The Daily Capitalist: Cash for Clunkers = Cash for Unions

» Allan Ghitterman wrote on 08.04.09 @ 06:49 AM

Let me see if I understand
Helping jump start the economy by giving the public, usually the lower income earners, an opportunity to buy automobiles which actually puts people to work selling cars or making autos irrespective whether the mark is owned nationally or internationally, because they are all building vehicles in the USA and effectively reducing oil import costs and reducing the carbon footprint and is better for the environment is bad,
but reducing income taxes for the high earners that create wealth because it will create jobs (no evidence of that ) and incideantally helps some of our elected officials raise campaign money is good.
What kind of thinking is that?

» infomaniac wrote on 08.04.09 @ 07:19 AM

Ron Dexter is exactly right.  Even right wing darling Alan Greenspan was surprised that free marketeers killed the golden goose. 

Free market folks lived under the illusion that corporations knew they had to protect consumers and the middle class whose purchases make up 70% of the GNP.  Yet real wages, when you adjust for inflation, were stagnant through the last decade, while corporate profits zoomed. 

We have long known that laissez-faire free markets don’t work.  If our society is based on profit as its only goal, logically it breeds all the ills that we experienced before - child labor, adulterated food, dangerous work conditions, etc.

We have also seen the evils of pure central planning.  The reality is that the private sector and government need each other.  But we can’t return to trickle down, unregulated capitalism, a road that leads to nowhere.

» Rob Egenolf wrote on 08.04.09 @ 08:37 AM

The whole idea of the stimulus was to create spending and this specific program did exactly what it was intended to do.

Tax cuts do NOT create spending.  Never did and never will.

It is ironic that the program was wildly successful and now the Repugs (like Jeff) are trying to describe that success as a failure.

The sad reality is that the outdated philosophy or people like Jeff has not worked to prevent the economic problems and most certainly will not work to minimize the impact or get us out of these problems

A bit of reality therapy might be in order for you Jeff.

Black is not white, war is not peace, and success is not failure.

» Dumb article wrote on 08.04.09 @ 10:26 AM

Hint: it is me.

I made $750 dollars from a junker I couldn’t give away. This kept the air cleaner too. If the Unions helped do this then GOOOO Unions!!!

» Jeff Harding wrote on 08.04.09 @ 11:02 AM

I loved these comments. Thank you all for reading my piece, even though most of you didn’t understand anything I wrote. I must have touched a sensitive nerve.

Ron: There are just too many errors in your basic understanding of economics here. But, how can you say that we’ve had uncontrolled free market capitalism here? Far from it. In fact I would say that the rise of the state and government controls over the economy have caused most of the things you complain about. It’s called the Law of Unintended Consequences.

Allan: Let me see if I understand. Giving your money to someone else actually “jump starts” the economy and does all those good things the Obama Administration claims? I wonder if you had any plans to use your money that they spent. And if they just print the money and give it away, how can you believe that will cause economic growth? Where do you get your information? Paul Krugman? Can you tell me when Keynesian fiscal stimulus has ever worked in history? I will save you the brain damage: never. Not even Krugman will say that. And, by the way, none of the benefits you mention will occur. If you listen to NPR, fairly liberal, even their pieces say these so called benefits won’t occur.

Publius: Regarding the Wall St. giveaway. That’s easy. First, they aren’t my friends. Second I wouldn’t give them a dime. We call this revolving door between Washington and Wall Street by its true name: fascism of the Italian variety.

Infomaniac: Well, how would you organize our society? I assume you would approve of a top down quasi-centrally planned economy to protect us from the evils of laissez-faire capitalism. What a concept! Sorry, but that’s been tried and didn’t work. You too believe we have unregulated capitalism that caused all of our problems? Wow, you guys must all be drinking from the same well.

Rob: You too? In case you don’t understand, the concept behind the Clunker programs is classic Keynes. So, first, go see what I said to Allan: Keynesian fiscal stimulus doesn’t work, has never worked, and won’t work now. I challenge you to give me an example of its success. It wasn’t the Great Depression, WWII, or any other time in world history. Ask the Japanese about their bold experiment with fiscal stimulus. They did the same things and were in a decade-long slump. They are doing it again and are heading south fast. So, is it I who has the outdated philosophy?

Rob, you haven’t refuted anything I said in my article, you only reiterate what you read in the news. If this program is to you a success, just giving away money in a politically motivated way, then you have set new standards for economic “progress.” And what’s this reference to 1984 supposed to mean? That I can’t see “what’s going on?” Like Dude, try to learn some basic economics before you say something. How does that help? I could say the same thing about you.

You all argue politics rather than economics. You guys keep digging up the same old worn out (mainly Keynesian) theories that were disproven years ago. You must really broaden your scope beyond Krugman, Reich, and Keith Obermann. If you wish to refute my statements with facts rather than rhetoric, then we can have a conversation.

» SBres wrote on 08.04.09 @ 12:57 PM

This is a decent criticism, but as usual no alternative plan (other than illusions to the book Bush already threw at us) is presented to go with it. Sounds about right…

» Marcel Kincaid wrote on 08.04.09 @ 02:55 PM

Once again, Jeff Harding, who is as arrogant as he is stupid, calls others idiots and presumes to lecture them about things he doesn’t understand. As Abe Lincoln said, a dog still has 4 legs even if you call its tail a leg, and as Rob said, success is not failure.

» Jeff Harding wrote on 08.04.09 @ 04:27 PM

Now, now, gentlepersons. Let’s all be nice to each other.

I don’t know where all this stuff comes from. Somehow, if I criticize a program because won’t yield the results you all seem to think it will, I get accused of all sorts of things which weren’t in my article.

Let me get something straight. I am not a Republican, I am not a buddy of Greenspan, I have nothing to do with Enron, I intensely dislike any President named Bush, blah, blah, blah. Back off a bit.

All I ask is a retort:

Would someone please tell me when and where these types of fiscal stimulus programs ever worked to help economic recovery. I know the theory, tell me when it has worked.

Can anyone tell me how this plan will save Detroit and the economy.

Sorry, but I would like to hear facts rather than name calling. I mean really, Marcel. Yes I do think some politicians are idiots, sorry. Don’t think I’m arrogant but I do like to argue. Can’t argue against that though.

Rob, ease off, big fella. You were rather, umm, strident in your commentary. About the ‘60s, let me guess, I’ll bet your econ book was written by Paul Samuelson, the well known Keynesian. I’m happy to debate the merits of economic theory if you wish.

So far, gentlemen, other than San Roque, with whom I disagree, it’s been all about me and George Bush, not Cash for Clunkers. It’s terrible that you are all upset.

» so elementary wrote on 08.04.09 @ 08:42 PM

Jeff your elementary understanding of economics is amazing. I guess you think you can get away with it in a small town online editorial section. Since when has trickle down economics worked? You might say the eight years under the Bush Administration? I do not think so. How about unregulated free market capitalism? Absolutely not. Look at the mess we are in today. I know you probably do not understand this because you stopped listening to others apparently a long time ago based on your responsed to others but you have to have not only regulation with capitalism but the steering of goals that benefit all not just the rich. For example, the cash for clunkers program not only retires gas guzzling vehicles that would have stayed on the road for years, it sells cars, creates jobs, reduces our dependence on foreign oil and saves the environment. In other words a perfect storm. Unfortunately, capitalism left without rules like the country of Somilia ends up in total disrepair because there are many greedy people that do not give a rats ass about you or me.

As far as Keynesian economics goes it worked very well post WW 2 for about thirty years until Reagan decided or shall I say Bonzo decided to try trickle down economics and triple the U.S. deficit. Hey Jeff tell me where in the economics text books or in history that Keynesian economics was disproven years ago? You cannot because you are blowing smoke without any research.

The government is the only place where we can make sure that our citizens are provided with a minimum standard of living. The level of deprevation, the spread between the haves and the have nots, has gotten out of control mainly due to our tax policies or shall I say lack thereof. People deserve better from America. The right to a deceit education, a clean environment and basic healthcare. Unregulated free markets have never and will never provide that without a basic safety net provided by the government and regulations that ensure that people are treated fairly.

Of course, for you Jeff as a person that deals in Realty investing in a sleepy small upscale town you probably cannot relate to what I just said.

» Unions destroyed the auto makers wrote on 08.05.09 @ 09:31 AM

Greedy unions bankrupt the auto industry, just like the airlines, steel, mining,transportation, and now Government—GO UNION—GO BROKE…

» BE/71 wrote on 08.05.09 @ 11:03 AM

greed, stupid management, golden parachutes and CEO bonuses that reward FAILURE will kill private corporations, not the unions… blaming the workers for management incompetence is typical neocon behavior…the same moronic behavior that elected Arnold TWICE! Please leave California now….we’re trying to fix your mistakes!

» sbnative wrote on 08.05.09 @ 12:27 PM

Hello, why is giving tax breaks to the wealthy such a great idea…(they don’t actually buy much stuff after all) but giving a break to less wealthy taxpayers to buy hard goods such as cars is a bad idea…at least THEY will spend the money!  Duh!

» Jeff Harding wrote on 08.05.09 @ 01:32 PM

Allan, did I say that about your ideas? No. Cute about my mind being vacant. Did I say anything about tax cuts? No. Did I say that many of the comments here were strident and offensive? Yes. Do I disagree with most of these comments? Yes.

I am glad you understand my belief that Keynesian economics is not correct. That is something we can discuss. So, if I wasn’t responsive before to your comments, let me be so now. That is something we can discuss reasonably.

First, my article doesn’t mention tax cuts, so let’s not drag that in and complicate the discussion. Second, you discuss the “green” benefits of the program, and my article didn’t go into that either. I did mention in my response to you what I had heard in several articles on NPR, that the non-job benefits aren’t real. But let’s not get into that. You can go to NPR and listen to those clips yourself.

The main thrust of your argument is that this program “jump starts” the economy and puts people to work. I am well aware of the concept and my article challenges it, as you read. I think I presented credible arguments from industry sources that say this program just pushes sales forward, and that they will eat into future sales. Maybe no net gain. Maybe your economists disagree. Fine.
Since you believe that fiscal stimulus works, then consider that many liberal economists (I rely on primarily on Paul Krugman here) say that we haven’t spent enough, and that the total dollars to get the Keynesian multiplier effect are too low to do any good. As of July 30 they’ve spent about $70 billion of the total Recovery Act funds of $787 billion. As Krugman said on July 9, “[Obama] needs to admit that he may not have done enough on the first try. He needs to remind the country that he’s trying to steer the country through a severe economic storm, and that some course adjustments — including, quite possibly, another round of stimulus — may be necessary.” So that’s something for you to consider.

I challenge the concept that the government can jump start the economy by spending because it creates jobs. My argument is that these aren’t “real” jobs in one sense, because they only exist because of government spending. Yes, people are employed, they are doing economic work by producing cars, but there is substantial evidence from past experience that shows the government can’t create lasting jobs: once the dollars stop, the jobs stop. The defense industry is a good example of this. In the non-government economy, jobs are created because there is “real” (a non-normative economic term, not a value judgment term)) economic demand for the goods they make. Those jobs last until competition or incompetence drives them out of business. This is the basis for wealth creation from which all our tax revenues are derived.

My argument to you was that, if the government just takes money out the economy through taxation or borrowing, it goes to political ends, not economically productive ends. GM is an incompetent, bankrupt company and should go out of business. Ditto, Chrysler. If they depart I believe that we will still be able to buy cars without them. I would imagine that Honda, Toyota, Nissan, and other foreign companies that manufacture here will rise to the occasion and increase production and jobs here if there is the demand. Who knows, maybe even Ford can compete.

My reference to what you would do with the money they take from you has to do with Bastiat’s Law of the Seen and the Unseen. While we can see what the government does with your money (give it to the clunker program) what we don’t see is what you might have done with the money as an actor in the markets. Broadly taken, they take money out of the economy that would have been put to productive use. This is the crux of my argument because I think such government expenditures actually help delay a recovery by trying to redirect economic efforts to political ends. This massive spending “crowds out” private capital and makes it more difficult for businesses to increase employment and economic activity. And there is lots of historical evidence for that.

Yes, I am aware of the Keynesian concept that the problem in a recession is the lack of spending. But, you can’t flog a dead horse as they say. Right now people are saving and repairing their balance sheets, and not spending. I and many observers believe this behavior will retard consumer spending for quite a while.

Also, I would argue that such Keynesian fiscal stimulus has never been proven to work. There are no empirical studies to that effect. And, I pointed to the experience of Japan in the ‘90s where many of the same things we are now trying not only failed to help them, but caused them to stagnate for almost 15 years.

Allan, I hope this answers your questions. I tried to put forth a credible argument against the clunker program. If you disagree fine. This is perhaps not the best forum for such a discussion. There is a lot of economic theory to what we are both talking about. I can say that I have read Keynes and a lot of contemporary liberal economists as well as free market economist, so I think I have a fair understanding of both sides of the debate. If you wish to further discuss this further I would be happy to do so. I would point you to my blog, The Daily Capitalist, if you would be willing to do that.

One last point. I appreciate the fact that you and Rob had the courage to use your real names in this debate.

» Publius wrote on 08.05.09 @ 03:12 PM

AIG should have been allowed to go bust; there competence is certainly no higher than Chrysler, GM, etc.

With AIG going bust, the whole world financial system would have fallen apart.  Why not?  Well, so-called capitalists wanted the $23.7 trillion of US Taxpayers money to cover all their mistakes.

This clunker deal is just a smokescreen.  So-called capitalists like Harding are just trying to use misdirection to keep the fact that the `capitalists’ were really no different than Chairman Mao or Ferninand Marcos or other theives from the public purse.

Remember… the Republican phony capitalists on Wall Street robbed the US Taxpayer for $23.7 trillion through all the bailouts and prop-ups, particularly through AIG.  And now they are rewarding themselves with $30 million bonuses.  They are simply hypocrites and theives, and Harding is doing their handiwork for them.

Place de la Concorde for the whole lot of them.

» Allan Ghitterman wrote on 08.05.09 @ 09:42 PM

You are entitled to criticize the “clunker program”, but your criticism must be based on some real basis. When we talk about the economic problem facing the results of the unchecked greed of the past several years, we must accept that this program at best is only a first step in what must be a long effort to help the economy get moving in a positive direction.
For the government to stand by and do nothing is the worst thing that could happen, and there is no doubt in anyone’s mind that the government must do something.
Providing jobs in this case is only of limited value if nothing else is done. But, cut the administration some slack, they only started 6 months ago. pregvios adminstrations created problems for several years, probably staring with the Nixon or Ford or Carter administrations. I have not had sufficient distance to evaluate Clinton’s years, but there is no doubt in my mind that Reagan’s years did not help. The senior Bush tried but he had an atavistic congress to deal with and his nominal supporters weren’t any help.
The good that President’s do is really only perceptible long after they leave office, which to a substantial degree explains the value of the Roosevelt, Truman , and Eisenhower years. The johnson years were an anomaly because he did a great deal of good legislation due to the national affection that Kennedy generated during his brief administration.
All in all, complaints about the programs being made so soon after they were commenced or initiated are invalid because we can’t see their effects, but their goals are laudable. 
Your criticism is unfair and invalid, anything that has a goal of providing jobs and has side benefits such as may occur here is meritorious and deserves support until there is an opportunity to see its effect.
My tax dollars are spent by the government for purposes that I hope are valid, but frankly,  the many legislators who can accept large donations from wealthy individuals and corporations and not vote favorably for their issues and programs is non-existent.

Yet , for all that, we do get some decent laws passed, rarely but it does happen.

» John wrote on 08.06.09 @ 01:25 AM

What amazes me is that Jeff can somehow manage to point a finger anywhere else but at the loss of diversification in our economy. This unbalance is reflected in the macro view of the world economy. Does anyone think its a good idea to just invest one stock or one kind of stock? I don’t think so…. So too with economies. We’ve seen the break down and many around the world are suffering from it, and this bozo just pretends we can go back to the way things were. America and every other country needs a manufacturing sector, you can’t out source it all and put millions out of work and then expect something bad not to happen. Where are we going to get the money to BUY imports now that our jobs have been largely exported? The vast majority of Chinese can’t afford to buy the things they make, good luck with the transfer to a consumer driven economy. We no longer have the money to consume, good luck to US.

» Jeff Harding wrote on 08.06.09 @ 12:47 PM

BE/71. I hope your last comment was tongue-in-cheek, because buying and selling stock makes you a capitalist. Welcome to the club ;-)

Thanks for all the comments.

» BE/71 wrote on 08.07.09 @ 08:03 AM

hey, I’m half capitalist, half socialist and half communist! citi up to $4.15…better catch the new bull market!

» AN50 wrote on 08.12.09 @ 09:34 AM

Jeff’s article was right on the money. Too bad the cabal of left wing socialist commenters here doesn’t get it. It is really a testament to the abject ignorance of the American population when it comes to simple economics. Moving money around might increase business activity in some sectors of an economy but no net wealth is generated. If you liberals really are interested in the advancement of the human condition, then try for once getting out of the way. The American capitalist system is responsible for improving the greatest number of people’s lives the greatest amount in the history of humanity. No other system has come close. But for it to do that it needs the parasites to be scraped off every now and then so that they don’t kill it. When you socialist ignoramuses realize you can have all the “feel good” crap you want as long as you don’t kill the wealth generating engine that pays for it we will all benefit. Go the way you are now and we all starve to death.