Thursday, August 26, 2010

Lest We Forget, Booms and Busts Are Perfectly Normal

Here is a fact that "progressives" haven't learned: There is no such thing as Utopia (unless you're a Todd Rundgren fan, that is).

Part and parcel of our continuing economic woes is the underlying premise that Utopia can be achieved here on Earth. No one should ever suffer, no one should want for the basic necessities of life. In fact, those trendy "progressives" are the only ones with pure hearts. They're trying so hard to make certain that mankind is elevated, specifically by their efforts, in their own special way - by using the raw force of legislative power to manipulate markets.

President Obama used a speech at a community college in New York to urge congressional action on three major domestic initiatives, saying passage of his education, health care and environmental initiatives are keys to ending "the cycles of boom and bust that have wreaked so much havoc" on the American economy.

In their mad rush to intervene to prevent bubbles and other inequities in the market, Democrats are actively encouraging what they say they're trying to prevent. You only need to examine the results of one program to see the predictable effect of temporary, artificial government stimulus - Cash for Clunkers.

As you may remember, this program was intended to reduce the number of aging vehicles on America's roads, the theory being that older cars polluted more that newer ones. Washington gave those who participated in the program a $4500 credit towards the purchase of a new car.

It's right about here that the wheels of this well-intentioned law begin to fall off.

Traditionally, we don't allow a valuable asset like a vehicle to be destroyed. Used cars can be sold to someone else, thus continuing the service life of said asset. Failing that, the household teenager receives it. Used cars are usually less expensive to buy, maintain, and insure.

Did the C4C program recognize the normal transition of a vehicle through its life? No. The vehicles were destroyed. That makes about as much sense as trading a horse to someone only to watch the new owner shoot it.

Not only is that stupid, it's also wasteful in the extreme.

Welcome to ObamaLand where nothing makes sense and logic is illogical.

The big question is, did the program achieve the desired results? Well, yes, if the desired results were to needlessly destroy perfectly good vehicles and to temporarily distort the market.

Here's a chart, courtesy of Glenn Reynolds and Coyote Blog showing the blip in the market.

At the arrow, we can see a sharp increase in sales, followed by a sharp decrease in sales. This blip is a common trait seen in every other temporary stimulus plan such as housing.

And that's the problem with government stimulus programs of any type: their effects are only temporary and any improvement is short-lived.

While it may sound nice and give elected representatives something to brag about to the constituency back home, overall, nothing has changed, and in the case of our sour economy, things are getting worse. The Obama administration is attempting to fix a long-term problem with short-term, temporary thinking.

What is needed is a long-term solution. Nowhere is this more painfully apparent than the terribly destructive Community Redevelopment Act.

This act was the brainchild of the Carter administration, and like most other governmental programs, was well-intentioned, but not well thought-out. It's implementation is the root cause of the housing meltdown that reared its' ugly head just in time to drastically alter the 2008 Presidential election in favor of the untried and inexperienced Barack Obama.

Cloaked in the innocent wish to have more Americans achieve the American Dream of home ownership, this act forced banks to make loans that they never would have made to people who couldn't afford a home in the first place. A short history is here.

The questions to ask are, "Why did the government force banks to lend to less qualified applicants? Why didn't the government focus instead on encouraging a sound and diverse economy where more people could make more money in order to more readily afford a home?"

I'm still waiting for an answer.

While I'm waiting, here's a nice little picture I happened upon while doing my exhaustive research on this subject (which consists of five minutes spent on Bing). It's an image of the attendees for the signing of the Motor Voter Bill by then-President Bill Clinton in 1993.

Third and fourth from the right.

There are two people in the background that you may have heard of: Richard Cloward and Frances Fox Piven.

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