A key assumption underlying retail democracy is that the wisdom of The Public is ultimately superior to the wisdom of any individual or group of elected officials. A key handicap of a retail democracy is what I would call “the agency problem.” We elect the best people we can to do our bidding, but somewhere between our votes for them and their votes on critical policy issues, the self interest of these agents can get in the way of representing us in a manner that reflects our true preferences. We get another crack at them in two, four, or six years, but in the mean time they are, well, free agents.
Even worse: when we don’t have another crack at them, as is the case with a lame-duck President. Which brings us to the travesty that is the Big 2 of 3 Auto Bailout. Apparently, President Bush has determined that whereas New Orleans was left to drown on his watch, he won’t let the image of Detroit circling the bankruptcy drain define his last days as President.
Instead, he’ll appropriate $17.4 billion from the $700 billion, aptly named TARP to buy General Motors and Chrysler a whopping three months of breathing room. During that period, he has given them quite a to do list, but no real objectives other than “proving their viability,” which apparently will mean whatever the incoming Obama administration decides that it means.
Honestly: how would two companies who have consistently lost market share and money over the last 30 years prove their “viability” in 90 days, even if they weren’t in the midst of the weakest automotive market since 1982? With a demonstrably hapless Rick Waggoner at the helm of GM, and Bob Nardelli running Chrysler after his spectacular, “overpay me but don’t ask questions” flameout at Home Depot? The administration is styling this as “bridge financing;” most venture capitalists would call it a “pier,” at the end of which lies not terra firma, but rather water which is yet colder, deeper, and more turbulent.
To get a sense for the size of the agency problem we’re facing, do this thought experiment. Assume that by some miracle of tecnology and civic will, all 203 million eligible voters would agree to make give President Bush once relished asking for: a collectively binding “up-or-down vote” on a $17.4 billion, 90-day reprieve for GM and Chrysler.
At the top of the ballot would be a brief history of the financial and market share performance of the two companies over the last two decades, alongside the comparable data for Toyota. The middle section of the ballot would contain condensed arguments for and against the bailout, with the most extreme case in the “for column” being that forcing the Big 3 into bankruptcy will put 3 million jobs in jeopardy. At the bottom of the ballot would be the punch line: supporting the initiative would require each eligible voter–whether or not she supports the initiative–to write a check for $82.86 ($17.4 billion/203 eligible voters) , made payable to Auto Bailout Fund. Finally would come the disclaimer that if the Obama administration declares the companies “viable” in 90 days, another check–of indeterminate size but likely much larger than this one–will be due, at just about tax time.
Any guesses on how that referendum would go? Hint: about as well as a Rod Blagojevich campaign for President of the Naperville Rotary Club.