The New Face of General Motors

Brian Deese hails from the establishment elites: the son of an engineer specializing in “renewable energy” and a political science professor at Boston College, he majored in political science at Middlebury College, went on to Yale Law School, took leave to become deputy economic policy director for the Obama campaign, then moved on to the White House’s National Economic Council. The New York Times recently profiled  Mr. Deese, 31 years old, as the face behind the dismantling and restructuring of General Motors:

Mr. Deese’s role is unusual for someone who is neither a formally trained economist nor a business school graduate, and who never spent much time flipping through the endless studies about the future of the American and Japanese auto industries.

The profile quotes Lawrence Summers on Deese:

“And there he was in the Roosevelt Room, speaking up vigorously to make the point that the costs we were going to incur giving Fiat a chance were no greater than some of the hidden costs of liquidation.”

Yet Mr. Deese’s impressive legal and politically scientific education has apparently not instilled in him any basic understanding of opportunity cost. Presiding over General Motors’s operations should teach him a few lessons, which he is likely to ignore, as have scores of career bureaucrats preceding him. The argument Mr. Deese employed in favor of nationalizing General Motors — that costs to the government would be greater under dissolution due to associated unemployment and insurance expenses — betrays inability to see past the numbers in front of him.

Mr. Deese was not the only one favoring the Fiat deal, but his lengthy memorandum on how liquidation would increase Medicaid costs, unemployment insurance and municipal bankruptcies ended the debate.

This simplistic approach to the cost equation takes for granted the immediate negative consequences of liquidation but looks no further. It doesn’t factor in the future, possibly perpetual, operating losses of an inefficient company still burdened by unreasonable contractual obligations to the UAW. Also, it doesn’t take into consideration the high likelihood that the majority of workers terminated in the wake of liquidation would soon find employment elsewhere (restoring a significant fraction of the lost income) instead of eternally remaining on the dole.

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The New Face of General Motors

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