Browsing the blog archives for May, 2011.

Cash for Clunkers Revisited

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Do you remember Obama’s Car Allowance Rebate System (CARS), aka CASH FOR CLUNKERS? Participants in the program received a $3500-$4500 government cash voucher when they traded in their “gas guzzler” for a more fuel efficient one.

More than 700,000 vehicles were sold as part of the $2.90 billion program. U.S. Transportation Secretary Ray LaHood referred to it as a “wildly successful run.” But in September 2009—the month following the end of the program—U.S. auto sales declined by 23%, led by GM and Chrysler with 45% and 42% drops respectively. Many on the left labeled this program a success because Americans predictably took the free money. It’s no surprise that sales increased as long as they were subsidized with tax dollars, but plummeted when the government cash dried up.

If the sheer idiocy of this program didn’t infuriate you at the time, I urge you to check out the following video: http://www.youtube.com/watch?v=knOSXaRGWMg. Recall that the program was supposed to get inefficient polluters off the road and “jumpstart the economy.” But what happened to the vehicles that were discarded? In this video (and others) you’ll see OUR federal government using OUR tax dollars to deliberately destroy working vehicles traded in as part of the program.

So how can deliberately destroying productive assets contribute to a vibrant economy? The left tells us that doing so creates jobs required to rebuild or replace them. Henry Hazlitt debunked this folly years ago in a simple example he called the broken window fallacy (http://freedomkeys.com/window.htm). Suffice to say that if the Keynesian left is correct, then Joplin, Missouri is in for an economic boom following yesterday’s massive tornado destruction. Perhaps we should set all of our houses ablaze to revive the construction industry. You don’t need to be an economist to understand how ridiculous this sounds. Unfortunately, many of them don’t get it.

It’s not that complicated. REAL economic activity occurs when value is ADDED to the economy. Spending to REPLACE cars, houses, or anything else that has been destroyed can do nothing to grow the economy over the long term. To the contrary, it actually dampens growth by redirecting resources away from real development projects. Every dollar spent rebuilding what has been lost could have been spent on something else.

It’s mindboggling how so many Americans seem to fall prey to the economic gimmicks of the left.

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Raising the Debt Ceiling

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Is raising the debt ceiling essential to our fiscal future? Well, the complete explanation is not what you might expect. Let’s start with a quote from The Hill:

Congress doesn’t have to raise the debt limit. But refusing to do so would have huge consequences for the economy and the Constitution.

If the debt ceiling is not raised, Congress would be left with $120 billion per month in red ink, forcing the administration to take a hatchet to government programs authorized by Congress.

The numbers make the $39.9 billion the White House and Republicans agreed to cut from 2011 spending last week seem like very small potatoes.

(http://thehill.com/homenews/news/155955-congress-has-little-choice-but-to-raise-debt-ceiling)

The notion here is that raising the debt ceiling is a necessary evil, and we simply couldn’t keep the government going without doing so. The Hill is more or less accurate here, but the inference is not. Let me explain.

First, not raising the debt limit would have huge consequences for the economy and the Constitution, but not negative consequences. While not raising the limit would place some short term strain on the easy flow of government payments, a long term commitment to austerity could be a plus. As for the Constitution, our federal government is engaged in many activities beyond those spelled out in the enumerated powers. Washington could still meet its Constitutional responsibilities without additional revenues.

Second, there would be a need to “take a hatchet” to programs authorized by Congress, but it’s high time that we do this anyway.

Third, I agree that the numbers associated with not raising the ceiling would make the previous $39.9 billion so-called “cut” seem like small potatoes. Frankly, $39.9 billion IS small potatoes. Coming face to face with $120 billion per month in red ink is in our long term best interest.

I don’t oppose raising the debt ceiling IF there are SERIOUS and REAL budget cuts as part of the deal, probably more than most Republicans want to see anyway. This is the ideal scenario, but I certainly don’t think the left is interested in anything substantial. If not, capitulation would be a disaster. Holding firm and NOT raising the debt ceiling would be the only choice.

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