WaPo Disguises an Editorial for a Democrat for Congress as Reporting on the "Stimulus" While Showing Itself out of Touch

The Washington Post has a revealing article out titled Democrats get little boost from stimulus. Taken literally, the title suggests that they in fact got a boost from ARRA (the "stimulus" program); but I'm not sure that's true. It may in fact be that they got no boost or a negative boost. The article helps explain why. Here are some quotes from it in italics and commentary from me. The article also serves as unpaid advertising for the Democrat running against Mr. Ganley. Here's the beginning:

Republican House candidate Tom Ganley sold more than 800 cars last summer through the "Cash for Clunkers" government rebate program. But does Uncle Sam get a thank you?

"Let's talk about Cash for Clunkers," the voluble millionaire, who owns the largest auto dealership group in Ohio, told a group of voters here recently. "It created a 30-day surge in auto sales. After it ended, there was no business. It was like the faucet was shut off." . . .

"I'm against government intervention of any kind," Ganley asserts.

Based on the last quote, maybe Ganley should be Car Czar! (But wait, he and I oppose Car Czardom; and there's a rub . . .)

Just what was the point of Cash/Clunkers, other than to raise the price of used cars by taking "clunkers" off the market? Why not let the market determine the relative value of "gas-guzzlers"? A simpler intervention would have been to have raised the gasoline tax and/or subsidize the price of fuel-efficient cars. A year later, are we glad that the Feds "stimulated"? Are you into jolts of amphetamine and then withdrawal from said jolts?

The stimulus "creates work and not jobs," Ganley told the gathering of voters. "That may sound like a contradiction, but as we drove out here today there were all the orange barrels out on the highway, and all this work was being done with money from the stimulus. But as soon as that road's finished, the work's gone."

Ganley sounds like an Austrian! Sometimes government stumbles upon spending that actually has a good return on investment, but in general I believe that Christina Romer performed valuable research prior to joining Team Obama demonstrating that the multiplier effect of government spending is less than unity. Work, not sustainable jobs: good line.

The centerpiece of the stimulus effort, the $787 billion American Recovery and Reinvestment Act approved in February 2009, included a sprawling array of policy initiatives. Obama got to deliver on campaign promises to invest in alternative energy and advance high-speed rail development. Liberals got their funding for Head Start and community food banks, and centrists got middle-class tax breaks. . .

It proved difficult to keep track of all that spending, and the White House and Democratic leaders had a hard time showing how it was contributing to the recovery.

"The branding and marketing was done very poorly," said Alan Blinder, a Princeton University economist who supported the stimulus. "When you spend that much money, there should be more recognition."

Starting backwards, Dr. Blinder makes little sense. Branding and marketing? Recognition? As if the administration didn't tout this program enough?

Moving upwards, the statement that "it proved difficult to keep track of all that spending" is anodyne. I think of Iraq War unaccountable spending and the current billions of cash U. S. dollars that now flow yearly out of Kabul airport to the Middle East; and I think of the failure of the allegedly anti-corruption Democratic Congress to investigate the apparent massive Iraq War contractor abuses. Dogs that don't bark when they should have alerted detectives over the years to otherwise unsolvable solutions to crimes.

What I suspect happened was that the ECRI's Long Leading Indicators turned up in December 2008. By January 2009 or thereabouts, I recall reading that the leaders of Big Finance had their swagger back. So I think that Team Obama knew that the Great Recession was winding down, and that they could accomplish social, political and economic objectives by passing a pork-laden program, claiming that it was averting a Depression, and sweep to a successful midterm election on the heels of this great victory over threatened economic death.

Only it didn't happen that way. Thus this article, which is preparing the Party faithful for a weak showing in November.

The pork had a large corporate component:

The list includes $400 million to replace the decrepit Inner Belt Bridge in suburban Cleveland and $25 million to expand a BASF Catalysts lithium-ion battery plant in Elyria. . .

A year ago, Akron-based First Energy Service Co. applied for a $36 million U.S. Department of Energy grant to install 5,000 high-tech meters in Cleveland area homes, a project that would turn the region into a test market for "smart grid" technology aimed at reducing energy consumption.

Energy was one of Obama's stimulus priorities. With plans to eventually reach 44,000 households, the company could wind up creating an estimated 1,200 jobs in installation services, infrastructure upgrades and meter manufacturing.

A year later, the project has yet to get underway. First Energy's application was approved in late October, but Ohio hasn't come through with $36 million in matching funds. "There is a lot that goes into preparing something like this before the first dollar is spent or the customer sees any effect," First Energy spokeswoman Ellen Raines said.

BASF is a gigantic German conglomerate. Why are Americans borrowing from Chinese to subsidize BASF? And FirstEnergy (FE stock symbol)? It only reported after-tax profits of almost a billion dollars last year.

This is outrageous stuff, and the Post runs it as if it were completely normal that our government, deep in debt, is going deeper in debt to aid massive companies.

Finally, let me remind you that the article begins with the fact Mr. Ganley is running for Congress this year as a Republican. In case there is any doubt as to who the Post is plumping for, the article ends, out of the blue, with a quote from an auto dealer competitor of Ganley calling him "duplicitous". And, referring to Cash for Clunkers, the competitor's quote ends the article as follows:

"This program woke up the market. It was an unqualified success."

Right. And I've got a great deal on a used car for you. And maybe a used bridge.

And to end in the middle of the article, how "clue-ful" is the reporter and editor who apparently with a straight face stuck this plaintive sentence in?

How can nearly $1 trillion flush through the U.S. economy, with tangible results, and still leave voters dubious?

Here's my answer. Firstly, this was a 3-year program or longer, so much less than $1 Trillion was spent. Secondly, I see no tangible results. Viz., FirstEnergy, above. And I live in heavily "blue" districts that should have been high on Obama's help-out list. Third, people "get" that there's no free lunch. Third, Americans are probably more perceptive than the writer of that question.

Unfortunately, they also "get" that the "outs" in November are the same guys they got disgusted with in 2006, and who offer nothing new.

So the national mood remains sour, and the well-fed survivors at the Post and the ever-more powerful and ever-more numerous political class in Washington just can't see why the helpees out there in the real world don't feel the love their master-helpers have for them.

Often out of touch, but never out of power; that's our permanent Establishment.

Copyright (C) Long Lake LLC 2010

25% Already Regret Turning in Their "Clunker"

In line with the Roubini-related post below this one, here's a highly interesting excerpt from David Rosenberg's "Toast With Dave" (courtesy Gluskin Sheff) today about the cash-for-clunkers program that this blog has panned more than once. The big picture implications are serious and feed my skepticism that Dr. Roubini et al. are correct in advocating large-scale, long-term "stimulation" of the economy. As a physician, I have had many alcoholics and other substance-abusers under my care. Including nicotine addicts, that was a very large number. There's no time to stop the addiction like the present.

Enough of me; here's Dr. Rosenberg:

Indeed, just have a look-see at what is about to happen now that the government's Cash-for-Clunkers blowout is finally over; the USA Today cites an Edmunds.com study which shows that half as many people are researching a new car purchase on its website compared to the peak levels during the cash-for-clunkers survey. Apparently, traffic is off 10% from depressed June levels, when the subsidy program was barely a concept. Will the government reinstate the program when auto sales collapse in the fourth quarter? Can it possibly justify more than the $3 billion in taxpayer money that has already been committed to supporting auto consumption? This is what Mr. Market may not see just yet — a 2002Q4 style of GDP growth relapse in the final three months of the year.

What is interesting is that a CNW Research poll found that nearly 1 in 4 Cash-for-Clunkers beneficiaries now regret making the decision to buy a new car they had no intention of purchasing just yet — because now they are faced with a huge financial bill to pay. Think about it, nearly 700,000 sales with an average amount to finance of nearly $16,000 means that the government induced the household sector to take on more than $11 billion of new debt. It was an overextended consumer that got us into this financial mess to begin with, and now Uncle Sam just induced the household sector to expand its balance sheet by $11 billion instead of doing the prudent thing, even if at the expense of auto consumption over the near-term, and providing lessons on how to live within our means. This is all rather unbelievable, and the price we will now pay for an illusory positive print on third quarter GDP will be stagnation over the next several quarters.

Remember that it is the stock that is in essence a perpetual option, and a bond that is limited in duration and therefore allows a "do-over", trading stocks without believing in long-term ownership being a negative-sum game. Elsewhere in the "Toast With Dave", he reiterates that the risk-reward for exposure to businesses is better with corporate debt than equity.

Lots to think about in the waning dog days of August . . .

Cash for Clunkers Conks Non-Auto Retail Sales

From Marketwatch:

U.S. stock market hears weak consumer pulse in retail data
July report an indication 'cash for clunkers' program dented non-vehicle sales

NEW YORK (MarketWatch) -- The stock market's enthusiasm over the government's "cash for clunkers" program waned Thursday in the face of data suggesting consumers exchanged old cars for newer models at the expense of other retail spending.

Investors were taken aback by the Commerce Department's report that U.S. retail sales fell 0.1% in July, as opposed to expectations sales would gain 0.8%. Excluding autos, retail sales declined 0.6% versus an expected gain of 0.1%. . .

Given that stock prices rose once again, it's not quite accurate to say that investors were taken aback. Of course, it's unclear how many buyers of stock these days are investors versus traders.

In any case, "cash for clunkers" is idiotic, cumbersome to administer, unfair to previous buyers of fuel-efficient vehicles, and misses the "green" mark. Simply raise the gas tax and be done with it.

Copyright (C) Long Lake LLC 2009

Cash for Clunkers Clashes with the Real World as Non-Auto Retail Sales Disappoint

From yesterday's New York Times:

“There obviously is a real pent-up demand in America,” said Ray LaHood, the transportation secretary. “People love to buy cars, and we’ve given them the incentive to do that. I think the last thing that any politician wants to do is cut off the opportunity for somebody who’s going to be able to get a rebate from the government to buy a new automobile.”

LaHood also said:

LaHood said Wednesday that in just a brief time, "the government has proved we can get money out the door and sell almost 160,000 cars."

Aren't you thrilled the Federal Government can sell cars?

Meanwhile, beyond the obvious downside that throwing money it has to borrow or print into the hands of consumers is a fool's errand, the AP reports: Sluggish July sales show tight-fisted US consumers:

"The consumer is stressed and depressed," said Ken Perkins, president of retail consulting firm Retail Metrics. "Back-to-school shopping season is going to be very late."

It may not be just late (I assume he means 'delayed'); some sales will be 'deferred'.

The AP article continues:

Frank Badillo, senior economist at consulting group TNS Retail Forward, and other analysts have also noted that the uptick in car buying spurred by the government's "cash for clunkers" program might siphon sales from other categories like clothing and home furnishings in coming months. That could hurt back-to-school shopping as consumers shift available cash to car payments.

There you have it. In physics, and economics, you can't get something for nothing. You can't both print money or borrow it. You can't be a stretched consumer and suddenly take a bargain on a new car and buy that extra pair of jeans. Thus we see the extraordinary sales declines that just one year ago, and at any time in the past, say, 45 years, would have been seen as impossible (from the same AP article):

As club operator Costco Wholesale Inc. reported Thursday that its same-store sales dropped 7 percent in July, pressured by lower gas prices and the stronger dollar, the retailer said some of its strongest categories were food, including deli, candy and frozen food.

Candy? This nation is addicted to cheap credit and cheap sugar. Continuing with the AP article:

It (Costco) reported weakness in non-food, discretionary categories but did note a slight improvement in some areas such as office, sporting goods, small appliances and men's and women's apparel.

Target Corp., which has been stumbling because of its reliance on nonessentials like trendy jeans, posted a 6.5 percent drop, worse than the 5.8 percent decline analysts had expected.

TJX's 4 percent gain beat Wall Street's expectations for a 3.1 percent increase. It also raised its second-quarter profit outlook.

(FYI TJX is a deep discounter. This continues to demonstrate that consumers continued to trade down from Target to TJX and Ross Stores.)

Among department stores, Macy's reported a 10.7 percent drop in same-store sales, worse than the 9.1 percent drop that was expected. J.C. Penney's 12.3 percent same-store sales decrease was a bit steeper than the 11.4 percent decline that analysts had expected. But Penney raised its earnings outlook.

Comment: My wife was in a Macy's this week and noted a dank smell in the store and poorly kept-up changing rooms. Nonetheless a sign on the door said it was hiring. Re Penney's, there is only one way to raise profits in the face of declining sales: cut costs. That means pressure on its vendors and further onerous terms on its employees. And it appears that with teen unemployment at very high levels, parents have been pulling the plug on spending on clothing for their offspring:

Among teen retailers, Abercrombie & Fitch posted a 28 percent same-store sales decline, worse than the 26.9 percent drop that analysts expected. Wet Seal reported a 12.1 percent drop, worse than the 10 percent decline that analysts expected.

This blog post starts with truly idiotic statements out of the mouth of the Sec'y of Transportation and ends with unspun facts. More and more this economy resembles that of the 1930s. The debt deflation that went on then is underway. The "paradox of thrift" has taken hold at the corporate level, as company after company such as Penney's enhances its own profits by firing employees or reducing their hours/benefits -- thus harming someone else's consumer.

To date the U. S. is following the Japanese script a number of years out of phase: a manic financial bubble, imprudent financial companies turned into zombies by bailouts, frugal consumers, and a "bubble" in Government debt as the Government provides business for the financial companies by letting them sell and then trade large quantities of the debt at inflated prices. Remember that per David Rosenberg, for about 80% of the past 20 years, Japan has been out of recession.

Copyright (C) Long Lake LLC 2009

Federal Auto and Roads Policies Make No Sense

In case you were under any illusions that happy days are unequivocally here again, here is proof that Barack Obama knows how to destroy jobs as well as create or save them. The U. S. Government, which controls more than half of the "new" GM, is reported by Bloomberg.com today to be planning significantly more layoffs. The article is brief and therefore there's no point in quoting from it.

What sense does it make for America to be borrowing from whomever wants to lend it money to repave roads but then try to save a few bucks by laying off the line workers and supervisors who manufacture the cars that ride on the roads; and then borrow billions more to destroy serviceable "clunkers" while stimulating sales of new cars?

The whole thing is an incoherent mess. This is what happens when socialism mixes with corporatism, both overlaid on a background of free-market capitalism.

Copyright (C) Long Lake LLC

'Cash for Clunkers' Extension a Disgrace

Flush with success in losing lots of money in the auto business so far, the House of Representatives wants to borrow $2 B more from whomever wants to lend the government the money so that, in a parody of the "broken window" parable of Bastiat (scroll down to section 1.6 after clicking on the link) that debunks the idea that destroying property to stimulate economic activity is a good thing, useable cars get physically destroyed so that more expensive new ones get sold.

If the government wants fuel efficiency and some degree of fiscal rectitude, it should simply raise the gasoline tax. Period. That will reduce miles driven by "clunkers" while providing both an ecologic benefit and some much-needed revenue. But some people can use a "clunker" as a second or third family car for limited use without harming the environment much. Taking cars that would otherwise stay in use to be scrapped before their time is as wrong as FDR's policy of raising prices for the flesh of dead animals by killing the baby animals was in the Depression. Though cars presumably feel no pain when squeezed to their final end or when a poison is put into their engine.

Copyright (C) Long Lake LLC 2009