UPDATE

Today is the final day for the Cash for Clunkers program.

Jesse

Recently, the most popular topic on the news outside of Jackson custody battles and estate issues is the Cash for Clunkers program, also cleverly (?) known as the CARS (Car Allowance Rebate System). The program is relatively simple based on its website: www.cars.gov and includes just five simple steps to keep dealers in business, minimize the exposure of underperforming dealers and cars from UV rays on dealership lots across the United States, and get gas-guzzling dinosaurs off the streets in favor of cars with better fuel efficiency. The biggest issue is that the CARS program is a 5-step program to keep more dealers from tanking when the real focus of any current and future economic policy should be a 12-step program to help the economy recover.

One thing to ponder is the basic economics and environmental logic of the situation. If you have a good, working car whose only flaw is its MPG, does it make sense to scrap it to take advantage of this program? Additionally, scrapping these cars might reduce the dependence on natural resources, but will the scrap industry properly dispose of all the additional transmission fluid, oil, gas, windshield wiper fluid, auto components like old brakes made of asbestos and other things that may be worse than gassing up? Finally, unless an incinerator is environmentally-friendly, there’s a good chance that we might be better off without a mad dash of clunkers to the scrapyard.

More importantly, from a free-market economy perspective, the numbers from the last 10 years show that the Big Three have lost significant market share from a demand perspective, but few dealerships perished until recently from a supply perspective. Based on data from the National Automobile Dealers Association, the Big Three’s combined market share was nearly 72% in 1997 and dropped to 52% by 2007, the most recent year with full data available. Interestingly enough, over this same period of time, advertising costs per dealership doubled from an average of $300 per car sold to $600 per car sold. Additionally, the average dealership has been losing money since 2006. So, dealerships were losing market share, losing money, spending more money on advertising, and cars weren’t moving off of lots.

Moving from cars that don’t move, at least not off of dealership lots, to the people who must sell them, the average dealership employs approximately 50 people per dealership. So, for each dealership that closes, 50 people lose their jobs, some right away, and some at a point in the near future. More importantly, dealership employees are classified in the retail sector of the economy, which has been hit significantly with losses for the last several fiscal reporting quarters. This reality begs the question…When will we have a Green for Jeans program that will subsidize the cost of new jeans when I turn in my old jeans? This way we can prop up the rest of the ailing retail industry, including The Gap, Abercrombie & Fitch, Macy’s, and all the other retail stores on life support.

Perhaps most important is the fact that the program only exacerbates the situation that got the nation into this mess…the American consumer’s insatiable appetite to buy. Only part of the current economic crisis is related to the cyclical nature of the economy; the other part of the mess is the impact of failed financial policies across the board, including consumer debt. If a dealership provides a rebate of $4,000 for a new car, and the government’s CARS program adds in another rebate of $3,500 to $4,500 that the dealer may or may not pass on to the consumer, where does the additional money come from? If the consumer does not have the cash, the consumer must take out an auto loan, thus adding more debt on top of an already impressive mountain of debt currently drowning the economy. If we just keep buying stuff regardless of the future implications, then at least the current implication is that we will buy less gas due to more fuel-efficient cars.

But, if those cars are only driving us to jobs that no longer exist, then we’re on a road to nowhere, which the Talking Heads (the group) seem to understand but not the Talking Heads I see on my TV. In July of 2009, the economic numbers from the Bureau of Labor Statistics show that for each current job opening, there are roughly 6 people applying for that job. This information comes from the Job Openings and Labor Turnover Survey, which carries the ironic acronym of JOLTS. So, CARS might save some dealerships from closure and stabilize this number, but if these dealerships have been underperforming for years, aren’t we doing our economy a disservice by throwing more money at the problem and generating more debt for American consumers who are already maxed out? Moreover, by the end of September, half a million people will lose their unemployment benefits and this number could top one million by the end of December. Given those numbers, are old cars that are not fuel-efficient really the problem facing the nation today?

Whether this program creates more problems than it is worth won’t be known until we get out of the current mess, which many economists say we’re already headed toward a recovery. I am not an economic expert, but I do know that policies geared towards underperforming auto dealerships is likely not the best policy to stabilize a shaky economy. If everything works out, I promise to be relatively quiet and we can all drive happily ever after, even if we still won’t have any idea where we’re headed.

Adam

Jesse, I’m happy to see some conservatives showing concern for those Americans who have newly entered the unemployment world. I agree that the spending that has gone on for so long is one of the central issues of our current economic crisis.

Obviously, there are a few points that I hold a different opinion though. The first difference, and more important, is that I have never thought of the CARS program as a program strictly focused on propping up failing auto dealerships. The program’s most important goal was to get inefficient cars off the road and provide an incentive to the consumer to buy a vehicle that was more efficient (and very possibly more efficient than the car they would have preferred to buy).

So, rather than forcing consumers to buy more fuel-efficient vehicles through taxation (which is what I favor as a policy), the government provided incentives to effect the market. This market manipulation is the form so many conservatives have favored in the past across varying industries. A major difference this time is the level of the market that was reached. It effected small dealerships and consumers the most, not extremely large corporations.

The program brings two positives. One, it keeps people working at dealerships (no matter how inefficient they are). Two, it moves a large number of Americans to purchase fuel-efficient cars at a time where fuel costs are not the motivation. This short-term and long-term outcome are what the goal of so much of the economic stimulus package was about. Are we helping a person get a job for their life if they are working on laying tracks for public transit or building a new bridge on the interstate system? No. We are temporarily putting someone to work during an economic downturn, and at the same time making an important investment in the nation’s infrastructure.

A more fuel-efficient car will not save the environment over night or get our country off of foreign sources of oil, but it is a good first step in bringing positive change to both of those serious problems.

Government intervention is useful at times, and this time I feel it did help. Now, next on the agenda, updating the federal gasoline tax!

I think the administration has responded to the protests in Iran almost perfectly. It is the people of Iran crying out for change, and they are the only people who can bring on that change. Any response on the part of the US that could be deemed interference (a common theme in US foreign policy) would only reinforce the hard liners.

Fareed Zakaria has a good description of the debate taking place and provides some perspective on the issue:

Neoconservatives are already denouncing Obama for his caution. Paul Wolfowitz, deputy defense secretary under Donald Rumsfeld, has compared the White House reaction to Ronald Reagan’s reticence when Ferdinand Marcos’s regime was challenged on the streets of the Philippines. But the analogy makes no sense. Marcos was an American client—he was in power courtesy of the United States. The protesters were asking Reagan to withdraw that support and let events take their course. Iran, on the other hand, is an independent, fiercely nationalistic country with a history of British and U.S. interference in its politics and economy. Britain essentially took over Iran’s oil industry in 1901; the United States engineered a coup in 1953. The chief criticism of the Shah of Iran was that he was an American puppet. As in many such countries—India is another example—this anti-imperial sentiment is quite powerful. Iranians know this is their fight, and they want it to be.

The appropriate analogy is actually to George H.W. Bush’s cautious response to the cracks that started to appear in the Soviet empire in 1989. Then, as now with Obama, many neoconservatives were livid with Bush for not loudly supporting those trying to topple the communist regimes in Eastern Europe. But Bush’s concern was that the situation was fragile. Those regimes could easily crack down on the protesters, and the Soviet Union could send in its own tanks. Handing the communists reasons to react forcefully would help no one, least of all the protesters. Bush’s basic approach was correct and has been vindicated by history.

I can only hope that the US continues down the path Obama has set out in handling the relationship with the Iranian regime and the Iranian people.

In the past couple of years I have hoped for greater diplomatic dialogue between the US and Iran. These hopes were not out of disgust in the Bush administration, but the common interests that the majority of Americans have with the majority of Iranians.

Unfortunately, so many people in the US have an astonishingly small understanding of the people of Iran. I don’t really want to get into the many misconceptions. It is important for people to take a small amount of time in doing research to gain a better understanding of the world.

I want to know what other people think. If you have thoughts about Iran, thoughts about what you think Iran is, provide some feedback here.

 Adam

This administration feels like a new snuggie to me these days. You know, that one amazing product sold on television. The blanket you don’t have to take off. I can just throw on my snuggie, go about my normal business, and know that I will stay all warm and cuddly.

I don’t exactly feel this way, but it is nice feel reassured that the government can take care of us when emergency takes place. I am referring to the recent concerns regarding the swine flu. Watching the numerous press conferences, I realized that I was supposed to feel reassured at times of crisis. And I finally did!

It also took me back to the days of seeing President Bush speak… Instant anxiety no matter what the topic of concern. Or, maybe it was leadership that the former President put into place to bring our country through difficult times. Brownie?

People may be in fear of a pandemic falling onto our society, but right now their fear is being managed with calm and confidence from a reassuring government.

UPDATE

Almost forgot to mention two points of genius from Republican leaders. First, Republican leadership flocked to join the chorus in their accusations that volcano monitoring was wasteful…shortly before a volcano erupted. Second, Replublican leadership stripped funds that would go towards a possible pandemic…shortly before the current swine flu situation.

Hold that snuggie tight!

Adam

The virtues of private interests ahead of public good have no age limit

The tea parties that were held across the country yesterday were idiotic for multiple reasons. There are enough bloggers and commentators discussing those reasons right now. Hopefully there is plentiful footage of all of those brave elected officials in the next election cycle to highlight what they did for their country during tough times.

I do not want to get into election strategies for the Democrats. What I would like to do is highlight the missed opportunity the conservatives/Republicans missed during one of their greatest successes at organizing their ideologically aligned citizens.

Every Republican official put in front of a camera over the past few months talks about the destruction of capitalism. Some of those take the time to speak to the point of how this destruction will hurt the middle class. Yes, based on what they are saying, higher taxes on the rich and government stimulus will only continue the crushing of the workforce found in the middle. It seems that the best way the people who attended these tea parties could have spent their time is by HELPING those who are being destroyed by socialism.

This could have been a bold statement for the Republican party to make. Imagine John Boehner being interviewed by Fox News and saying “We are here in Cleveland organizing this food and clothing drive because we know it is necessary to help those people who continue to lose their jobs because of the high taxes this administration and Congress are imposing on the people. When the Democrats have eroded away the life they once knew, the conservative community is here to help bring this country back.”

Wouldn’t that have been powerful? Instead of wasting time and resources, they could have used that organization to make a positive difference and at the same time got their message out that they are outraged by the changes that are taking place.

Obviously, this type of outreach would require each person to look beyond their own self interests. When that happens…well…then there probably would not have been any tea parties yesterday.

I’m not sure where the broad publics’ head is at with recent positive news coming out on the economy. Some commentators I have read lately (and Senators Schumer and Reid) are talking about the economy turning around. The fall has occurred and its all UP UP UP from here… Well maybe there has not been that much optimism from them, but its out there. Does this kind of optimism worry anyone else besides me? Luckily I am not the only one who is worried.

The economy has been taking a hit on a regular basis for quite a while. There is a good description of where all of this positive movement is coming from, but I would rather relate it to a very likely scenario out there now.

Try to imagine that you are an employee at RSPC (The Really Smart People Company) and, in order for the company to continue operations with the existing workforce, all employees are asked to take a pay cut…lets say a 25% pay cut. Okay, you have your pay cut, times are tough, so you just deal with it. When a couple of things begin to go better RSPC decides to give you a 5% raise. The RSPC is ecstatic over the news that they are making a profit in the first quarter of the year and they believe things are turning around. Now, as the employee, are you as excited about that 5% raise, or are you still upset and wary because of the total 20% hit you are still feeling?

Good news is still good, but lets take it with just a little perspective.

Adam

I wanted to put out a request to anyone who will be reading this that I am looking for more commentators. Do you have random political thoughts or world views that you really want to bounce off a possibly contradicting mind? Well, my suggestion is that you contact me and then we can put a post together.

Another thing, if you are a fellow blogger, I am all about trading posts with you. The site is about starting conversations and understanding different perspectives.