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.
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Article comments
1 - jeannie danna
Kenn,
Look at your title; clearly, this is where you were mislead.
Obama's administration's policies have been to try to fix the mess left to them. You mentioned Bush's mistakes briefly and then shifted all the blame onto Obama.
Cash for clunkers was not a *scheme*, it was a program designed to put more fuel efficient cars on the road, help the auto industry to sell more cars, and help working class families.
As a side note, we would have all been driving clean electric cars already if this hadn't taken place.
I don't have enough time today to blast the credit card industry!
:D That's all for now...Have a nice day!
2 - Kenn Jacobine
jeannie,
You miss the whole point of my story - I know the president had good intentions, but his program has caused hardship for those short on cash in need of a used car. This is what happens when government intervenes. It causes mis-allocations and/or downright shortages of resources.
It was a scheme because any economist worth his/her salary should have known what the consequences would be.
"I don't have enough time today to blast the credit card industry"
Why blast the industry when the problem was caused by the government? Price controls cause decreased supply (credit limits). The same thing happens with other goods and rents in NYC. I can't believe economists in DC couldn't see this coming.
3 - jeannie danna
I see you skipped right over the EV1.
4 - Kenn Jacobine
jeannie,
I went back and looked at it for you. I have maintained for some time that big oil is in bed with Washington has somehow put the kibash on electric cars and anything else that would give the combustion engine a run for its money (pun intended). Problem is I can't figure how they do it. BTW, I pay only about 70 cents per gallon here in Qatar. It is real sweet to fill up for about 6 bucks every two weeks!
5 - jeannie danna
When you find out, let me know.
Don't rub it in! 70 cents per gallon...
:"( sob
6 - dharma55
Rather than allow the runaway train of credit to grow exponentially, the government should instead return to the "regulation" of the entities who provide credit, requiring debt-to-equity ratios like they did when "banks" were the only financial institutions allowed to issue plastic.
7 - kurt brigliadora
YOU must understand... every sector gets their share...no matter who is in office or what the noise happens to be at that particular time. The banks, then the realtors then the mortgage peeps... dont forget the construction guys,the car and insurance salesman the resturant owners and down the line...The natural cycle...not any one man or party is to blame.big pharma ; military and industial,media complexes every sector gets their share!!!
8 - Kenn Jacobine
Kurt, you are absolutely right. I was simply pointing out that most of the time these programs that are supposed to help certain groups (in this case the working class) don't. Uncle Sam has become Santa Claus and the days of his giving are coming to an end.
9 - jeannie danna
How empathetic... never mind those that can't work, can't find work, or are retired...it's just, me, me, and mine.
Uncle Sam has become Santa Claus and the days of his giving are coming to an end.
You know what really irks me about your articles, Kenn? You don't even live here...yet, there you sit on high, not really giving to the country you are trying to change.
JD- No face for you today, and I hope he puts some coal in your stocking!
10 - roger nowosielski
Since when Kenn cares for the working class?
11 - Prantha
Kenn:
Do ya think it is possible that if Obama had not done this, the unemployment rate would have been MUCH higher?
Do ya think that if the Administration had not caved into the GOP's demand for $182 Billion in tax credits (which cut into the stimulus plan in a BIG way), there might have been more jobs?
Do you blame GW Bush at all for this unemployment debacle?
12 - jeannie danna
Kenn,
I was very harsh to you...of course you can write about the states, even though you don't live here.
:(
13 - John Wilson
"Obama’s Policies Hurt the Working Class".
Everybodys policies hurt the working class. We are in the grip of 40 years of corporate-statist policy by national leaders.
The "working class" is sliding down to serf status as our society slides into feudalism.
14 - jeannie danna
Reaganomics, a blight on this nation...
15 - Kenn Jacobine
jeannie,
I realize it was just a knee-jerk reaction on your part as a liberal. When you disagree with someone y'all always fall back on the - "you are racist, hate the poor, a conservative conspiracy, you don't give your fair share to the country, etc..." It probably irks y'all that I live out of the country otherwise you would be telling me to leave it. :) :)
It just proves the point of my last paragraph. Instead of refuting the facts in the article there are personal slurs.
Reagan really hits a nerve with liberals as well. You guys really hate him. Nobody even mentions him and he inevitably comes up. Can I just say he was not a libertarian, he raised taxes too many times, grew government, and allowed spending to go way out of control way too much for my taste. Yes, he is largely responsible for the mess we have today, but so is Johnson, Nixon, Ford, Carter, Bush I, Clinton, Bush II, and Obama. Hell, we haven't had a good president since probably Grover Cleveland. How does that grab you?
16 - Kenn Jacobine
Prantha,
Please read my previous comment. Obama should have done what Wilson and Harding did with the depression of 1920-1921 - cut spending and have the Fed raise interest rates. Yes the bottom would have fallen out two years ago but today we would be in recovery. Now we face many years of living on the economic edge with low growth, high unemployment, and eventually high inflation.
17 - Realist
Kenn
Based on Obama's stellar performance for the exclusive benefit of Wall Street, how can you question with a straight face that he gives a damn about the workers who elected him? His only concern is to be the best Republican President the Democrats can provide. So if that means higher used car prices, too bad. If the people have no cars, let them ride Shank's Mare. They are all too fat, dumb, and video-game-happy anyway. Don't the workers know that their role is to be pitiful and make the elites feel superior over the plight of the poor? Otherwise, let them die then, and decrease the surplus population!
18 - Kenn Jacobine
yes, I think that fella from BP called them "little people"
19 - Mark
Credit for the timing, intensity and ending of the post WWI market crash -- one of the early Great Fleecings -- deflation and depression of 1920-21 goes to Daddy Warbucks and his co-superhero The Strong Man from New York. Here's an analysis of the action of the Fed leading up the 20-21 event and the '29 crash.
Credit goes to Wilson's administration, Harding and Coolidge for breaking the back of the labor movement 'at gunpoint' and unleashing two decades of hell on US workers.
20 - Kenn Jacobine
Mark,
This analysis supports the Austrian economists theory of the business cycle. The Fed kept rates low for WWI and in the 20s causing first a munitions bubble during the war and second a stock market bubble in 20s. Then when the Fed raised rates the phony boom caused by artificially low rates came crashing down. Brokers called their loans to pay their debts. The same thing happened with the housing bubble in the 2000s. Greenspan kept rates near 1 percent for a long time and finally when rates hit about 5 percent the bubble popped. Mortgages adjusted and people couldn't afford their loans.
Federal Reserve policy is responsible for booms and busts. The only folks who benefit are the bankers who the Fed serves. Notice they didn't benefit that much this time - they bit off more than they could chew with their derivatives and high stakes loans. Oh, I forgot the Fed orchestrated bailouts for almost all the failing banks.
21 - Mark
This analysis supports the Austrian economists theory of the business cycle
I understand that, Kenn.
Federal Reserve policy is responsible for booms and busts.
I think Uncle Milt's less rigid view -- that the fed's policy has been a contributing factor -- gives a more accurate portrait. As one looks at these events in history he can't help noting their correspondence with one governing institutional policy or another -- the Fed is only the 'latest'. Causality, on the other hand, is a tricky thing, and there is no reason to believe that other policies would have had better outcomes or that economic crises don't have other underlying causes.
22 - Kenn Jacobine
In my view, recessions are caused by distortions in the market. In other words, producers have produced too many of a given good or goods. In this crisis it was housing. Certainly, other factors besides the Fed caused the housing oversupply. The Community Reinvestment Act cajoled banks into making risky loans. Fannie and Freddie guaranteed all the bad paper. Bush encouraged folks to buy homes from the Bully Pulpit and increased funding. Perhaps mortgage deductions encouraged people to buy homes. All contributed to the crisis, but what supplied the means to do it - the Fed alone. Congress does not adjust rates. Congress spends but the Fed monetizes the debt.
Uncle Milt's less rigid view supported arbitrary fixing of rates. He may even have supported Greenspan's madness after 911. Money is a traded commodity like oil, gold, and rubber. We all know that fixing the prices of those things leads to distortions. Why isn't the same thing true for money - even if in the view of Milton it is only done a little?