Saturday, August 22, 2009

The Leaky Roof and the Crumbling Basement

Five hundred thousand Americans bought new cars in a program that cost the government three billion dollars. In numbers that's 500,000 people out of 300,000,000 Americans (about *point* one percent or 0.001) at a cost to the American taxpayer of $3,000,000,000.

The program is deemed successful beyond anybody's imagination - or so said President Obama.

GM has rehired 1300 workers.

Hyundai has recalled 3000.

Because half a million cars were sold to 0.1% of the population, who would, likely, have bought a new car at some point in the very near future anyway. That 0.1% of the population are the folks who have the extra cash to spend.

Growing up on coal country, I observed this sort of activity all of the time. There would be a boost in coal production, and the mines would start hiring and/or rehiring lots of employees, who would work for several months and make great money, which they would spend, spend, spend, like there was no tomorrow.

And, maybe it was the nature of the job, which is very dangerous, that made the workers feel like there was no tomorrow.

Or maybe it was something else, but the job never lasted very long for most of the employees (there are many grizzled, old coal miners, but for every one, seasoned, employee there are three who are on-again-off-again). In June the unemployment rate in the county where I grew up in Kentucky was 12.3%, but with a 20+% unemployment rate in Detroit, no one is feeling sorry for the coal miners, right?

The unemployment rate in 2004 in coal country was 7.6%, when the overall unemployment rate for rest of the country was 5.4%.

But that's the way it was there. People would say that the coal industry was on a ten year cycle - ten years up and ten years down, which means that most of the time, people were in a kind of economic doldrums, where things just didn't move in one direction or the other.

All of that information, though, is just background so that one can understand why I have the point of view that I have. When it comes to being optimistic about what I see happening in our country, right now, I'm having a hard time.

I want to say, "Yippee! Half a million new cars were sold, and four thousand people got their jobs back."

Only ... half a million cars were sold with a three BILLION dollar government subsidized program, and now that program has ended. Who is left to buy a new car?

Not me. Both of my cars are currently running, and if one of them breaks down, I can guarantee that I won't be buying "new", anyway.

I think about those four thousand people, though, who've been out of work for ... how many months, now? ..., and I wonder how they've been living all this time. If they're back at work *like that*, chances are good that they didn't have another job, and so they were living on a combination of unemployment and/or other government programs, savings, credit cards, and ... just not paying their bills. It will take them months to get caught up again, to rebuild their savings, to pay down the credit card or collection agency debt, to catch up on their mortgages.

And in months, when there is no government incentive to buy a new car, and GM and Hyundai stop production ... then what?

I want to be optimistic, but ... millions of jobs have been lost over the past year. Whole companies, who were employing people, have just folded and all of those people no longer have jobs. Companies that kept part of their employees and restructured or were bought by other companies have been very creative and done things like reduce pay and/or benefits.

I'm just not convinced that half a million cars sold using a government rebate is going to do anything more than provide a temporary blip on the radar screen of our economic woes, and I think that it's actually going to make things much worse. In my opinion, it's like giving people a temporary food subsidy, enough to keep them from starving, but not enough for any long-term benefit. What happens when the food subsidy is no longer available?

What happens when people stop buying cars, because there is no government incentive? What happens when those recalled workers get laid off, again?

We're being very short-sighted, as a country, and reacting to small problems, while ignoring the bigger ones.

It's like this house I used to live in. The roof leaked, which was damaging the wall paper and the flooring. The roof leaked, because the foundation was damaged due to tree roots from a tree that was still growing and pushing its roots into the basement, which also leaked. When it rained really hard, that whole corner of the house, from the roof to the basement floor, looked like a waterfall was running through the house.

If I were the government, I would fix the roof first, to keep the inside of the house dry. The problem is that the very foundation of the house was crumbling, and I could invest all of my money in the leaky roof, or I could invest my money in shoring up the foundation and rebuilding the basement wall, which would be much more costly and a great deal more time consuming and wouldn't fix any "immediate" problems (because we didn't "live" in the basement and our things weren't being destroyed during every rain storm).

But in the long run, investing the money in the foundation would save the house, even if I ended up having to replace a few walls, the wallpaper, the flooring and all of the personal items that got wet because of the leaky roof. The fact is that all of it eventually needed to be done, but by working bottom up, I ensured the house would be sound. Working top down, ensured that I would end up redoing all of the initial work, if I ever got to the foundation, because by not doing the foundation, first, the damage would keep recurring.

Fixing the roof would become an exercise in futility.

Like all of the stimulus programs, thus far. Futile.

And in six months, ten months, a year, we'll still be right here, setting up buckets to catch the rain as it pours in like an open faucet.


  1. I agree, it is futile. And now we the taxpayer get to foot the bill for that program too. It's a very expensive bandaid.

    I live in MI and the economy here is a nightmare. It was a nightmare in the 80's and we didn't learn from it. It's worse this time around. Our roads are crumbling, homeless people live in parks, there are no jobs. Our young people are leaving the state in hopes that things are better elsewhere.

    And yet every time I turn on the t.v. news, I am told that the economy is picking up, the housing market has turned around and things are just fine. The more I hear that propaganda, the more frightened I become.

  2. Good post Wendy! Thanks for the numbers and the break down. I've been having a "discussion" with my brother about the economy and stimulus packages and he thinks the cash for clunkers was a success. Now I have some numbers to back up my argument. I'm just too tired lately to look them up myself.

  3. And do you know what happens to the cars people traded in?? some cars had perfectly fine engines, that could have been salvaged for parts and were instead, by the auto dealers, destroyed by the "liquid sand" they poured into the engine block to freeze it so that it couldn't be resold. So now they cannot be salvaged at all. Such a waste.

    Half a million cars were sold, but half a million cars were also destroyed when they could have been salvaged and not just recycled for metals.

    That's just f*cked up.

  4. What also bugs me is do that people not realize that it is THEM paying for these rebates? It's a Government subsidy program. Where does Uncle Sam get that money? Oh yeah, Joe and Jane Taxpayer.

    And call me cheap, but a $4500 rebate on a new that really all that great???

    To me that's like having a coupon for 25 cents off the name brand cereal when the store brand cereal (used car) is just as good and much cheaper even factoring in that coupon.