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The Fog of Capital: Reflections on the Detroit Auto Bailout

The Prussian military analyst Carl von Clausewitz wrote of action in war that it must “be planned in a mere twilight, which – like the effect of a fog or moonlight – gives to things exaggerated dimensions and unnatural appearance.” As I attempted to research and write an article that would undertake a left-independent analysis of the Detroit Auto bailout, I felt as though I had been caught in such a twilight fog. This looks like it will be a big topic as the election approaches, but the terms of debate between the Romney and Obama camps about the bailout appear somewhat hazy. So just what is the difference between Obama and Romney on this issue?

To be sure, there are differences – but the answer may very well be, “less than you would think.” Both incumbent and challenger have an insufficient understanding of and appreciation for the crisis-prone nature of capitalism. How should we assess the Obama administration’s response to the crisis of American auto manufacturing and the Romney campaign’s challenge?

The story begins back in November of 2008, as former president George W. Bush was already starting to funnel liquidity into the big three auto companies. At this time, Mitt Romney published an Op-ed. in the New York Times entitled “Let Detroit go Bankrupt.” It seems that an editor came up with the snappy title, but the Obama campaign has since pounced on the piece, arguing that a president Romney would have meant disaster for the entire Midwest, and the country. Romney’s argument was that only a managed bankruptcy would force the necessary restructuring in management practices, labor contracts, pension obligations and responsible reinvestment of profits back into improved means of production instead of jets and mansions that would make American car companies competitive in an international market. A bailout would just delay the day of reckoning.

Two out of the big three auto companies, General Motors and Chrysler, eventually did go into bankruptcy. The argument from the Obama administration is that the cash from the bailout was necessary to get them through the court administered restructuring. Without the money, they argue, they would have had to go through Chapter 7 liquidation instead of Chapter 11 restructuring, which would have destroyed the industrial ecology of the Midwestern economy. Paul Krugman, for example, made this argument in a January op-ed. Now Romney wants to claim that what Obama did was basically what he had originally suggested, although he opposed the bailout. The administration of course, is eager to point this out and looks to make political mileage of it come November.

With both sides agreeing on the sector reforms they would like to see and merely disagreeing on whether it should have been up to private capital or government loans to get the Big Three back on track, there is clearly some room for more radical thought here.

Two things have to be said:

First, there will be no fundamental recovery of American manufacturing without deep changes in the entire economic system, especially the financial sector.

Though the crisis of the auto industry has been temporarily averted, no one knows how long lasting this “recovery” is going to be. If you read letters to investors or much financial news at all, then you know that the experts are not optimistic. It would be a mistake on the part of progressives to take this as merely the disgruntlement of right-leaning 1%’ers unhappy with an Obama White House. They are right about this; a return to zero percent finance loans to artificially create demand for automobiles does not an economic recovery make. The auto companies are already back in the game of leveraging sales through loans from finance; a big part of why they were in such bad shape in 2008 in the first place.

The irrationality of financial markets has to be curbed – and this is something the Obama administration has been either too weak or too in thrall to financial elites to do – before there is enough confidence to get operations and reforms financed and consumption back on track. This means a much bigger role for government in regulating finance so that we are not at constant risk of speculative bubbles that hurt overall confidence in search of short-term windfalls.

The second thing that must be said is that there were other policies that could have been taken by the government with regard to the auto industry, but were not. It is up to responsible thinkers to ask why.

Of course, the Obama administration now clothes its arguments in favor of the auto bailout in the language of “saving the middle class.” This sort of talk distorts what was really at stake and what really happened. The government could have taken over from the failed capitalists and dispossessed them of their means of production. It is difficult to criticize this suggestion by appealing to the greater efficiency of markets, considering the situation of the automakers and private capital generally in 2008. Government experts could have rationally invested in the kinds of production reforms that the industry needed as well as in other reforms like more green technology and new designs that the market has dragged its feet on for decades. Now we are stuck with the same failed class of managers and the very real likelihood that we will return the old rounds of stock manipulations and short term gains, this time paired with the “reformed” pension obligations, union restructuring, and huge layoffs that resulted from the Chapter 11 bankruptcy. Talk about saving the middle class.

Protesting auto workers.

I don’t mean to counter-factually argue that “Obama should have nationalized the auto-industry and finance” – because it’s clear that was never ideologically possible within the administration. My point is that once again journalistic coverage of the election has outrageously narrowed the field of possibility surrounding issues of vital interest to working people in this country. It has distorted the terms of debate and prevented alternative utopian thought from taking form.  It’s not just a problem with the culture of journalism. The imperative of private capital to accumulate at compound interest has, like a fog, clouded the field of possibility and hampered our ability to plan a course of action toward a more responsible and just future.

Clausewitz wrote that the fog of war necessitated above all “a fine, piercing mind, to feel out the truth with the measure of its judgment.” We must above all refuse to let capital colonize the horizon of our thought and expectations. We must refuse to read election debates like the current one about the auto bailout in either/or terms. Instead, we should read them in light of what could have happened, had not the state and journalism been so confused and mystified by the fog and moonlight ideology of private capital.

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About Jonathan Dentler

Jonathan Dentler currently lives in Berlin where he studies the history of German influence on American progressivism.