Economic Amateur Hour In Washington, D.C.

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A new round of bad economic news has been spewing forth this week, ranging from the poor housing market to the stagnant stock market to rising first time unemployment claims. After two years of very uneven and unpredictable economic performance, it makes you wonder whether it truly is economic amateur hour in Washington. Consider what we have endured from Washington over the past few years:



- Cash For Clunkers - many experts have reviewed this program any number of times, concluding out how it was a failure in so many ways. The major bottom line is that the program did nothing to incrementally spur sales in the downtrodden new car market. All it did was cause prospective new car buyers to advance their purchase in order to get the free government rebate money. Once the Clunker rebates ended, the car market tanked for several months since the sales that would have occurred in those later months just occurred a few months early. Thus, there were little, if any, increment sales and all the program did was provide free taxpayer money to people who were going to buy a new car anyway. In addition to this one obvious and fatal flaw were the other mini disasters. These included people using the program to buy low gas mileage trucks and low gas mileage cars, contrary to the other objective of Clunkers which was to increase gas mileage of the U.S. car fleet and that perfectly good used cars, that were traded in under the program, were destroyed, robbing the less affluent citizens of our country the opportunity to purchase a good used car at a reasonable price.





- A similar experience occurred with the government's attempt to spur the housing market. Until the spring of this year, first time buyers of homes could get a cash rebate from the government if they signed a home purchase by a certain day and closed within a few months of signing that contract. Well guess what happened, once that program ended? The National Association of Realtors announced this week that sales of existing homes fell by more than 27% in July. It was the largest monthly drop on record since 1968, resulting in an annualized total home sales estimate of just 3.83 million, the lowest annual number in 15 years. A quote from the article reads: "The weakness follows a strong spring, when now-expired government tax credits sparked sales, especially among first time buyers of lower priced homes." Thus, the same economic principle that happened with Cash For Clunkers happened here: all the government program did was accelerate forward some home sales without incrementally growing the market. Once the incentive went away, sales dipped dramatically, resulting in a net effect of virtually no incremental business. All the program did was give away taxpayer dollars to people who were going to buy a home anyway.




- More bad news from another Washington housing industry program came to light this week, this one relative to the Obama administration's mortgage relief program. According to an Associated Press article, almost half of the homeowners enrolled in the program to help avoid foreclosure have fallen out of the program. The AP reported that the $75 billion program to help owners lower their monthly payments is failing to stem the flow of foreclosures in the country (in a separate article in The Week magazine from August 27, 2010, it was reported that recent monthly foreclosure levels are up year over year and that over a million more homes will be foreclosed on in 2010 vs. 2009.) The article quoted Mark Zandl, chief economist at Moody Analytics, as predicting that the program will eventually help out only about 500,000 homeowners even though another 1.5 million homes will likely fall into foreclosure in 2011. If Zandl is right and the $75 billion program will only help out 500,000 homeowners, then the government would have spent about $150,000 per successful homeowner saved ($75 billion divided by 500,000), certainly a pathetic return on investment from an economic perspective. A major problem, but not the only problem, was the tremendous amount of government red tape that was involved in the program.



- Another government program, Cash For Appliances, was supposed to be designed to incrementally increase the sale of energy efficient appliances for the home. Since absolutely no one in any part of the government is talking about how successful this program was, one has to assume that it performed as badly as Cash For Clunkers and the first time home buyer credits: it likely resulted in no incremental sales and just wasted more taxpayer dollars.



- The Obama administration warned us two years ago that unless the administration's economic stimulus plan was passed, unemployment could go as high as 8%. Well, the economic stimulus plan was passed and we have not seen unemployment less than 9.5% or so for lord knows how long. Does that mean if we had not passed the economic stimulus plan that unemployment would be 8%, 15-20% lower than it is today?

Consider Washington's inability to foresee the gathering economic storm clouds even though there were tens of thousands Federal employees working in economic related government entities including Fannie Mae, Freddie Mac, the Treasury department, the Federal Reserve, HUD, FDIC, Senate and House banking and finance committees, etc. Of all these people and all these organizations, no one saw the economic mess that has engulfed us until it hit them in the face.

- The current administration has introduced so much economic uncertainly into the market, e.g. what will the health care reform bill actually cost business and consumers, will the Bush tax cuts go away or be renewed, will other taxes be raised and how much, will it be inflation or deflation that we all have to deal with, etc., that both businesses and consumers have reduced their from spending due to this uncertainty/fear factor, with the uncertainty locking up the economy.



Combine these failures with the fact that the political class is spending so much money that our national debt is approaching alarming levels, having just exceeded $13 TRILLION, you really have to wonder what economic novices are running the country today. Economic programs that do not increase economic activity, economic programs that are wasteful and inefficient, and government economic resources that do not see economic trouble before it occurs: certainly looks like amateur hour in Washington.



Obviously, a few major steps and changes have to occur in order to get the economy moving forward again:



Step 1 - start downsizing government functions by 10% a year for five years. This step would reduce the number of insane and wasteful program such as Cash For Clunkers and get the political class focused on fewer but more impactful economic policies and programs. In other words, less people and less bureaucracy should result in less stupid economic policies that government entities launch to protect their turf and justify their existence, all of which are failures.



Step 2 - systematically but fairly relieve all Congressional members of their committee posts if those committees fail to execute their jobs satisfactorily. In this area, all Congressional members sitting on House and Senate committees responsible for housing, finance, and Treasury should have been relieved of their committee posts for their amateurish handling of the recent economic crisis.



Step 3 - term limits would ensure that these economic amateurs currently sitting in Congress would be gone in a relatively short time and not be allowed to continually perpetrate these failed economic programs and policies on the American taxpayer.

While 'American Idol", for this generation, and "Ted Mack's Original Amateur Hour", for the older generation, may prove entertainment, the economic amateurs in Washington are not entertainment, they are economically destructive and wasteful. Time to get some pros involved and dump the amateur economists incumbents in November.

 


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