Saturday, August 29, 2009

Seven lessons of Cash-for-Clunkers' failure

By: Irwin M. Stelzer

It's over, finished, done. And quiet returns to the auto showrooms of America. Cash-for-Clunkers has outlived its funding. But left us with a host of useful lessons.

First, government forecasters are really bad at their job. The program was originally funded with $1 billion of taxpayer money to cover rebates of $3,500-$4,500 on cars traded in for more fuel-efficient models, and the money was expected to last for about six months. It lasted for one week. The $2 billion added to keep the program alive lasted less than a month. No surprise, then, that the government just discovered that its forecast of the deficit in the coming decade is light by a mere $2 trillion, or almost 30%.

Second, the government's talents, whatever they might be, do not include efficient administration of its programs. The 135 pages of rules setting out what dealers had to do to recapture the refund money they laid out, were constantly changed, the web site they were to use to apply to get their money back frequently crashed, and some had to drop out of the program because they had run out of cash. The Department of Transportation assigned 2,000 workers to process dealer paperwork, but they seemed unable to get the money to dealers who, having laid it out in response to promises of prompt repayment, desperately needed the cash. So if you think the President's plan to "reform" health care will make it easier to cope with the paperwork surrounding hospital and doctor's bills, think again.

Third, Cash-for-Clunkers proved that if you give people $4,500 to buy a durable good, they will be more likely to buy it while the refund is available than later. But it does not show that the increase in spending meets one of White House economist Larry Summers' tests - sustainability. The buyers of the almost 700,000 cars - 41% from Japanese makers and 39% from the (once) Big Three - for which dealers have filed $2.88 billion in refund requests included many who merely accelerated their purchase. Estimates are that 60% of buyers would have bought cars this year without this incentive. So dealers are expecting a very quiet few months. And from the stimulus effect of the program must be deducted the appliances, clothes and other stuff that consumers will not buy in the future, now that they have the burden of lease or loan payments for their new vehicles.

Fourth, if you want to reduce dependence of foreign oil, don't look to Cash-for-Clunkers for help. On the best of assumptions about the fuel saved by replacing inefficient Clunkers with cars that get perhaps 10 mpg more than the Clunkers they replace, the reduction in gasoline consumption will cut our oil consumption by 0.2 percent per year, or less than a single day's gasoline use. Unless, of course, the new car is more frequently driven because lower fuel consumption lowers the cost of driving, and increases the pleasure of taking to the road, in which case the saving will be less, or none.

Fifth, fuel saving was only one goal of the program. The main stated goal was to cut carbon dioxide emissions and thereby postpone the day when the globe will be so warm that the ice caps melt, islands are inundated and we face a gory future. That, the program did, although only inconsequentially, given the pell-mell construction of coal plants in China and India, but at a horrendously uneconomic cost.

Christopher Knittel, associate professor of economics at the University of California, estimates that the cost of reducing emissions was somewhere between $237 per ton and $365 per ton. Since the market price for carbon has fluctuated between around $20 and $40 per ton, "the program is an expensive way to reduce greenhouse gases." But cost is not something this Congress and the administration systematically factor into their policy ruminations.

Sixth, unionization matters. Cash-for-Clunkers added $3 trillion to the billions of taxpayer money expended to save General Motors and Chrysler, i.e., members of the United Auto Workers. What a like sum might have done for furniture makers, or the hotel industry, or small businesses, was never even considered.

Seventh, programs such as Cash-for-Clunkers have no regard for lower-income consumers. By mandating the destruction of trade-ins, Congress removed 700,000 cars from the used-car market, inevitably driving up prices of the cars that lower-income consumers tend to buy. And by ordering that a trade-in's engine be destroyed by replacing its engine oil with a sodium silicate solution (which turns out to be in short supply!), Congress sharply reduced the salvageable used parts that are bought mostly by poorer consumers to keep their cars running.

There's more, but you get the idea. It takes a politician to declare Cash-fo-Clunkers a success.



Some media ridicule of Obama at last

July 15th, 2009 - a day that shall live in comedic infamy. The Obama administration’s first direct hit from reliably friendly allies. Former Saturday Night Live star, now stand up comic Dana Carvey was the guest on the new Tonight Show with Conan O’Brien. When O’Brien asked Carvey his opinion of Obama, Carvey trotted out some fresh material. “I’m worried. The economy just had a heart attack, but Barack just wants to work on the knee,” Carvey riffed. ”Should we do CPR? No, we’re gonna fix this knee. We can do CPR when it’s efficient and cost effective, but right now we’re going to work on the meniscus. “Carvey concluded the bit suggesting George W. Bush would have used an economic “crash cart.” “Tax cuts for everybody - CLEAR!” The audience roared. Were they laughing at Carvey’s “dumb guy” Bush impression, or was it the excitement of more money in their pockets as an economic remedy? No matter the audience response. Carvey saw fit to address economic policy in his comedy. That’s telling.

At the same hour, on the same day - The Daily Show’s Jon Stewart opened fire. ”Last night, Obama threw out the first pitch at the All Star game. He even played short-stop for a time,” Stewart said. “There’s nothing he can’t do…except create jobs.” Ouch. The audience laughed tepidly. It was as though they couldn’t believe what they’d heard, and Stewart moved past the line quickly.

During the same show, Stewart went on to skewer the healthcare reform fight in Washington. Initially mocking Republicans for sounding the alarm on Obama’s ultimate desire for a “single payer” system, the joke took an unexpected turn. ”…that’s just a Republican scare tactic. The Democrats are not proposing a government takeover of health insurance. And they’re certainly not trying to “Trojan horse” us into some European or Canadian-style single payer system,” said Stewart. With that, Stewart played some grainy campaign video from 2008 in which Obama told a cheering crowd, “I happen to be a proponent of single-payer health care.” The next shot is a dumbfounded Stewart back at the desk as he coldly confessed, “Wow. That Communist sounded a lot like our President.”

Since this watershed event in comedy, the Daily Show has taken on a new tone. A day after President Obama declared Cambridge cops “acted stupidly” in the arrest of his friend “Skip” Gates, Stewart took it head on. “Now, I wasn’t at the press conference last night, and I don’t have all the facts. But I think it’s fair to say that Obama handled that question…oh, what’s the word I’m looking for? Stupidly?”

In another segment of the same show, Stewart playfully cheered as Nancy Pelosi and President Obama suggested increased taxes on the wealthiest Americans to pay for health care reform. He pretended to be surprised when he was “informed” in his earpiece that he, in fact was wealthy. ”Oh, so they’re coming for me…ok,” Stewart said sheepishly. Remember, Stewarts’s a New York-based millionaire. Theirs is the highest taxation in the country, and President Obama and New York want more from him. Is Stewart sensitive to that? Again, economics and federal budgets as punch lines? You’ve got your answer.

Last week’s Daily Show also featured a montage of the President refuting criticisms of his health care plan. After the string of presidential rebuttals Stewart concluded, “You know a sales pitch is in trouble when it starts with “Look, you’ve got to trust me. We’re not going to kill your grandparents.”

The impression shouldn’t be left that comedy’s liberal leanings are absent. The bias for this president is still deeply entrenched in comedy writers. But writers and performers are also wealthy, privately insured, and often well educated. They have lost much of their own wealth in the markets while beginning to realize the finest doctors and insurers who serve them are growing nervous. Comedians have families and friends in medicine, finance, and industry. Reality is setting in.

The truth of the nation’s growing pessimism and skepticism in Washington is at historic highs and on display every day. Comedians’ choice is clear. Continue to cheer and cover for a president in whom they emotionally invested so much. Or realize the investment just didn’t pay off as they’d hoped and get back to the honesty in their craft. Never have there been so few jokes directed at a President who deserves so many.

Jon Stewart was just voted “America’s most trusted” by the online readers at Time Magazine after Walter Cronkite passed away. He led the likes of Couric, Williams, and Gibson - all network news anchors who “play it straight.” Meanwhile, Gallup polling reports Obama’s job approval among likely voters age 18 to 29 and 30 to 49 has dropped 6 percent in the last month. Obama is losing Jon Stewart. The question is: Can Obama get him back?



A Lesson from Across the Pond

As states like California, Illinois and New Jersey struggle to make up for steep multi-billion dollar budget deficits while they totter on the brink of insolvency, there is one option for reducing those shortfalls that is making real headway across the Atlantic Ocean.

It all revolves around cutting the public sector. It's time to try it here.

Ireland is faced with a €20 billion deficit and borrowing €400 million a week just to keep afloat. Colm McCarthy, the chairman of An Bord Snip Nua—a cost-cutting bureau in Ireland—knows the stakes. And he sees no way around cutting public sector pay by some €5.3 billion. Government officials agree. So far, the left-of-center government refuses to rule anything out in the Bord Snip report.

Writes The Sunday Times on July 19th, "Ireland is like a household that has been living beyond its means and now finds itself deep in hock to the bank. Unless we show a willingness to reduce our spending, [international] lending may dry up, forcing us into the arms of the European Central Bank which will have to mount an IMF-style rescue to prevent a euro currency crisis."

Ireland is not alone. Poland just announced a cut of 12,000 government employees. No silly furloughs or dodgy accounting tricks. A straight reduction in the number of public sector workers. And the government warns that if revenues do not increase, further reductions will be forthcoming. Other nations in Europe are actively considering similar or even deeper cuts.

The basic problems Ireland faces are quite similar to those in California, New York and other states in the U.S.: Public sector workers make far more than their private sector counterpart.

An October 2007 survey from Ireland's Central Statistics Office showed that the average hourly earnings in the public sector were far greater than in the private sector. Average earnings per hour in the public sector were €26.67 compared with €18.07 per hour in the private sector. Public sector wages are 48% higher.

And how do California, Illinois and others match up? According to the Bureau of Labor Statistics' recently published study for 2007, in California, which is still trying to climb out of its oppressive $26 billion deficit, average annual income for state employees was $56,777 versus $49,935 for the private sector, a 14 percent gap. In Illinois, a similar story emerges: $53,925 for state workers, and $48,006 for the private sector, an 11 percent split. New Jersey: $57,845 average state salary, $53,590 for private sector workers, at an 8 percent difference. And these differences don't take into account the excessive fringe benefits enjoyed by public sector workers. The bottom-line is that we pay the public sector more, in some cases far more, than corresponding workers in private business.

Nationally, the story is even worse. Federal workers made on average $64,871 in 2007, with private sector workers making a meager $44,362, so public sector wages in the federal system are 46% higher.

If California, and other spendthrift state governments ever hope to emerge in the black, they must now implement what some may consider draconian fiscal measures. Cutting public sector pay makes the most sense. In California, for example, if workers received a 12.1 percent pay cut, leveling the playing field with the private sector, the state would save $3.1 billion.




Seniors benefit from zero inflation: "AARP and other self-styled senior lobbies are raising a ruckus over the news that in 2010, for the first time in 35 years, Social Security recipients won't be getting a cost of living increase in their monthly checks. Members of Congress are calling for an investigation into the way COLAs are calculated. But the only real scandal here is the opposite of what Congress, the press and AARP are moaning about. The recent fall in prices has served up a windfall for seniors and a real $600 average increase in their Social Security payments this year. There will be no COLA increase this year because consumer prices have been level or even falling. In the past nine months, the consumer price index—the official measure of the cost of living—has fallen by 2.3%, meaning the real purchasing power of a Social Security check has risen. How is this bad for seniors?"

Remembering the Hebron Massacre: "Yet another wrenching exile and return, now rarely remembered, occurred 80 years ago this week. On Aug. 23-24, 1929, the Jewish community of Hebron was exiled following a horrific pogrom. The tragedy is known as Tarpat, an acronym for its date in the Hebrew calendar. Until 1929, Jews had lived in Hebron for three millennia. There, according to Jewish tradition, Abraham purchased the cave of Machpelah to bury Sarah. It was the first parcel of land owned by the Jewish people in their promised land. Ever since, religious Jews revered Hebron as the burial site of their matriarchs and patriarchs. Conquered, massacred and expelled over the centuries, Jews always returned to this sacred place. In August 1929, that community was suddenly and brutally attacked. Incited by the Grand Mufti of Jerusalem—who claimed that Jews were endangering Muslim holy sites on the Temple Mount in Jerusalem—Arab rioters swept through Palestine. In Hebron, the carnage was horrendous. It began on Friday afternoon when Arabs attacked Jews with clubs and murdered a yeshiva student. The next morning, joined by local villagers, Arabs swarmed through Hebron screaming "Kill the Jews." When the slaughter finally subsided, 67 Jews had been murdered. Three days later, British soldiers evacuated 484 survivors, including 153 children, to Jerusalem."

What moves justice Kennedy? "He sits dead center in a court still polarized between four conservative justices and four liberal ones. In the 2006-07 term, for instance, Justice ­Kennedy joined the majority in all its 5-4 decisions. For all its importance, Justice Kennedy's outlook can appear puzzling at times, either maddeningly ­capricious or philosophically incoherent. In "Justice Kennedy's Jurisprudence," Frank J. Colucci manages to define it with admirable precision, debunking along the way the oversimple ways in which Justice Kennedy has been characterized by people who disagree with his ­decisions. Mr. Colucci shows that his ideas are not ­inconsistent or dismissible as mere caprice or opportunism. The key to Justice ­Kennedy's votes, Mr. Colucci says, is his moral ­reading of the Constitution: He sees the document as an unfolding story of ever greater individual liberty. Thus he ­opposes laws that abridge sexual ­freedom, including laws against homosexual conduct. If an originalist reading of the Constitution does not reveal such a liberty—relying on the received meaning of the ­Constitution's words at the time they were ­written—Justice Kennedy's moral ­reading does. But he is skeptical of race-conscious ­programs, too, because they treat applicants as members of a group rather than as individuals who possess the right to be free from group-based policies or rules."

Clunker cash taxable: "People who purchased cars recently under this cash for clunkers program may find out a little something they weren't expecting: that $4,500 rebate from the government taxpayers is taxable. Not only are you taxed once, but this blogger points out that depending on which state you live in, you could be taxed twice on clunker rebates. "Specifically, you pay sales tax on the full vehicle price (effectively paying sales tax on the $4,500!) and what's worse those states that tax income (that would be most of them!) might wind up counting this as income for state income tax purposes too, effectively taxing you twice." Even when the government tries to kiss you, it is just a prelude to a good screwing."


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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)


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