One of the persistent fantasies of liberals/progressives is the conviction that they know how to micromanage the economy, never mind the fact that the American economy is part of a global economy. This year's political agenda provides relevant discussion items; for example, not all pollution of the planet is localized (e.g., pollution from China can affect surrounding countries--even as far away as the United States). Pollution control and other environmental policies impose additional costs on the enterprise. With many Chinese factories operating at razor-thin profit margins, additional costs could result in shutdowns and aggravate chronic unemployment problems. If Americans take on additional costs unilaterally, investment capitalists will look at global competitors having lower costs of production. Also, for instance, we have seen the denuding of Amazon forests in Brazil to meet the demand for arable land. This fact, for instance, materially affects the status quo involving carbon absorption. These examples are not meant to imply there is no need for environmental protection regulations, but the inherent difficulty of trying to impose our standards on the global economy and the fact that nations will enact policies relevant to their own national economic interests.
Not to mention the fantasies Obama is trying to spin about us rebuilding global economic leadership and job creation on the basis of education, health care, and alternative energy. These are clearly vital economic resources, but it ignores the fact that the government has been a heavy spender in these areas for decades. India and China are producing engineers (e.g., alternative energy) at ten times the rate of our own economy. Here's the point I'm trying to get across: in order to stoke the fire under our nation's economic growth--which supports government expenditures--we need to make more efficient, effective use of government resources--not to continue to throw more and more money at problems. Our wasteful government spending and budget deficits inevitably drive up inflation and the cost of capital. And the fact is that Obama deliberately refuses to address two critical factors driving relevant costs because of Democratic special interests: teacher unions (which protect a government monopoly over public education, limit administrative control over teacher hiring and work rules and block market-based compensation and incentives) and trial lawyers (whom oppose serious medical malpractice reforms). The best way is to establish a pro-growth economic policy which does not pick sector winners and losers, does not penalize success, and minimizes obstructive government regulations and paperwork.
The fact that the government "clunker trade-in rebate" plan, signed into law by Barack "Just Show Me the (Taxpayer) Money" Obama just over a month ago ran out of money in less than a month of a 4-month plan, and passed under the influence of unions by a punch-drunk Democratic Congress, has already been re-upped, doubling down on a bad legislative bet, shows the real level of commitment of the Democrats to deficit reduction.
This program provides a $3500-4500 rebate towards a new vehicle purchase with certain minimum mileage standards (including SUV's and trucks); the original "clunker" (no more than 25 years old) must have been owned and insured for at least a year and in drivable condition and cannot exceed 18 mpg. The amount of the rebate depends on the relative increase in mileage ratings. The "clunker" is subsequently destroyed.
This program was meant to be environmentally friendly, but there are so many things wrong with this program, it's hard to know where to start. First of all, let us look at the fact that fuel-efficient models are already in demand, without a Congressional rebate, which is essentially pushing on a string: they would have purchased fuel-efficient vehicles without the incentive. Second, it essentially distorts the marketplace: car companies thinking of offering price incentives on their own are able to pass along higher prices, they can shift production schedules to meet the short-term demand, and it may arbitrarily shift demand from later periods (e.g., if I had originally intended to buy a new Ford Fusion in December). Third, it probably doesn't even reach its intended target--the real "clunkers" on the road. If you are driving a 20-year gas guzzler, it may be because you can't afford to buy a new car, even factoring in the rebate. (For example, you may be working in a low-paying job, retired on fixed income, or a student, struggling to pay for insurance, gas, and necessary maintenance) And if you are looking at the goal of incremental mileage, why exclude used cars? If you are driving a guzzler and can find a four-year-old Toyota that gets a third better mileage, you get nothing--whereas you could trade in a used full-size car you bought in 2007, with a market value of less than the rebate, the government is simply subsidizing your purchase of a new vehicle. (If your current car is worth more than $4500, it doesn't make sense to apply for the rebate, because the government requires scrapping the vehicle, meaning it has zero trade-in value.)
When the government finds its program oversubscribed, it may simply reflect that the rebate program terms were too generous, pushing on a string. This is a typical artifact of liberal/"progressive" initiatives. For example, the minimum wage has just been raised. When there is unemployment exceeding 20% among African-American teens, an increase is a windfall for the select number whom are already employed. It's not so great for low-skilled adults or teens trying to find work with fewer opportunities given the struggling economy and tight labor budgets. There is no incentive for people whose gas guzzlers have a market price over the rebate amount. It's too bad that Obama didn't apply his principle that "it's good to spread some wealth around." Not only that, but if the government wanted to focus on fuel efficiency, why is it offering rebates for trucks and SUV's averaging under 20 mpg? Isn't part of the auto industry problem that US auto companies grew overly dependent on less fuel-efficient vehicles? Why not offer subsidies for improvements to upgrade fuel efficiency on existing gas guzzlers?
Other relevant issues include the arbitrary rules and regulations. For example, Barney writes on the Heritage Foundation website that "my 1979 Ford F-350, with a 460 motor gets 8 to 10 mpg. It smokes a little. However, it did not qualify..." The rebate is not contingent on the amount of driving/gasoline; the traveling salesman gets no more than the little old lady. It discriminates against people whom bought more fuel-efficient cars in the past. The amount of the rebate doesn't depend on the magnitude of the relative mileage increase: the car buyer can simply shop for the best price for rebate-eligible vehicles.
There are some other unintended, even counterproductive purposes to what the government is doing. Let us take those cars less than 25 years old. Maybe they're in better shape than many of the older guzzlers in circulation. If nothing else, the government, instead of having the vehicles destroyed, could offer the cars to charities, allow owners of older guzzlers to exchange them for more fuel-efficient vehicles in the program, or sell the old vehicles to help minimize cost of the program to taxpayers.
An editorial in today's Heritage Foundation blog cites other issues as well. For instance, if you eliminate the number of aggregate of drivable used vehicles from the market, given the law of supply and demand, this would seem to imply higher prices for used cars--which adversely affects lower-income people whom can't afford to buy new cars. Second, it will deprive charities a key source for donations. (In fact, I donated my last car.) Furthermore, there is some evidence that tilt towards auto makers may come as the expense of other areas of the economy (i.e., the expenditures that are displaced by new car payments).
I conclude that the American voters next year should seriously consider voting in more tax-efficient, effective legislators. If you prefer to stay with the Democratic brand, consider trading in your tired old liberal legislator, with hardly a new idea since 1972, and upgrade to a Blue Dog model. Better yet, consider changing to the Republican brand, with new ideas, approaches and features that have not even been test-driven since the Democrats regained control of Congress in 2007. It's time for real change, not just lip service to change, and I'm not referring to what's left in your pocket after the "trillion dollar deficit" Democrats have spent the rest.
