Kelo, GM, and the Stimulus: Three Examples of Government-Induced Failure
Recent weeks have not been good to those who bitterly cling to the notion that governments can manage economic initiatives. Three of them -- one in real estate, a larger one in manufacturing, and a colossal enterprise supposedly intended to revive a downward-spiraling economy -- have all either failed miserably or foundered badly.
On November 9, pharmaceutical giant Pfizer announced that it would abandon its eight-year-old research and development facility in New London, Connecticut. That decision effectively ended the chances of any additional development taking place in the city’s Fort Trumbull area, the subject of June 2005’s infamous Kelo v. New London Supreme Court decision.
Citing what Justice John Paul Stevens called a “carefully formulated … development plan,” the Court’s decision allowed the city to condemn and bulldoze dozens of houses. Today, the area, except for the politically connected Italian Dramatic Club, is a vacant wasteland.
Hopes for anything substantive were already on life support. But Pfizer, whose 2011 departure coincides with the end of ten years of tax abatement originally granted by the city, applied the fatal blow.
Then on Monday, government majority-owned General Motors issued its first post-bankruptcy clump of financial information.
Calling GM’s release a “financial report” would be an insult to financial, private industry, and regulatory officials who have worked for decades to create uniform and credible accounting and reporting standards. Instead of following generally accepted accounting principles, GM pulled terms like “managerial income” and “structural costs” out of thin air, and backhandedly warned us in a separate Word document that the unaudited numbers really don’t mean anything:
Management believes these adjusted financial measures provide meaningful supplemental information regarding GM’s operating results because they exclude amounts that GM management does not consider part of operating results when assessing and measuring the operational and financial performance of the organization.
My translation: “We took out the stuff we didn’t like.”
Even after doing so, and even after washing away over $80 billion in past problems through bailouts and bankruptcy, assisted by government favoritism and intimidation, the company reported a loss -- er, “managerial net loss” -- of $1.2 billion.
Finally, in more recent days the $800 billion-plus economic stimulus package passed by Congress in February has crossed a credibility-destroying threshold that even vocal opponents probably never thought would be breached.
For several weeks, evidence of the effort’s ineffectiveness has mounted while the overall unemployment rate has accelerated. In city after city, state after state, reports of skimpy numbers of jobs “created or saved” despite billions in spending have multiplied faster than well-fed cancer cells in a Petri dish.
But at least those projects were carried out in real places. Now we have learned from Watchdog.org that, “according to data retrieved from Recovery.gov, nearly $6.4 billion was used to ‘create or save’ just under 30,000 jobs in  phantom congressional districts -- almost $225,000 per job.” Further, the chairman of the government’s Recovery Accountability and Transparency Board has told lawmakers that he cannot “certify that the number of jobs reported as created/saved on Recovery.gov is accurate and auditable.” What is transparent is that these people don’t know what the heck they’re doing and that the mother of all boondoggles looms on the horizon.