He was a victim of his own success.
According to Colonel Klink of Hogan’s Heroes fame, “There has never been a successful escape from Stalag 13.” If only the Commandant had known the whole truth. Stalag 13 was anything but secure. In the popular television show Hogan’s Heroes the POWs of Stalag 13 operated a full-scale underground espionage unit under the nose of the nincompoop Klink. Klink was blinded by his own success.
Similarly this week we learned of another “victim of its own success.” President Obama announced that the popular “Cash for Clunkers” program ends at 8 PM on Monday night. It has "run out of money."
The Administration will boast of its success. It will be argued that hundreds of thousands of gas guzzling cars have been permanently removed from the streets. Manufacturing in America is up. Thousands of workers have found new jobs. The auto industry is saved. The American consumer is confidant again. Happy days are here again.
In such claims kernels of truth can be found.
To date close to 500,000 clunkers have been turned in due to this program. Over $2 billion of the appropriated $3 billion has been claimed by auto dealerships around the country. A $4,500 government subsidy proved to be a powerful incentive to buy a new car.
The long-term affect, however, may prove to be more revealing.
Of that $2 billion owed to dealerships, less than $200 million has been distributed. The thousand or so employees of the Department of Transportation dedicated to this program are swamped. Seemingly the program was ended less because of a cash shortage and more because of a manpower shortage. The government cannot keep up with the requests and the dealerships are beginning to toot their horns. Many dealerships are worried that Obama has sold them a lemon. Obama cannot afford negative feedback from a relatively small program with his health care debate on the horizon. Quit while you are ahead.
The lessons here are plentiful.
Public policy ain’t beanbag. The idea behind “Cash for Clunkers” proved to be a bulls-eye. Interest exceeded expectations. Overwhelming participation in the program undercut the Department of Transportation’s readiness to fulfill its obligations. The symbolic success of the program soon exceeded the reality of implementation. Claim success and get out before a good thing turns bad.
When searching for ways to fundamentally transform the American economy in the 1930s President Roosevelt said, “It is common sense to take a method and try it: If it fails, admit it frankly and try another. But above all, try something.”
President Obama hasn’t let Roosevelt down. He has been open to many ideas. Acknowledging the limitations of his ideas, however, is not one of Obama’s strong suits. Claiming one thing without recognizing the truth of another will ultimately dog this president like it has for all of the others. Playing politics at the expense of governing cannot last forever.
If Obama cannot be frank with the American people he will lose our trust. Then he too will become a victim of his own success.
16 comments:
The problem with the Cash for Clunkers stimulus is that it takes away from future sales. The people getting the cars may have bought new cars soon enough, and while there will be a temporary boom, it will decrease as less people are in the market. Also, economically it may effect other parts of the economy. The people who were drawn into getting a new car may now have a monthly payment, which takes away from their income. So they are less likely to go out to restaurants or by non-essential goods. All that it really does is buy the car companies some time, and keep their workers working right now. However, if demand doesn't pick up without the aid of the government, we don't know if it can remain profitable and if more jobs will be lost.
The point of CfC is to get the people who are NOT going to trade in their vehicle for fear of spending money, not the ones who aim to buy new vehicles. I agree that incomes will be reduced for those who participate, but I think the intent of CfC is to generate confidence in the economy for everyone who didn't participate. The temporary profits of which you speak are indeed temporary - they're intended to get other consumers off their backsides and into the restaurants and places of "non-essential goods." You're right. This is a temporary measure, but the President intends to have long-lasting effects.
Eventually they would have to trade in their cars because the cars would become unusable. My uncle used the program, he had a truck that was worth about $500, but he would have had to trade it in soon because it was old and was beginning to cost more to repair it. Also, how is it going to generate confidence in the economy for those who didn't participate?
"Clunker" refers not only to beat up vehicles, but primarily to inefficient gas-guzzling monstrosities that may be in perfect condition but are otherwise wastes of money and regrettable purchases.
The confidence generation is another application of the principle Bush used in the $600 stimulus package. The intent is to get a few people to buy stuff (the program participants being these people). Others see their fellow consumers actively purchasing and decide "the recession is over, I can spend stuff now" and do so. Others see them buying stuff, buy stuff themselves, and before you know it we've tricked ourselves into thinking the economy's in great shape. The great thing about it? If enough people think it's in great shape, then it WILL be due to consumer spending.
That's in theory, anyway. It'll be interesting to see how it turns out. The $600 dollar stimulus didn't stimulate much of anything because nervous consumers took federal aid as a sign of GREATER economic trouble and put the cash bonus into savings. By putting a positive spin on things ("So successful we ran out of money to give"), Obama plans to make CfC look like nothing's wrong and we can spend again. Like I said, I look forward to the results.
Good for your uncle, by the way! Hope the new vehicle is helpful, and the payments aren't too bad.
In your original post, you noted that restaurants and non-essential goods are better sources of revenue generation than cars. Do you think a program designed to spark interest in these aspects of consumerism would have a better economic impact that CfC? If so, how would it be enacted? CfC drew criticism for "Big Government" involving itself with business. Would another plan be more successful?
Thank you for the clarification, that makes a lot of sense. I'm not exactly sure if you could put a program into effect on the other areas of consumerism, such as restaurants, unless you give out lots of coupons and the government picked up the tab. But to do that wouldn't really put money into the economy unless you had to dine there a certain number of times to get the coupon, like they do at the movie theaters.I just remember in US History in 8th grade, at least I think it was 8th grade, my teacher said that during the Great Depression few people actually spent the money they got back from some government program, which defeated the entire purpose of the program. Because the people didn't put any money back into the economy, th depression continued. I know we aren't actually in a depression, but I think that the idea works the same.
http://i44.photobucket.com/albums/f48/34759/1085.jpg
Just to clarify for everyone, DM doesn't stand for Derek M. It's Dungeon Master, and I'm Alex. Not Alex S, Alex Knife-fright (most of you know me). Derek's a brilliant, insightful guy, but he's got a different screen name. Clearing things up a tad.
Right, on to the commenting. Sorry, Anonymous old sport, but I'm as of yet unable to check the link you've posted. If you were in third period government today and caught my little comment, please don't take offense. I'm sure you mean well, but it's a horribly suspicious world we live in these days.
As for the Depression-restaurant stimulus, here's what I'd propose:
Set aside X number of government monies (maybe the savings on the mothballed F-22 fighters) for this stimulus bill. Grant this polly unto the poor starry vecks of the grocery store industry. Groceries are more important food source to Americans than restaurants, and a greater source of impulse buys (the useless unit of chips, the pointless pack of soda, the superfluous snickers at the checkout line, for instance). Use these stimulus dollars to lower food prices and improve advertising of impulse items, encouraging further spending for food. Keep the program running for about two to three months - enough time for a typical household to make four to eight grocery runs. Get the consumers in the habit of buying stuff outside their typical pattern of "just what is needed to survive."
The effects are threefold:
1) Support is generated from a high consumer base - only a few people need new cars, but everyone (robots notwithstanding) needs to eat.
2) Americans eat more, and generate more waste. Not a good thing, but not so bad as to negate the good.
3) Consumers act with confidence and start spending again.
Here's another interesting thought for how a totalitarian regime might solve this problem: stimulus to tobacco or alcohol and lowering of taxes/drinking age, and encourage use of these products. Get the people addicted to a product so they'll have to keep buying. Sure, some of them will die, and the young will have horrible birth defects, but the nation's now on stable economic footing to deal with these problems. This plan is sick and twisted and would only be implemented by the monstrously depraved, but it gives me another idea.
The documentary "Supersize Me" noted that the chemical content of many fast foods is designed to be appealing - almost addictive, it was implied. Incentives towards the fast food industry would be almost as bad as incentives towards tobacco and alcohol, but more socially acceptable. Fast food is THE impulse item for the American consumer. It's quick, tasty, and cheap. Get people buying Big Macs and you get economic stimulus at the cost of morbid obesity, but it has some potential.
Just throwing those ideas out there.
I don't think that getting people to buy impulse items for a few months is really going to make that much of a difference. Once the prices increase again, the people are just going to go back to buying what is needed to survive. In a time of recession many people, especially those with smaller incomes, only buy things that are necessary, for the most part, unless the other items are on sale, and once they go off sale don't buy them agian until the price lowers, generally every 3 to 4 weeks.
Colleen and Alex (Darkside), this is the kind of dialog I created the blog for. Great job! I think you both have posted insightful points.
Thanks, Mr. Wolak. By the way, I had a respected colleague check Anonymous' link. It's a harmless political cartoon on the tricle-down effect, not anything inappropriate. Apologies for the paranoia, Anonymous, but better safe than sorry.
Now, in regards to Colleen:
If impulse items aren't the key to jump-starting the economy, what is? Last time our nation dealt with this, we needed a war to fix things (which is ironic). Our last brushfire wars (police actions, whatever) haven't been at all profitable, and they've been a tad unpopular so that option's right out. What's left? Could it be that the defenders of Capitalism have consumed themselves Ouroboros-style, just as the Soviets prophesied?
Or does the global community hold the answers? Is it better to look outside our borders for solutions? The spread of American business and Friedman's forced flat field (alliteration bonus +4) offer opportunities for international trade. We could try the old imperialist system of colonizing some people and making them participate in the Mother Country's business, but that's probably not going to work.
Worse yet, a significant chunk of the planet can't compete with us in the global market. Competition won't (in my opinion) win the day, here. It seems to me that international cooperation (that dirty word)is the only solution for healing the markets of a globalized world. What do you think?
I found a (blog) article that repeats some of the points mentioned in the comments- http://blogs.harvardbusiness.org/quelch/2009/08/how_cash_for_clunkers_failed_a.html
It basically talks about how the cash for clunkers has created a short term demand but affected the long term demand. Also, it mentions that the plan could hurt some of the poor since used cars are being destroyed, and the poor would be more likely to buy used cars. Also, while the plan wasn't touted as a big environmental act, I read that the plan would probably save a negligible amount of gas per year, anyways.
I found another article that analyzes CfC (http://www.cbsnews.com/blogs/2009/08/24/business/econwatch/entry5262084.shtml) and basically it says that relative to other government policies passed recently it has been pretty efficient in boosting the economy in its respective area - car sales, with a 13% increase. Comparing CfC to other government plans at this point though is like comparing a pile of dirt to a pile of manure. The article also suggests that increases in car sales are balanced by slight dips in other areas of the economy, especially considering very few people were able to qualify for the Car Allowance Rebate System in the first place. So there's no short term net improvement in the economy as a whole, and there's no way to be sure that consumer demand has been inspired either, this could just temporarily accelerate buying. So the plan may just be a very expensive benefits package that aids very few people.
And the environmental aspect is important too I guess. While emissions are reduced ever so slightly the cost is wildly inefficient. The article explains it better than I could but the environmental benefits are quite negligible at this point.
Another thing about the environment: people are often so caught up with the political/ethical "obligation" to reduce carbon emissions that they are completely ignorant of technological potential to overcome these problems (read: http://www.wired.com/science/discoveries/news/2008/01/S2P). This may be a little off topic in this particular blog post but I think it's an idea worth mentioning whenever it comes to policies with an environmental aspect since people generally are completely unaware of it. I know the technology is 15-20 years ahead of our time, but it definitely exists.
Interesting, Shenil - do you know what the gov't did with the scrap metal? I wasn't able to find anything, but I'd assume that melting them down for new parts is more expensive than resale. On the other hand, the "Clunker" aspect is worth considering. Hummers, SUVs, and other road titans needn't be resold; each serves a better purpose in a new vehicle (no offense to the owners of these vehicles, or to their designers. If my comments involuntarily cause the automotive industry to spiral into destruction and millions more lose their jobs, I apologies in advance).
Corey - interesting comment on the "cash for a few" thing. That's the first time in my life I've ever heard that said about the Democratic party. Perhaps it's an attempt at bipartisan compromise - aid the phat katz for more votes. Worth considering, worth considering. . .
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