Coyote Blog

Holman Jenkins argues that despite the fact that GM's all-electric car the Volt will likely lose money on every sale, GM knows exactly what it is doing with this program.  The main customer, apparently, is not the end consumer, but the government.  GM is betting that an Obama, beholden in his new presidency to unions and environmentalists, will be open to a massive government subsidy of the US auto industry.  The Volt program may be part of a plan to buff up GM's attractiveness at the government trough:

GM executives are not nuts. They justify the costs and
risks of the Volt as a way of changing GM's image in the minds of
consumers and politicians. To commit a pun, the Volt is GM's vehicle
for making a bailout of GM politically acceptable.

The company has already started signaling it expects
Washington to provide a whopping $7,000 tax credit to Volt purchasers.
In Europe and the U.S., under whatever fuel economy and emissions
regulations prevail, GM also expects special favoritism for the Volt.
The goal is to re-enact the flex-fuel hoax, in which GM receives extra
credit for making cars that can burn 85% ethanol, even if they never
see a drop of such fuel.

CEO Rick Wagoner last week laid out the case to Barack
Obama personally for turning GM into a ward of the state, by way of
direct and indirect subsidies to support a transition to "alternative"
fuel vehicles. GM has done yeoman's work getting its structural costs
(i.e., labor) in line, but shareholders should note that a big part of
the company's turnaround gamble consists also of eliciting favor once
again from Washington after a period in which the domestic auto makers
were nothing but whipping boys on Capitol Hill.

Since the mid-1970s, various people have decried the growing amount of money spent on elections.  They have tried numerous approaches to limiting campaign funding, all to no avail.  In part, their lack of success has been due to off-and-on efforts of the courts to protect political speech.  However, a large reason for their failure has been that they are addressing a symptom, rather than the cause of the problem.

The real cause is the growing regulatory state.  Without regulation, there would be only limited incentive for corporations and individuals to make large political contributions.   Regulation (combined with taxation) is the fountain from which most campaign money springs.  Threaten to regulate a sector, and you automatically put politicians in the position of creating winners and losers, both of whom will spend money to try to improve their fates.

Holman Jenkins makes this point in today's WSJ($):

Being a shrewd bunch, the private equity industry
presumably has gotten the message: When vast new fountains of wealth
open up in the economy, Congress must receive its ransom in campaign
donations. Delivering the wagged finger were none other than Max Baucus
and Charles Grassley, chairman and ranking member of the Senate Finance
Committee, who've taken to musing aloud about how the tax code's
treatment of private equity's lately fabulous profits might be revised.

The bipartisan nature of the initiative should
reassure readers that there's no philosophical issue here. It's purely
bidness. You, private equity, have been remiss in your patriotic duty.
Cough up.

Anyone who recalls the junk bond wars of the 1980s
will notice a pattern. Then too, Congress was awash in proposals for
taxing the takeover industry: by eliminating the interest deduction for
junk bond interest, by imposing an excise tax on assets acquired in a
hostile takeover, etc. These ideas came to naught, not least because of
the fright the proposals put into the stock market. But the endless
debate unlimbered a delicious flow of campaign dollars from all
concerned.

It appears that everything will turn out OK for the politicians:

But the message has been received. Private equity has now set up a
Washington trade group and has opened its pockets to politicians, with
Barack Obama being a special heartthrob. Oh, happy day for members of
the House and Senate tax committees, who lived for years off the junk
bond wars and now will live for years off the private equity plutocrats.

I remember stock brokers used to say that they had the best job in the market, because whether the market went up or down, they still got their money.  The same is true of politicians -- whether the regulations help or hurt, whether they end up benefiting the incumbents or the new entrants -- the politicians will still get their money.