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By Joe Campbell
December 5th, 2008

[digg-reddit-me]Jon Stewart pointed out against last night how non-constructive the political debate regarding the bailout of the Big Three Automakers has been:

Clearly, politicians are applying a double standard. But I think the hypocrisy is worse than Stewart suggests – because the product financial companies are supposed to be creating is profit with the risks associated thoroughly managed and quantified. Their product has proved to be far more defective than the cars produced by the Big Three, as the financial products have not just malfunctioned, but acted as a virus spreading the failures around to everyone.

Stewart previously pointed out how the first story regarding the bailout of the Big Three focused almost exclusively on the method of transportation used by the CEOs of the auto companies to get to hearing instead of any substantive issues. The real controversy has barely been discussed:

Corporations, whose primary purpose is to amass wealth by any means available for their owners (and who always manage to simultaneously amass wealth for the managers) cannot be trusted with public money. There is no public purpose to such profit-making. The public value of a corporation comes from it’s incidental activities – the means by which it is able to amass it’s profits. By bailing out General Motors, the government would be giving it’s money away for no public purpose. But the government does serve a public purpose by keeping General Motors’ factories churning out cars – by keeping people employed, by providing stability, by keeping the economy going and producing usable items.

Within that distinction lies the difference between outrageous abuse of taxpayer funds and a valid public purpose. The more difficult question is how to avoid the abuse while serving the purpose. [edited slightly from my original]

Which is why I think a bailout should be postponed – to attempt to find the least worst of all the options – rather than to cause great problems with hasty solutions. If the automakers won’t survive without an instant cash infusion though, the government needs to step in one way or another.

Michael Moore described his common sensical solution to this whole mess earlier this week:

1. Transporting Americans is and should be one of the most important functions our government must address. And because we are facing a massive economic, energy and environmental crisis, the new president and Congress must do what Franklin Roosevelt did when he was faced with a crisis (and ordered the auto industry to stop building cars and instead build tanks and planes): The Big 3 are, from this point forward, to build only cars that are not primarily dependent on oil and, more importantly to build trains, buses, subways and light rail (a corresponding public works project across the country will build the rail lines and tracks). This will not only save jobs, but create millions of new ones.

2. You could buy ALL the common shares of stock in General Motors for less than $3 billion. Why should we give GM $18 billion or $25 billion or anything? Take the money and buy the company! (You’re going to demand collateral anyway if you give them the “loan,” and because we know they will default on that loan, you’re going to own the company in the end as it is. So why wait? Just buy them out now.)

3. None of us want government officials running a car company, but there are some very smart transportation geniuses who could be hired to do this. We need a Marshall Plan to switch us off oil-dependent vehicles and get us into the 21st century.

Moore’s solution seems like what was done with the railroad industry in the 1970s – when it was taken over by the government, revamped, and then privatized again. I think Moore’s almost got it right. But not quite. Moore’s solution seems very 20th century – like India’s Five Year Plans or other centralized, government-sponsored attempts to solve large problems. Instead, I think Moore could take a lesson from Nassim Nicholas Taleb, the philosopher, economist, and former hedge fund manager who has been explaining the underlying weakness of our financial markets since he made a killing in the 1987 crash. Taleb understands that if you put a bunch of geniuses in charge, you might get something great. But as he points out, the truly game-changing developments happen by accident. The computer, lasers, the internet – all of these innovations have accidentally changed the world in a way that could not be anticipated. He refers to this type of game-changing development as a Black Swan.

And a Black Swan is exactly what Michael Moore, Barack Obama, and the rest of us know we need to jump start the green energy industry. The best way to catch a Black Swan in Taleb’s parlance is to tinker.

In that spirit I propose to create a government-affiliated entity, the Detroit Investment Group (DIG).1  DIG would be a modern-day government intervention in the market that would take inspiration from the Tennessee Valley Authority (especially it’s regional focus), the Manhattan Project (it’s think tank aspect), NASA’s moon shot (in the specificity of it’s goal and it’s timeline), and the Department of Defense (in how it creates incentives for inventors to create new technologies with the promise of contracts.)

Government intervention is necessary as the marketplace has failed to invest in the long-term development of green energy. This tendency of the market to focus on short-term profits over long-term projects has certainly been revealed to be a significant flaw in our current economic structure, as, for one common example, corporate managers seek instant profits which lead to huge bonuses and leave before the long-term effects of their actions hit. Not knowing how to fix this tendency to focus exclusively on the short-term, a government agency can create incentives within the market to focus on long-term issues that are essential to our nation’s security and stability. This would be the purpose of DIG – to supplement the market rather than to impose it’s own hierarchical structure.

DIG would be given goals and rules rather than a typical bureaucratic organization. It’s goals would:

  1. To spur the creation of new green technologies and a green energy industry in America; and
  2. To rejuvenate Detroit and the surrounding areas.

To accomplish both of these goals, DIG would make Detroit the place to go for green industry – the way Silicon Valley is for computer technology. DIG would not have a specific method of encouraging green industry – but would use an infusion of cash and people to tinker and innovate and generate solutions. It would need quite a number of tools to spur this growth and innovation:

It would need the authority:

The point is – DIG would try everything. It’s task would not be to follow certain procedures, but to achieve it’s goals. It would be structured in such a way as to create market incentives and to centralize planning – on two alternate tracks – and let each influence the other. If this problem is fixable, then DIG would unleash the money and human resources to find the fix – and it would be agnostic about the ideology of it’s solution.

It is, in short,  a very Obama-esque approach to the problem.

  1. is not being used by any government agency at the moment. []