Constant Conservative

The Wall Street Journal takes a look at the so-called “Cash for Clunkers” program a month after it came to a close.

So, how did it do?

Did the program create demand for new vehicles?  No:

Transportation Secretary Ray LaHood declared in August that, “This is the one stimulus program that seems to be working better than just about any other program.”

If that’s true, heaven help the other programs. Last week U.S. automakers reported that new car sales for September, the first month since the clunker program expired, sank by 25% from a year earlier. Sales at GM and Chrysler fell by 45% and 42%, respectively. Ford was down about 5%. Some 700,000 cars were sold in the summer under the program as buyers received up to $4,500 to buy a new car they would probably have purchased anyway, so all the program seems to have done is steal those sales from the future. Exactly as critics predicted.

But the program helped to stimulate the economy, right?  No:

Rather than stimulating the economy, the program made the nation as a whole $1.4 billion poorer.

The basic fallacy of cash for clunkers is that you can somehow create wealth by destroying existing assets that are still productive, in this case cars that still work.

The government had no other choice but to do something radical.  Nothing like this has been tried before.  Actually, it has:

In the category of all-time dumb ideas, cash for clunkers rivals the New Deal brainstorm to slaughter pigs to raise pork prices. The people who really belong in the junk yard are the wizards in Washington who peddled this economic malarkey.

The key to any recovery is the creation of wealth.  Government cannot create wealth.  It can only transfer wealth.  In this case, the government transferred future wealth (in the form of debt or inflation) to the present and managed to make us $1.4billion poorer in the process.  Wealth is created by the market, but only if left alone to do so.  Our government needs to stop meddling in a system it can’t possibly help.

The title of an AP story posted on the Argus Leader site proclaims, “Cash for Clunkers ends under its $3 billion budget.”

Hooray!  A government program ended under budget!  Well, not exactly.

It actually ended 3 times OVER its original budget.  The program was originally allocated $1 billion, but blew through that in about a week.  In response, Congress approved spending another $2 billion of the public’s money that doesn’t exist to keep the program going a few weeks longer.

Imagine that your clunker is having engine problems.  You budget $1000 cash for repairs.  You drop it off at the mechanic, but he calls you later saying he thinks it’s going to cost $3000.  Later, you go in to pick up your vehicle and the bill is “only” $2900.  Is that coming in under budget?

My analogy above isn’t perfect.  In the analogy it is clear that something was accomplished in spite of the costs; your broken clunker was repaired.  But, with the “Cash for Clunkers” program, touted to boost the economy while lowering carbon emissions, it’s hard to say if anything beneficial was achieved.

This program didn’t create any new demand for cars.  It only shifted inevitable purchases forward.  In the near term expect new car purchases to stagnate, and we’ll be back to where we started.

If the government was serious about reducing emissions it wouldn’t have wasted our money on the “Cash for Clunkers” program which may only provide negligible effects.  For example, it could have used the $3 billion to buy 3 (at least) existing coal plants and shut them down permanently.  Or, it could have built a couple of no-emission nuclear plants and ran them cleanly for decades.  Either way it could have gotten much more bang-for-the-buck in reducing emissions by pursuing other options.

“Cash for Clunkers” was a poorly conceived program which failed to achieve any lasting benefits and was successful only in dragging our country $3 billion deeper in debt.

*Your actual results may vary.

Why select the automobile as the object of our affections?

Start with the focus on cars. What strange, narrow-minded obsession with the internal-combustion engine made Congress only pay people to buy new automobiles? Why aren’t they paid to buy appliances, TVs, and sofas? To go out to eat, and to buy business suits, blue jeans, and lingerie? Are all of these consumer activities inherently less worthy than trading in a 1999 Dodge Caravan for a Chevy Cobalt?

Of course, whether it is cash for clunkers or Benjamins for blue jeans, it comes down to a generational Ponzi scheme. Those who get in now may not have to pay (and may in fact benefit, on the surface). However, their children and grandchildren will be footing the bill for many years after that Cobalt has retired to the junkyard.

From the much misunderstood Claire McCaskill:

We simply cannot afford any more taxpayr $ to extend cash for clunkers. Idea was to prime the pump, not subsidize auto purchases forever.

Ma’am, have you ever, in all your time in office, seen a subsidy stop?

By the way, if you prime a pump, only to find that there is no water in the cistern, you must keep priming the pump to see any kind of fluid flow.

On the topic of health care, we have the following from Bob Burg:

In fact, the Pro-Universal Crowd has done a brilliant job of framing a false argument:

“Do we stick with a Free-Market Healthcare system which is not working?”

or…

“Do we at least do something to try and help; for example, go to a system of Universal Healthcare?”

And (anti-Constitutionality aside), that question would make sense, except…

WE DON’T CURRENTLY HAVE A FREE-MARKET BASED HEALTHCARE SYSTEM. (Sorry for shouting but has nobody noticed that??!!)

Actually, we haven’t had a market-based healthcare system in over 50 years. When we did, it worked magnificently well for everyone, including the financially disadvantaged. Only after government first inched its way in and then eventually controlled nearly every aspect of it did we find ourselves in the predicament we are currently in, with the masses now asking the government to solve the very problem they created (I can’t think of anything more nonsensical).

He’s absolutely right. A system which has some remnants of a free market approach is not not free any more than a barn which has some remnants of that 20-yr-old paint is properly considered painted. As Mr. Burg notes further down in the piece, there are more than 135,000 pages of health care regulations–leading  us to believe that maybe the market is seriously constrained (the opposite of free).

I am reminded how much this argument on the part of the President and his supporters is part and parcel of the argument that was given for bailing out taking over financial institutions (and yes, I know that GW Bush had previously said much the same thing). That argument was this: It is obvious that the free market is not working, so we have to do away with it in order to save it.

Mr. Burg’s thoughts would apply to that scenario as well. WE DIDN’T HAVE A FREE MARKET WITH REGARDS TO BANKING/FINANCIAL INSTITUTIONS. We had the remnants of a free market, eroded by generations of regulation and government oversight. So, to tell us that the free market did not work is to tell us that the barn had been painted at one point in the past and it was therefore the fault of the paint that the rain got in. This leaves out the understanding that markets, like everything else in our universe, are subject to the law of entropy.

A free market is, practically speaking, a productive market. People of all stripes are attracted to productive (read “moneymaking) markets. Desires to take over the market, direct the market, make the market do different things than it is currently doing are all part of the dynamics of the market. The problem arises when a government entity is able to do all of the above because it has given itself the power of life and death over the market. As noted in a previous post, capitalism will still be there, because that tends to be the best approach for people who wish to transact business; however, it can be subjugated to the point that it is too dangerous for all but the foolhardy to engage in unsanctioned commerce (black markets).

This post may well be a bit on the dry side, but I decided to work on it after reading that California has in excess of 2 million public employees. This gave me cause to wonder at the background for this large number.

A few notes before I dig in. Employment data is from 2007 and is largely taken from the US Census estimates of that year (the latest year for which full estimates are available). Other data is also from 2007, unless otherwise noted (links for these sources is provided with the corresponding data). Due to the nature of things, all the numbers may not come from the same point in the year; however, if you  keep in mind that estimates are just that, I believe the overall conclusions are supported from the available data.

In 2007, California had the following:

• 36.2 million (population)
• 18.2 million (civilian labor force seasonally adjusted)
• .387 million (state FTE)
• 1.448 million (local FTE)

Breaking it down, we have a non-military labor force which is just a hair more than 50% of of the total population. In addition, we have roughly 1.8 million full-time-equivalent positions which are filled at the state and local levels in government positions.

Comparing those two numbers, we determine that 10% of all the employees in the state work for some government entity at the state or local level. This does not take into account part-time employment or federal employment (which would drive the number even higher).

Given all this, is it any wonder that it is a big deal in California when the state declares that it will go bankrupt unless something is done to stop the madness?

Unemployment in California was at about 11% as of April 2009. My understanding, however, is that most of this is in the private sector with very few state/local employees out of work. Receiving IOUs instead of paychecks? Perhaps. Out of work? Not yet.

As more than one person has mentioned, Californians seem to like their government services, but do not so much enjoy paying for them. Based on the recent referendum on financial measures, it would seem as though a number of public employees may be joining their private sector compatriots in the unemployment lines.

Once-strong GM has just reported that it lost $6 billion for the first quarter of 2009. Here’s the article from the Detroit Free Press:

Worldwide, GM’s revenues from January through March were down nearly 50% compared to the same period a year ago. Revenue fell to $22.4 billion and was largely attributed to GM’s decision to produce 903,000 fewer cars and trucks.

The struggling Detroit automaker is staying afloat on $15.4 billion in federal loans and faces a June 1 deadline to restructure its debt outside of court or else face bankruptcy.

I had heard elsehwere that a top GM executive was saying that news of impending bankruptcy was what had hurt the company’s sales. However, I wonder if the government bailout didn’t cause just as many people to not buy GM (out of principle) as those who were afraid that White House Automotive Repairs, Inc. would not be able to handle all of the warranty work?

Unfortunately, those numbers (why people didn’t buy GM last quarter) may be difficult to accurately collect and parse.

Here is hoping that GM goes into (and out of bankrupcty) instead of limping along on more of your and my future earnings.

Context is critical. Here is some video context for the much ballyhooed $100 million federal budget cut.

The other comparison I’ve heard is that this sum of money is about what the federal government will spend in 13 minutes (assuming an even expenditure of money every minute of every day of the entire budget year). There you have it: an unknown number of government bureaucrats will spend some portion of 90 days figuring out how not to spend 13 minutes.

HT: Fastidious

In his remarks on how the federal government is running roughshod over current law and policy with regards to Chrysler and GM and bankruptcy, John at PowerLine nails it:

One hallmark of organized crime loan-sharking is that, once you are in debt to the mob, you are never allowed to pay off the principal. No matter how much you pay, you always owe more. The mob squeezes you for everything you have. Until a few months ago, I never expected to see an analogy between the U.S. Department of the Treasury and the Mafia. But is it unreasonable to see a parallel in the government’s refusal to allow banks that have borrowed money under TARP to repay it? Does it not appear that financial institutions that became enmeshed with the government, and are now being dictated to by the government, find it increasingly difficult to extricate themselves?

Read his entire exigesis of the situation. It is worth your time.

I’m not a fan of South Park. Going into all the reasons for that would take more time than I have at present. That said, even a headless chicken gets it right from time to time (as shown by the following video excerpt):

HT: Fastidious

Kudos to the New York Times for actually publishing this letter from an AIG executive who is not going to take it any more:

After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down.

Read it all.

From the Politico:

Asked if it would be tough to vote against an AIG tax increase, South Dakota Sen. John Thune, a member of the GOP leadership, said: “It might be, yeah.” Like other Republicans, he said he had concerns about the constitutionality of going after a private company’s bonuses but added: “They ought to give them back. Absent them doing that, there are a lot of people who I think will probably be very inclined [to support it] … Americans at least will want see some retribution for this and see them have to pay something.

“I’m not sure where I come down on that,” Thune said.

Senator Thune, if voting for what is right wasn’t tough at times, anyone could do it. If you believe in the rule of law, then there should be no question “where [you] come down on that.”

In the same article:

House Republicans say they have no plans for now to whip a vote against the bill. “Why would we fall on our swords for this one?” asked Rep. Kevin O. McCarthy (R-Calif.), the chief deputy whip.

Representative McCarthy, you would “fall on [your] swords for this one” because doing so tells us that you are a man of principle rather than one more pragmatic populist politician. To take your figure of speech to the extreme, perhaps you could tell me what happened to the belief that it was better to die with honor than to live a coward.