stock options, when UnitedHealth stock was at its lowest so he would benefit as much as possible raised the possibility that they had been backdated. UnitedHealth Group’s medical loss ratio for 2005 was 78.6%. That means that UnitedHealth retained for its own intrinsic uses, including profits, 21.4% of premiums paid. Profit for 2005 was $3.3 billion. For that performance, CEO McGuire receives $1.6 billion in unexercised stock options. Take a look at other healthcare stock prices and executive compensation and you’ll see the same pattern.
Any of you ever own a Yugo?
It was cheap, got good mileage, usually because it was pushed or towed more than it was running. It was also the product of a state run auto manufacturer.
Rather than have an American car company’s build cars with the same performance as the Yugo, the nation would be served better to allow GM and Chrysler to fail and allow new companies to emerge that can build a better car at an affordable price.