One of the most pervasive findings in social science, although it is seldom codified this way, is how suggestible people are. Numerous studies in behavioral economics have found that the same underlying bet elicits very different take-up rates when framed as a wager versus as insurance. Even worse, humans are susceptible to obviously exogenous influence.
One oft-repeated test that yields consistent results is to ask a group in a classroom setting to (among other things) to write their best estimate of the number of countries in the world. To show how to fill out the form, the leader spins a wheel of fortune, and takes the chosen number, (say 550) and uses it to illustrate how to record the estimate. Invariably, high results on the wheel of fortune, clearly an arbitrary figure, lead to markedly higher average estimates on the form.
The question du jour is why does the US have such a phobia regarding nationalization. Per the lead-in, I suspect it has a great deal more to do with social conditioning than a case-by-case assessment of possible gains and losses.
While the initial (correct) reflex is that undue government interference in a well-functioning private sector is not a good idea, the industries in question (financial services and automobiles) have top players that are now abject failures on taxpayer life support. These companies have been exempted from market discipline (aka bankruptcy) thanks to state intervention.
The very fact that they operated with minimal government oversight, drove themselves to the verge of bankruptcy, and managed to make themselves so essential that they cannot be permitted to collapse says they cannot be left in their former hands (incumbent management is either colossal incompetent, amazingly corrupt and scheming, or both).
But unlike the UK, and Sweden during its early 1990s crisis (widely touted as best practice) which were both ready to assume control of banks that wrecked themselves, the US continues to rationalize, nay, promote, the worst of all possible worlds: socialization of losses, the bozo management teams still largely (often entirely, as in the case of Citigroup) intact, inadequate to no supervision (where are the board seats?) and no upside participation, not even much explanation of what they intend to do with the dough (well, now great theater is being made of the auto industry, because it is easy to pick on guys from the grubby Midwest, but the banking crowd, which did far more damage and has gotten much bigger handouts and no unpleasant questions).
I saw a simpleminded but compelling explanation for this phenomenon: Europeans consume more government services than Americans do, and are pretty happy with it (they think we are barbarians for having private health care and, among other things, little state support of the arts). Why? They are reported to be better at it than we are. They deliver government services efficiently (relatively speaking, and healthcare provides some proof) and because they do a good job, the citizenry is willing to deploy tax dollars to these ends.
That is a long-winded way of saying that government inefficiency and incompetence is not a given, as is often depicted in the US. The demonization of government service has probably discouraged able people from seeking public sector jobs. Even so, some areas still get high marks (the FDIC). And the continued disparagement of government serves as cover for those who want subsidies and rescues but hope to avoid the demands that should properly go with them.
This New York Times article deals with the Obama team’s reluctance †o be seen as “nationalizing”. I see. So we would rather pander to the bankrupt ideology that helped create this mess, let the perps continue to get undeserved princely pay, and stick the hapless sop taxpayer with the guaranteed-to-be-rotten fruit of this exercise rather than demonstrate leadership and reframe the issues. The hesitation to demand even modest quid pro quos is beyond belief. No private sector negotiator would ever accept such a deal.
Is this “Change We Can Believe In?” Looks like the same old crap to me, with better salesmen in charge.
The golden rule is that he who provides the gold, makes the rules. Time to get over prostrating before the private sector when it has abjectly screwed up.
Key excerpts from the New York Times:
When President-elect Barack Obama talked on Sunday about realigning the American automobile industry he was quick to offer a caution, lest he sound more like the incoming leader of France, or perhaps Japan.“We don’t want government to run companies,” Mr. Obama told Tom Brokaw on “Meet the Press.” “Generally, government historically hasn’t done that very well.”
Yves here, Rubbish. Sweden did a great job with its bank takeovers. The Australian air control system is so good they have marketed the technology (and Australia also has a government applied science think tank which has provided considerable tangible support to industry). The US may not be good at overseeing private businesses, but that does not mean that government control and rationalization when industry has failed is always and ever a disaster. But if you have low expectations, you are pretty unlikely to exceed them.
Back to the Times:
But what Mr. Obama went on to describe was a long-term bailout that would be conditioned on federal oversight. It could mean that the government would mandate, or at least heavily influence, what kind of cars companies make, what mileage…It all sounds perilously close to a word that no one in Mr. Obama’s camp wants to be caught uttering: nationalization….The fact that there is so little protest in the air now — certainly less than Mr. Truman heard — reflects the desperation of the moment. But it is a strategy fraught with risks.
The first, of course, is the one the president-elect himself highlighted. Government’s record as a corporate manager is miserable, which is why the world has been on a three-decade-long privatization kick, turning national railroads, national airlines and national defense industries into private companies.
I have not made a systematic study, but ample anecdotal reports suggest that Bush era efforts at privatization lead to much higher costs and no improvement in service delivery. So the simple-minded view that the private sector is ever and always more efficient bears some examining.
Mind you, I am NOT saying that nationalization should be a first choice, merely that being squeemish where it is clearly the logical action is silly. The article similarly raises straw men: Who would have the insight to fix the industry? Please. This is a reflection of a lack of will. The toughest issues are political: how to share the pain among the executives, the dealers, the shareholders, the creditors, and the employees/unions. The US did build a hydrogen bomb by marshaling fractious, world class scientists, and once upon a time did send a man to the moon, This is not as difficult, but cleaning an Augean stable does not get a lot of plaudits, so the right resources are not likely to be deployed.
CrocodileChuck 
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I’m very sympathetic to the ideas that there are inefficiencies that naturally arise in markets. There are always externalities, and bad equilibria exist. I also feel that government intervention can just as often cause market inefficiencies as address them.
That’s of course no argument not to wipe up a mess once it’s clear one exists, which I think is the thrust of your post here. I agree. But wiping up a mess can itself still cause problems: moral hazard reinforcement, seeing a crisis where there isn’t one, the collateral damage from unintended consequences, and attempting to solve problems that are simply too large.
I think we’re looking at a grade A example of both market failure and intervention to repair the market failure potentially exacerbating the problem. Booting out the management, while satisfying and probably a good idea, really doesn’t do much at this point, because the damage has been inflicted(though, I’ll admit, I’ve been repeatedly surprised by just how insular and brazen these fools can be, and how much more damage they can commit at the helm).
I find the only satisfactory answers in this situation to be ex ante: mind asset prices, don’t let anything get too big to fail, and don’t repeatedly use antibiotics (policy) on common colds so that the immune system gets stronger and you avoid creating resistant bacteria.
Nationalization will not make this problem go away, and your friendly deficit hawk is here to remind you that at some point interest rates will no longer be zero and that solvency issues can arise even if they are always zero. A consolidated balance sheet makes that much more apparent to our apparently doughty creditors. While we’ve all moved on from concerns about the dollar and national debt to Stimulus Now!, I don’t think those concerns are resolved, and they might rear their head again in the most unexpected way if rankled.