Insulating GM From Politics

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As Brendan Nyhan points out, no matter how sincere the Obama administration is about its desire to avoid politicized management of General Motors, in practice it’s hard to imagine a de-politicized state-owned firm. Members of congress are already putting their requests in and no administration can totally ignore congressional pressure. Meanwhile, “Even when the administration does not weigh in directly, the management of GM will be forced to consider what issues might draw political attention and adjust its strategy accordingly.”

Nyhan’s proposal:

Shouldn’t the government now bind itself to the mast and directly forswear intervention in the company’s decisions? For instance, after voting for a new board of directors, the Obama administration could transfer control of the government’s shares to a Federal Reserve-type board of independent experts. This step would free the administration of de facto responsibility for GM’s decisions and insulate the President from any resulting fallout. By contrast, political meddling is likely to hinder the company’s efforts to return to profitability, which would in turn harm the administration and the country.

This might be a good idea. But it’s worth emphasizing that even this doesn’t really solve the problem. The Fed’s independence, after all, is in many ways nominal. There’s nothing stopping congress from changing the laws that govern the Fed—including the provisions making it “independent.” Thus, in principle, a Fed chair can be swayed by informal political pressure. The reason the Fed is independent in practice is that Paul Volcker and Alan Greenspan built a strong political consensus around the idea of Fed independence so politicians don’t want to be seen as undermining it.

Earlier Fed chairs were much more inclined to do the bidding of the Johnson and Nixon administrations and this was a major contributor to the super-high inflation that emerged in the 1970s.