OPINION: Obama's clunker school of economics
George F. Will, a syndicated columnist for The Washington Post, has been writing about politics since 1974.
Looking back with pride, the British are commemorating the 70th anniversary of the Battle of Britain, when Churchill said of the pilots fighting the Luftwaffe: Never "was so much owed by so many to so few." Looking ahead with trepidation, Americans are thinking: Never have so many of us owed so much.
Actually, they owed slightly more when the recession began, when household consumer debt was $2.6 trillion. But it's still $2.4 trillion now. The recession has reduced household wealth by $10 trillion, and only 25 percent of Americans expect their incomes to improve next year. So they aren't spending, and companies are worried. Rather than hiring, they're sitting on cash reserves much larger than last year's $862 billion stimulus.
Democrats who say another stimulus is necessary for job creation - but who dare not utter the word "stimulus" - are sending three depressing messages: The $862-billion stimulus did not work; the public so loathes the word that another stimulus will not happen; therefore prosperity is not "just around the corner," as Herbert Hoover supposedly said (but did not). Consumers and businesses are responding to those messages by heeding advice from "Hamlet": "Neither a borrower nor a lender be."
Hoover is again being invoked as a terrible warning about the wages of sin. Sin is understood by liberals as government austerity, which is understood as existing levels of government spending, whatever they are, whenever. Treasury Secretary Tim Geithner recently said that Germans favoring reduced rather than increased state spending sounded "a little bit like Hoover." Well.
Real per capita federal expenditures almost doubled between 1929, Hoover's first year as president, and 1932, his last. David Kennedy, in "Freedom from Fear," writes of Hoover: "He nearly doubled federal public works expenditures in three years. Thanks to his prodding, the net stimulating effect of federal, state and local fiscal policy was larger in 1931 than in any subsequent year of the decade."
President Barack Obama has self-nullifying plans for stimulating the small-business sector that creates most new jobs. He has just endorsed tax relief for such businesses but opposes extension of the Bush tax cuts for high-income filers, who include small businesses with 48 percent of that sector's earnings. The stance of other Democrats seems to be that the Bush cuts were wicked in conception, reckless in execution - and should be largely, and perhaps entirely, extended.
Does this increase anyone's confidence? About as much as noting the one-year anniversary of the end of another of the administration's brainstorms.
The used car market is an important mechanism for redistributing wealth to low-income persons: The price of a car drops when it is driven out of the dealership, but much of its transportation value remains. Unfortunately for low-income people, the average price of a three-year-old automobile has increased more than 10 percent since last summer - largely because Cash for Clunkers, which ended in late August 2009, cut the supply of used cars.
The program provided up to $4,500 to persons who traded in a car for a new one with better gas mileage, but stipulated that the used car had to be scrapped. A study by Edmunds.com shows that all but 125,000 of the 700,000 cars sold during the program would have been bought even if no subsidy had been available. If this is so, each incremental sale cost taxpayers $24,000. Meanwhile, the reduction in carbon dioxide from removing older cars from the road cost, according to research at the University of California at Davis, $237 a ton. The international market prices carbon emissions credits at about $20 a ton.
Obama is desperately urging consumers and investors to have confidence in his understanding of economics. They may, however, remember his characteristic certitude that Cash for Clunkers was "successful beyond anybody's imagination."
