Fried by the Volt

Posted by Wealth Wire - Friday, March 9th, 2012

From the Dollar Vigilante:

The most recent example of the massive malinvestment brought on by the Federal leviathan is the saga of the Chevy Volt.

GM recently decided to suspend production of the volt due to declining sales - they have also stopped releasing sales projections. From AP:

A GM spokesman said Friday that the company will shut down production of the Volt from March 19 until April 23, idling 1,300 workers at the Detroit-Hamtramck assembly plant.

General Motors was once the Jewel in the crown of American Capitalism. By many, it was considered the greatest manufacturing company in America, if not the world. 

The unions that were encouraged to eat away at GM from the inside were bailed out and the US Federal government took a 25% ownership in company. In the 2009 deal to “restructure” GM, the bondholders were wiped out, and the Unions were given a free pass to continue their destructive behaviors.

Built by what is now a de facto state-owned corporation, the Volt was the child of the green-washed brains of the Obama administration. Who is buying the Volt? According to Bill Visnic, senior editor of Edmunds.com, "The Volt appeals to an affluent, progressive demographic” General Motors itself stated that the average income of a Volt buyer is $175,000 a year. This trend does of course line up with the type of individual who has been at the forefront of the environmental movement since day one. A rarefied elite, righteously indignant, statist in nature, ready to have the government force eco-correct behavior on all who inhabit the land. The classic example is Prince Philip, Duke of Edinburgh, who once opined that “In the event that I am reincarnated, I would like to return as a deadly virus, to contribute something to solving overpopulation”.

The Volt is a very good example of what happens when the means of production falls into the hands of the State. The system of profit and loss that can only operate when prices are set by the private owners of the materials and the means of production. The Chevy Volt can only exist within the sphere of the state wherein there is no rational economic calculation possible. From Economic Calculation in the Socialist Commonwealth by Ludwig von Mises:

Hence, in a socialist state wherein the pursuit of economic calculation is impossible, there can be--in our sense of the term--no economy whatsoever. In trivial and secondary matters rational conduct might still be possible, but in general it would be impossible to speak of rational production any more. There would be no means of determining what was rational, and hence it is obvious that production could never be directed by economic considerations.

When taking a look at the resources that have been poured into the Volt, one can only come to the conclusion that there was no rational economic calculation present. It isestimated by Tom Gantert that the Volt has received up to $3 Billion in Local, State and Federal Subsidies. And if you believe that GM has indeed sold 6,000 Volts, then the total subsidy per car can be estimated anywhere from $50,000 to $250,000. All of this for a mid-sized 4 door sedan that retails for $39,828 (eligible for a $7,500 federal rebate of course).

Compare that with TATA motors Nano, a four door wonder built in India with a sticker price of just under $3,000 USD for the base model. Without the hampering effects of state intervention and government backed unions monopolizing the labor pool, it is amazing what can be profitable. It’s a wonder the car doesn’t explode into flames.

If you have an understanding of the necessity of private property, and the market based, wealth generating price system that accompanies it, one shouldn’t be surprised that the Volt is such a massive failure. Even after the clear example of the failed crusade of abolishing private property for half of the world’s population during the 20th century yielded nothing but starvation and death on a genocidal scale, there are still some who claim that “Socialism hasn’t been tried” or “free markets can’t allocate resources”. Of course if we take an honest look at the test cases provided by history, it is clear where the truth lies.

THE GERMAN TEST CASE

At the end of the Second World War, Germany was split into two halves – the eastern half ruled by the Soviet Union was known as the GDR or German Democratic Republic, and the western half was occupied by France, the UK and USA and known as the FRG or Federal Republic of Germany.

In East Germany Socialism and the abolition of private property and central planning of the economy for the allocation of resources was instituted. According to Jacob G. Hornburger, in Western Germany:

The Allied occupation officials imposed an extensive set of price controls on the German economy. When Ludwig Erhard, the free-market leader of Germany, asked the officials to lift the controls in order to relieve the economic plight of the German people, they refused, claiming that an immediate lifting of controls would produce chaos. One Sunday morning, to the surprise of everyone, Erhard issued a public announcement lifting the controls. It was that action, more than anything else, that led to what became known as the German “economic miracle.

The German government of the day threw off the yoke of price controls and opened the doors for innovation and capital accumulation.

MERCEDES VS. TRABANT

Two populations, similar in composition, were subjected to two different economic systems, private property and free market prices vs. state ownership of the means of production. The results of this 40 year experiment were quite clear – in 1988, West Germany was producing the best cars in the world and East Germany was producing the Trabant, a car that literally melted away.

*Post courtesy of Redmond Weissenberger, the Managing Editor of the Dollar Vigilante and TDV Golden Trader. He is also the Founder and director of the Ludwig von Mises Institute of Canada. 

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