By Bill Bonner
BALTIMORE, MARYLAND – The stock market continued with a modest bounce yesterday… but America’s automotive giant, General Motors, sank into the mud.
The proximate cause was a tweet by President T., who threatened to remove federal subsidies to GM’s electric cars. This from Bloomberg:
President Donald Trump said he’ll consider killing subsidies for General Motors Co. over the automaker’s plan to close factories and cut U.S. jobs, a threat that was met with immediate skepticism on Capitol Hill.
GM fell as much as 3.8 percent as of 3:30 p.m. Tuesday in New York, wiping out much of its gain a day ago. The earlier rally was linked to Chief Executive Officer Mary Barra’s plan to boost cash flow by shutting plants in the U.S. and Canada and jettison struggling sedans from the company’s lineup.
Trump wasn’t specific about the subsidies he was referring to, but consumers are eligible for a $7,500 federal tax credit toward the purchase of electric vehicles like the Chevrolet Volt.
As long-time Diary sufferers know, there are only two ways to get ahead in this world – honestly… and dishonestly. You either provide a service and satisfy a customer (or employer), or you lie, cheat, and steal.
Either way will work on an individual basis. But collectively and historically, they have very different consequences. One leads to economic growth and a fair distribution of rewards. The other leads to poverty and corruption.
The trouble is, in today’s fake news, jackass-riddled world, it’s hard to know which is which.
Herewith, for entertainment purposes only, we attempt to sort them out.
The trouble with lying, cheating, and stealing is that it doesn’t add wealth. It just moves it around.
Peter is robbed to pay Paul. Paul is happy with the deal. He wins. Peter loses. But ultimately, everyone is worse off. To paraphrase ex-British prime minister Maggie Thatcher’s famous comment on socialism, eventually Peter runs out of money to steal.
Honest work, on the other hand, makes almost everyone better off. If Paul wants something, he’s got to get off his duff and produce something.
You end up with a society of earnest strivers… with millions of Peters and Pauls, all trying to produce more and better products and services – for each other.
That is the gist of Adam Smith’s theory in The Wealth of Nations. It is also the source of Jean-Baptiste Say’s key insight that “products are purchased with products,” not with money alone.
Governments, to the extent that they encourage honest work, trade, savings, and investment can help make people better off.
In their early days, the Roman Empire and the American Republic provided the basics – security, a reliable currency, a court system, and a large, more-or-less-free trade zone – and otherwise left people alone.
But government is power… and power always leads to corruption. Insiders and cronies (aka the Swamp) get control of the government and use it for their own ends, turning the win-win deals of a free economy into the win-lose deals of a politicized economy.
Turning to General Motors (GM)… The company makes cars. It sells them to willing buyers. In an ideal world, its profits reflect the number of sales it makes and the difference between the cost of the resources that went into them and the price of the finished cars on the open market. GM’s share price, therefore, is a kind of outward sign of inward grace.
So far, so good.
Not all of GM’s cars are great successes, however. And producing cars is a very competitive business. So it is not surprising that auto companies sometimes need to cut back… or even go out of business completely, releasing raw materials and labor to some other, more rewarding venture.
Then, along cometh President T. with a hammer in his hand. President Trump hit the nail squarely on the head by proposing to eliminate the subsidies to GM’s electric car. That would force the car to succeed or fail on its own merits, honestly.
Then, the president swung the hammer again… so recklessly that he practically knocked himself out:
They better get back [to Ohio] and soon… They better damn well open a new plant there very quickly.
The Donald seems to think that he – not shareholders, management, or customers – should tell the company how to run its business.
But politics is always basically a dishonest business… a win-lose, smash-and-grab enterprise.
The voters have no way of understanding what is really going on. All they can do is pull the lever for whomever comes up with the gaudiest promise.
Mr. Trump – the boldest American politician since Huey Long – has already been trying to tell the Fed where it should put its key interest rate. He has also been trying to tell American companies how much they should pay for imported steel and aluminum.
It shouldn’t be a surprise that he is now telling GM how many people to employ, where… and how.
Trade is fundamentally a win-win transaction. People don’t trade with each other unless they think they’ll both come out ahead. Trade is at the heart of the aforementioned Wealth of Nations… and it’s the real source of prosperity.
But President T and the feds are now targeting not only specific industries, but specific companies for subsidies… or penalties, depending on their lobbyists, campaign contributions, and insider connections. They want to determine who wins and who loses.
By our measure, the Swamp just got deeper. And the reckoning just got closer.