Upon taking office President Obama proclaimed that if his $800 billion stimulus package passed into law the unemployment rate would not surpass 8.5 percent. The measure passed and so did the unemployment rate – right past 8.5 and all the way to almost 10 percent unemployment.
One could argue that government spending to stimulate the economy has done more harm than good. After all, Uncle Sam has “invested” more than $3 trillion into the economy in an attempt to grow jobs only to see the unemployment rate continue to rise. It’s as if all the spending has actually done more harm to workers than good.
Now, I am sure that Bush, Paulson, Bernanke, Obama, Geithner, and all the members of Congress who have supported the government’s spending spree had the best of intentions in mind. It seems logical that if you put more money in peoples’ pockets, they will spend it on consumer goods, and this in turn will lead to more jobs and an end to the recession, right? Not so fast. What usually seems like a logical government intervention is not necessarily the case. Most of the time, these schemes contain many unintended consequences.
Take Obama’s Cash for Clunkers program for example. The scheme used cash incentives of up to $4,500 to get folks with old cars to trade them in for a new, fuel efficient model. Dealers accepting the trade-ins were required to scrap them. The boondoggle was meant to stimulate car sales, benefit Detroit’s unionized workers and take energy inefficient cars off the road. Everybody was supposed to win: automakers, workers, and our environment.
Did that really happen? Automakers did make money during the program, but are still struggling. The jury is out on whether the environment benefited since it is very possible that more fuel efficient cars encouraged their new owners to actually drive more miles. And as far as workers are concerned – it seems like they were the biggest loser in the “Cash for Clunkers” government giveaway. Because of Cash for Clunkers nearly 700,000 used cars were traded in and subsequently destroyed. This has led to a used car shortage in America and the statistics bear the facts. According to Edmunds.com data, used car buyers paid $1800 more for their cars in July than they paid a year earlier at this time. That represented a 10.3 percent increase year over year. With lower demand caused by a sluggish economy you would expect prices for all cars to be falling, but the shortage in used vehicles caused by Obama’s program was actually big enough not only to cancel out price drops, but also to increase prices substantially. Of course those hurt the most by this development are college students, the elderly on fixed budgets, and the working class because these folks rely on the availability of cheaper used cars as an alternative to higher priced new models. Obviously, Obama didn’t intend for this to happen. But, the fact remains that his program has put many people in a financial bind.
Another Obama-backed government intervention that is exhibiting unintended consequences is the Credit Card Accountability, Responsibility and Disclosure Act of 2009. Heralded by Obama as necessary legislation to protect consumers (workers) against abusive credit card company practices, the act caps late fees, eliminates inactivity fees, and requires credit card companies to jump through more hoops when raising interest rates.
Again, this all sounds good on the surface, but like any law there is a lag between the legislative process and when the law actually goes into effect. Consequently, credit card issuers prepared ahead of time for the new law by raising interest rates to nine-year highs of about 15 percent. Additionally, they cut average lines of credit by 11 percent overall. Again, at a time when Americans are not borrowing, you would think lenders would be dropping rates and expanding credit limits to entice consumers to spend. But, Obama has found a way to actually make it financially harder for consumers to use their credit cards. And again the working class is the most negatively affected, since it can least afford to pay higher rates on credit card balances and will find it harder to make ends meet with lower lines of credit.
Statists always claim that the reason small government proponents loath government programs is because they are cold-hearted, hateful, racist, or just plain selfish. Naturally, that is a gross oversimplification of their motives. One reason libertarians and to be fair, some conservatives, object to government programs is they usually favor some groups over others and because all have unintended consequences. At an emotional level it is easy to support government help for the dispossessed. But when you clear away the name-calling and look below the surface, and apply rational thought to proposals, the old saying, “if something seems too good to be true, it is” comes shining through. After having spent $3 trillion on this recession with little to show for it, you’d think Washington would figure that out.