Here's a Clunker of a Program

Remember the Cash for Clunkers program? This was the part of the stimulus package that offered a $4500 government check for car buyers who traded in an old car for a newer, more fuel efficient model. A wildly popular program, Cash for Clunkers handed out $4 billion in tax payer money between late July and early August.

In addition to the “green” benefits of getting more fuel efficient cars on the road, the program was primarily intended to boost sales in the auto industry. And it worked, right? Car sales surged in August. So the program was a success.

Well, not so fast. You see, everyone who traded in an old vehicle for a new car got the cash rebate. But most of those people would have bought a new vehicle even without the government check that call along with it. The measure of how successful the program was should be the number of people who bought a new car that would not have made the purchase without the Cash for Clunkers program.

The automotive site Edmunds.com did the analysis to figure out how many people bought a car specifically because of the rebates. Their estimate of the number of additional buyers was only 125,000 out of the 690,000 total cars sold during the program. That means that the government subsidy per additional car sold was (drum roll, please) … $24,000.

For the folks who bought the cars, the government rebate was a great deal. In terms of stimulating the economy, not such a great deal. That would be bad enough if it was the end of the story. But as the telemarketeers say, “wait, there’s more!”

Car sales surged in August, good news for the economy. But then car sales collapsed in September, bad news for the economy. August sales were about one and a quarter million vehicles, and September was about 40% less, at seven hundred and fifty thousand. It doesn’t take a rocket scientist to realize that most, is not all, of the surge in business during August was comprised of buyers who would otherwise have waited until September to buy a new car.

To me, it sure looks like the government borrowed $4 billion from the Chinese and handed it out to car buyers for a net increase in new car sales of zero. Zip. Nil. Big goose egg.

But hey, that’s okay. I won’t mind eventually seeing my taxes go up to pay for this. After all, I’m getting my share. You see, I bought a new air conditioning unit last August when the old one on my house died. I would have ponied up the money for one anyway. Remember, it was August. Hotter than the hinges of hell. I wasn’t going one week without AC. Only, now, I qualify for a $1500 tax credit for buying an Energy Star rated appliance, courtesy of the Obama stimulus package. Woo-hoo! Spend that money!

I can’t wait to see what those brainiacs in Washington come up with for an encore.

In the health care “reform” debate, the favorite villain of the “reform” forces has been the health insurance industry. The argument runs something like this: health insurance continues to increase in price because the insurance companies are for profit entities. In their quest to maximize profits, the insurance companies continually raise premiums, then deny coverage on the slightest pretext. If only we could find a way to trim their outrageous profits, then we could afford to extend coverage to more people.

Here’s a quotation from House Speaker Nancy Pelosi:
“I’m very pleased that (Democratic leaders) will be talking, too, about the immoral profits being made by the insurance industry and how those profits have increased in the Bush years.”

Immoral profits. Those rapacious bastards!

There is only one problem with this argument. Well, okay, there’s lots more than one problem with that argument, but here is a big one: it turns out that the health insurance industry isn’t all that profitable. According to a report by the Associated Press, the profit margin of the insurance industry hovers around 6%. In 2008, that level of profitability dropped down to 2.2%.

So, if ALL of the medical care in this country was paid for by insurance companies, AND ALL of those companies were for-profit, AND ALL of those companies were replaced by a non-profit government entity that operated with perfect efficiency, we might be able to reduce health care costs by an average of 6% a year.

Health care’s share of the national economy is currently about 17%. If we drop that by 6% of the total, you go all the way down to … 16%. Hardly an earth shattering change.

Insurance companies are big faceless organizations. It is easy to find stories of people who have been denied coverage because of pre-existing conditions in the face of massive medical expenditures. These two conditions make the health insurance industry a good whipping boy in the current debate. After all, everyone likes to root for the underdog.

But the people who are advocating rearranging one sixth of the economy, and creating a humongous new entitlement should be honest about why they want to do that. It doesn’t seem to be about saving money.

Medical Marijuana?

The Justice Department announced a major change in drug enforcement policy yesterday. In states that have legalized medical marijuana, the Federal government will no longer go after sellers that appear to be in compliance with state laws. Dispensaries in California that have their paperwork in order will not have to worry about breaking Federal laws against the sale of controlled substances.

I’m conflicted about this decision. The libertarian in me is all in favor of expanding the rights of individuals to do as they please without government interference. The strict constitutional constructionist in me applauds the victory for state’s rights inherent in the decision. The social conservative in me is … troubled.

I think the thing that bothers me is the mendacity inherent in the system. If medical marijuana was really about resolving nausea in cancer patients undergoing chemotherapy, or helping glaucoma patients who don’t respond well to other drugs, I don’t think anybody would be bothered one way or the other. That was the protective cover used to sell the idea.

The reality is somewhat different.

In reality, medical marijuana is about legalizing a narcotic so that people who want to get stoned can do so without risking being arrested. In California, anyone who wants to can get a prescription from a doctor to acquire as much cannabis as they can consume. If you don’t know a doctor who will write a prescription for “anxiety” or “insomnia,” just visit a marijuana dispensary and they will be happy to recommend one to you. According to a profile in The New Yorker magazine, there are over two hundred thousand medical marijuana prescriptions written in California alone.

I’m uncomfortable with training the citizenry to lie about their health in order to indulge their vices. Of course, one of the truisms of a democracy is that when enough of the citizens want to participate in a vice, they will find a way to legalize it.

In my state, they passed a law setting up a state lottery a few years ago. The pretext was that the lottery was going to raise funds to “enrich” education in the state. Hogwash! Folks just wanted to gamble.

So if people want to spend a good chunk of their lives intoxicated, I guess we should let them, whether the drug of choice is pot or booze. But let’s not kid ourselves that the stoners are being treated with medicine.

Hurricane Recovery

I haven’t posted in about a week because I was out of town. I took a long weekend and traveled down to New Orleans with some friends. This was our second trip. The first was in June of 2007.

Two years post-Katrina, the effects of the hurricane were still visible everywhere. On this trip, it was obvious that the recovery operations have come a long way. We did not have a car on this trip, so we could not get too far away from the tourist areas, so I cannot speak to the state of the recovery in the 9th ward and other outlying areas of the city.

Still, the amount of cleanup in the French Quarter, Warehouse District, and Central Business District was impressive. Two years ago, there were high rise office towers in the CBD with boarded up windows. The high water mark was still visible on many of the commercial buildings in the area around the Superdome that flooded. From my casual inspection, all of that damage has now been repaired.

Although the French Quarter experienced no flooding, hurricane winds had seriously damaged some buildings, especially along the riverfront. I looked for those same buildings, but it looks like they had been successfully rehabbed in the last two years.

We did see one lot on Exchange Place where a building had been taken down to the foundation, and a steel frame structure erected. Steel girders would support the second and third floor balconies. I suspect that once the building was finished, a façade would be installed on the exterior to fit the building in with prevailing historical architecture that surrounded it. But this looked more like the process of upgrading historic buildings than repairing storm damage.

The St. Charles and Canal Street streetcars were both running, a welcome change from 2007. We rode the St. Charles streetcar out past the Garden District to the end of the line. Once you got past Tulane University, there were more signs of disrepair. Gas lines were being reworked, and the sidewalks exhibited serious buckling. But we only saw one abandoned house with the spray painted markings the emergency crews had used. Two years ago those houses were everywhere, even in the high rent Garden District itself.

The biggest changes were to the businesses themselves. On our first visit, it was obvious that tourism businesses were suffering from the lack of workers. Every restaurant and retail store had help wanted signs out. Day and hours of operation were curtailed, due to the lack of staff. Levels of service were not what they should be, because the available staff were stretched too thin. In one coffee shop, the owner bussed the table before we sat down, took our order, then went back to the kitchen to cook it.

None of that was in evidence on this trip. All of the tourist businesses seemed to be operating at full capacity. I saw a few help wanted signs for retail counter help, but that was all.

From what I have read, rents in New Orleans have gone up significantly post-Katrina. However, the higher rents have not deterred people from moving back, rolling up their sleeves, and going to work.

New Orleans is a much smaller city than it was in summer of 2005, and it may always be a much smaller city than it was. But from one tourist’s perspective, the heavy lifting of recovery from Katrina appears to have been accomplished. It looks like the balance point between living costs and employment opportunities has been reached. Any future growth will have to be organic, driven by the dynamism of the local economy, instead of an influx of Federal money.

One more thing. I can personally attest that the oyster beds have recovered.

Gee, this sounds like a great deal!

United Airlines has announced a new program this week. Premium Baggage allows the traveler to pay a single annual charge for the right to avoid individual flight baggage fees for a year. The fee for Premium Baggage is $249 per year, and you get to check two bags every time you take a United flight. The current fees are $20 for the first bag checked, and $30 for the second.

This plan works like a frequent flyer program, except that the incentives are reversed. With frequent flyer miles, the airline rewards your loyalty by giving you something. That reward could be upgrades to first class, or it could be free flights. Frequent flyer miles are the carrot the airline uses to affect the traveler’s behavior.

The Premium Baggage program is less about carrots, and more about sticks. Purchase the service, United is saying, and we’ll stop whacking you with extra charges every time you check in for a flight.

Basically, Premium Baggage is the frequent flyer program’s evil twin.

Cap and Trade: It ain't easy, being green.

Last week Exelon, a giant utility company, announced that it was ending its membership in the US Chamber of Commerce, citing opposition to the Chamber’s positions on climate change and the EPA’s recent moves to regulate carbon dioxide emissions as an immediate threat to human health and safety. Other high profile companies that have recently left the Chamber are Pacific Gas & Electric, PNR Resources (another utility), and Apple Computer. Nike has resigned from the Board of Directors of the Chamber, but is retaining their membership.

It looks like the progressive companies, the leaders of the future, have embraced the need for a carbon free future, and are willing to do whatever it takes to accomplish that future.

The funny thing though, is that none of those companies is going to suffer very much from supporting climate change legislation.

Exelon, for example, like Pacific G & E and PNR Resources, owns lots of nuclear power plants. So under carbon cap and trade legislation currently under consideration, these companies would be awarded what are called carbon offsets. Utilities that have a lot of coal fired power plants (big carbon emitters), would have to purchase those offsets to compensate for the amount of carbon they emit.

Basically, Exelon stands to make a lot of money from cap and trade legislation. If I could pick up an entirely new revenue source, without having to do any work for the extra money, I’d be in favor of that too. Exelon doesn’t even have to worry about upsetting their customers. The utilities that are buying offsets from Exelon have to deal with that headache, when they raise their customer’s rates to pay for the offsets.

Now let’s look at the other two examples, Nike and Apple. What I notice is that neither of these companies has significant manufacturing operations in the US. Both are essentially design and marketing operations that outsource all of the actual work of building their products to Asian contractors.

So you can put all the restrictions you want on carbon emissions associated with manufacturing. It won’t hurt those guys’ feelings in the least. After all, they’ve got no skin in the game.

Now, maybe we really do need to make huge reductions in the amount of carbon we emit as a society. And maybe the best way to do that is to place restrictions on large point sources like power plants, instead of forcing individuals to change their behavior. Maybe.

My point is that it is easy to be in favor of something when somebody else is going to have to pay for it. Easy, but not particularly virtuous or laudable.