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The Zombie Economy

The life jacket the government threw to the private sector has become a straitjacket.

Aug 16, 2010, Vol. 15, No. 45 • By MATTHEW CONTINETTI
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Indeed, it may make that problem worse. In July, when Obama visited a Chevy plant, he test-drove a Chevy Volt, GM’s plug-in hybrid. Obama likes the Volt because it’s environmentally friendly. But it’s also impractical and terribly expensive at $41,000. Taxpayer money, in other words, is subsidizing at great cost a product that only the wealthy will be able to afford in order to make the green lobby feel good. This is how Obama defines success?

The Volt is a perfect example of big government and big business engaging in mutual folly. It’s a boondoggle. It’s akin to an expensive weapons system that liberals try desperately to cut from the Pentagon budget. No doubt the program will continue for as long as taxpayers provide the financing. But what will happen when GM has to rely on consumer demand to survive, and all the dollars that have been invested in the Volt see no return?

Rather than working to hasten the day when the government sells its stake in these companies, Obama seems to relish his role as commander in chief of GM and Chrysler. He touts products like the Volt and the Jeep Cherokee (which has a much larger carbon footprint than the Volt and is also, perhaps not unrelatedly, a car that people actually want). He acts as a spokesman for the United Auto Workers, telling laborers at the plants he visits that if the dastardly Republicans had their way, they would be out of their jobs. He participates in propaganda exercises such as GM CEO Ed Whitacre’s April Wall Street Journal op-ed, “The GM Bailout: Paid Back in Full,” in which Whitacre used the fact that GM had paid back a single loan to the government to spread the false impression that the government no longer was in the car business. That was a lie, of the sort that is all too common when government enmeshes itself in private enterprise.

It’s unseemly. By picking winners and losers, Obama raises the question of why the government bails out some companies and not others. By gloating over the zombies’ short-term success, he fosters resentment among the unemployed who have not benefited from government bailouts—the car dealers, say, who were forced to close as part of the political bankruptcy settlement. This type of politicized economy hurts the market’s public reputation. The zombie economy is zero-sum. The man with the most ties to Washington wins. The man without them? Sorry, pops.

The rationale behind many zombie policies is a gutter Keynesianism. John Maynard Keynes famously laughed off concerns about the long-term consequences of his policies by pointing out that, “in the long run, we are all dead.” A clever line (by a childless man), but it didn’t answer the criticism that stimulus measures just delay the necessary balancing of accounts. They may keep the patient upright. But one day he will have to stand or fall on his own.

For example, take state and local governments. Over the last two decades, they went on a spending spree. They hired public employees in boom times without thinking what might happen when the economy went bust. When the lean times inevitably returned, the states faced the prospect of mass layoffs. Once again the federal government stepped in, shifted the debt upward, and delayed the painful adjustments necessary to make state and local budgets sustainable. According to the nonprofit ProPublica, more than $58 billion of the 2009 stimulus bill went to aid for state and local governments.

That was only the beginning, however. This week Congress is expected to authorize an additional $26 billion in aid. Chances are that won’t be enough either, because state and local revenues won’t be able to support overextended state and local workforces until the economy is booming again. Unfortunately, no one has any idea when that is going to happen—and even then, it’s likely the states will just go back to binging. 

Not every state behaved irresponsibly. But those that did became the equivalent of zombies, dependent on the federal government for sustenance. The debates surrounding aid to state and local governments follow a familiar pattern. Critics of unconditional aid are routinely caricatured as heartless or cruel. Ask why government is favoring one class of occupations over others, and you will be called anti-teacher or anti-cop or anti-fire fighter. Government spending, you will be told, is the best form of economic stimulus—even though the trillions that already have been spent have brought nothing but doldrums. The message from Washington is that the status quo must be perpetuated. The message is that the zombies must not be allowed to die.

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