As I have noted before, the Obama team’s emphasis on its “achievement” in the car bailout is of dubious value. There are the political downsides, most especially the public’s distaste for anything with “bailout” in a sentence. But it is the merits of the case that remain the most problematic, and they suggest how little the administration understands the core problems with the now very obviously flagging economy.

David Skeel writes in the Wall Street Journal:

Under the strategy that was chosen, each of the companies was required to file for bankruptcy as a condition of receiving additional funding. Rather than undergo a restructuring under ordinary bankruptcy rules, however, each corporation pretended to “sell” its assets to a new entity that was set up for the purposes of the sale. . . . If the government wanted to “sell” the companies in bankruptcy, it should have held real auctions and invited anyone to bid. But the government decided that there was no need to let pesky rule-of-law considerations interfere with its plan to help out the unions and other favored creditors. Victims of defective GM and Chrysler cars waiting to be paid damages weren’t so fortunate — they’ll end up getting nothing or next to nothing.

In other words, the taxpayers are out billions of dollars to obtain a result that is arguably not as positive as inaction by the government. Boy, does that sound an awful lot like the entire failed Keynesian stimulus strategy. And make no mistake; the taxpayers are out of pocket billions:

This side of the story rests on the observation that GM’s success in selling a significant amount of stock, reducing the government’s stake, and Chrysler’s repayment of its loans, show that the direct costs to taxpayers may be lower than many originally feared. But this doesn’t mean that taxpayers are off the hook. They are still likely to end up with a multibillion dollar bill — nearly $14 billion, according to current White House estimates.

But the $14 billion figure omits the cost of the previously accumulated tax losses GM can apply against future profits, thanks to a special post-bailout government gift. The ordinary rule is that these losses can only be preserved after bankruptcy if the company is restructured — not if it’s sold. By waiving this rule, the government saved GM at least $12 billion to $13 billion in future taxes, a large chunk of which (not all, because taxpayers also own GM stock) came straight out of taxpayers’ pockets.

The billions are in essence a gift to the UAW, which was spared the full impact of a bankruptcy proceeding and evisceration of its labor contract.

The administration’s own report, “The Resurgence of the American Automotive Industry,”is more likely to wind up in ads of Obama’s Republican opponent than in his own in 2012.

It is no wonder that Vice President Biden’s former chief of staff, Ron Klain, revealed (unintentionally, I think) that the argument needs to be a-factual in order to succeed. He recently wrote:

Opposed by more than 70 percent of Americans at the time, the administration’s 2009 rescue of the auto industry was unpopular at the start, and remains so today.

Turning around public opinion on the government’s role in saving the auto industry is almost as important as the turnaround itself. The industry is clustered in three states — Michigan, Ohio and Indiana — which are at the core of the president’s electoral base; two, Michigan and Ohio, are must-wins for the Obama-Biden re-election effort in 2012. . . .

In all of these states, the president will have to overcome a strong electoral headwind of high unemployment and cultural conservatism; in Ohio and Michigan, Obama also will have to contend with the Republicans’s 2010 takeover of the offices that run statewide elections. The president is counting on his successful auto rescue to be the tent pole that holds up his political prospects in these critical states.

But the White House can’t stop there; it also needs to sell this policy to Americans across the country. To refine its message, the administration should do three things:

First, tell the story with fewer numbers and more emotion; less prose and more poetry. Rescuing the auto industry isn’t just a matter of saving jobs and factories — it means preserving a uniquely American manufacturing tradition. Cars are more American than apple pie or hot dogs (which, unlike the automobile, were both invented in Europe). We couldn’t have won World War II without this “arsenal of democracy”; as Walter Reuther famously said, “England’s battles were won on the playing fields of Eton, but America’s were won on the assembly lines of Detroit.” The president needs to jujitsu Republican critics who accuse him of failing to understand American exceptionalism by pointing out his success in saving this exceptionally American industry.

If the first prong of an electoral strategy is “remind the public of WWII,” you know the cold, hard facts aren’t helping the administration’s case. His next suggestion is equally odious: “The story of the tough choices the president made along the way must be told to convince the public that this wasn’t a handout.” But it was, wasn’t it?

And finally, he advises “[L]et the people of the auto communities tell their own stories — encouraging homegrown viral videos and other uses of social and new media. This is a lesson I learned the hard way during the 18 months I was part of the White House team that struggled to explain the benefits of the Recovery Act.” Does Klain really imagine that home videos would have convinced the public that the stimulus plan was a really, really good thing?

There is an embarrassing quality to the Obama spin factory on this issue. The degree to which the administration seems confident that it can bamboozle the public is bad enough. But even worse is the possibility that the administration believes all this. Not appreciating the unintended consequences of its action and the gross inefficiency of government meddling in the marketplace, the administration has spent two and a half years pursuing government-centric recovery schemes with little to show for it. And the answer to the poor results of government action is invariably the same — more taxes and regulation and the spread of a counterproductive mentality. As Keel put it, “The car bailouts have sent the message that, if a politically important industry is in trouble, the government may step in, rearrange the existing creditors’ normal priorities, and dictate the result it wants. Lenders will be very hesitant to extend credit under these conditions.” Home videos, no matter how compelling, aren’t going to change that.