Over the past 12 months or so, there has been a lot of activity by our (yes, it really is ours) federal government to prevent the financial systems of the world from collapsing, shore up the American (and global) economy and “save or create” (pick a number) of jobs. Now might be a good time to take a hard look at results achieved and who is going to be handed the bills. One thing to question as we go through some of the actions and unintended consequences (at least for average Americans) is how government was empowered to do some of the things they have done.
The very first action, well over a year ago, was the initial economic stimulus act which was a simple direct rebate of taxes to the taxpayers. Certainly, if government has the authority to collect taxes, they must have the authority to give some of the money back. Of course, Congress and President Bush did not take the logical associated action to reduce spending. What looked like a gift from the other Washington was little more than a deferred tax bill with interest accruing. We liked the money, but nobody bothered to tell us we had to pay it back.
Next, was the major financial institution bailout. We were going to save the world from financial collapse and free up capital to restart the credit market. Business credit did not flow, major corporations faced bankruptcy because of cash flow problems, relief funds were used to buy up banks in distress and, in the end, it is doubtful any real difference was made by the effort. What has resulted, however, is every bank supported by federal insurance is now paying higher premiums for that federal insurance. Banks that refused to fall into the fiscal traps of the sub-prime mortgage and did not require federal assistance also are required to pay the higher premium charges. The bank investors and those who have savings accounts or loans from those banks get to pay just a little bit more for the lunacy of others who spent beyond their means and caused the initial problems. Banks like our local Kitsap Bank will be forced to charge higher rates on loans while offering lower rates on savings. Another result of government acting without really thinking things through.
The latest government largesse program is CARS better known as “Cash for Clunkers.” It is difficult to determine the objective of the program. It could be to replace “gas guzzlers” with more efficient cars. If that is the case one would then surmise only new cars that met the 30 MPG goal established by the administration would qualify as replacement cars. That of course is not the case. If the intent is to stimulate car production, a direct “donation” to the manufactures would be a better move. The CARS dollars get dribbled out all down the chain with some portion of the funds getting to the manufacturer. Along the way, the car dealer, the bank, the wrecking company and the scrap metal guys all get their share. If the intent was to stimulate buying by the American people, the immediate question must be, “Isn’t that how we got here in the first place?”
Perhaps it got lost in all the “do good” programs, but the root cause of the current financial problems is individuals, encouraged to some degree by their government, who spent beyond their means. I fail to see how the CARS program does little more than continue that questionable behavior. Of course, there also are the unintended consequences. There is a greatly reduced used car inventory driving prices higher for first-time buyers. The downturn in the car business is only delayed and is still going to come when the CARS funds stop and new car inventories are depleted. There also is the minor problem that we will all face when we have to pay off the bill for all those great government “free clunker rebates.”
No matter what your elected representatives may tell you, there is no free lunch. Unfortunately, when economics was being taught in school it appears most of them were out to lunch.
Jack Hamilton can be reached at gradiver@wavecable.com.
