Detailed Abstractions

As we all know, Congress, the Senate, and the President of the United States is pushing hard for health care reform, which they promise us will lead to lower costs and will be completely revenue neutral.

To take their claims into context, these are the exact same individuals who brought us a really good program, Cash for Clunkers, only to bankrupt it in 1/11th the promised time.

The program, which was intended to remove older, less fuel efficient cars off the road, started on July 24th, 2009, with a total of $1 Billion dollars in assets (here):

…Approved last month, the program known officially as the Car Allowance Rebate System offers rebates of $3,500 to owners who relinquish cars rated at less than 18 miles per gallon to purchase ones getting at least 22 m.p.g. If the new vehicle gets at least 10 m.p.g. more than the trade-in, the rebate is $4,500. For SUVs, minivans and pickups, a 2 m.p.g. improvement is required, while a 5 m.p.g. gain nets the full rebate…

…The program is expected to run four months, or until the $1 billion is depleted. The National Highway Traffic Safety Administration has until July 24 to issue the final regulations, putting most transactions on hold until Friday…

It was supposed to last 4 months, but is now almost out of money (here):

WASHINGTON — Transportation Secretary Ray LaHood said Sunday that unless the Senate approves $2 billion in additional funding, the Obama administration could be forced to halt as early as Tuesday the “cash for clunkers” program that has become one of the most visible and fast-acting of the government’s economic-stimulus programs.

& the analysis itself wasn’t a simple mistake or a black swan.  We didn’t run into any unknown situations or start out with bad numbers.  The reason the initial analysis was wrong was negligence:

…U.S. auto sales have been running at an annual pace below 10 million a year since January, a steep drop from the 16 million annual sales levels normal earlier in the decade. That sales collapse has led to tens of thousands of layoffs at auto companies and the manufacturing and service firms that support them…

Using just those numbers alone, we expect 3.2 million cars to be bought in the next 4 months, but Congress allocated money for just  8% of expected sales, without apparently contemplating the obvious increase in demand.

Of course this is a minor example when comparing the relatively small number of $1 billion dollars (or $11 billion) against a $3 trillion dollar budget, but it’s clearly instructive.

Time and time again, the government had lead us down a path with promises of this and that kind snake oil, this and that kind of freedom.  Yet almost every single time, they have proven their inability to fully understand the consequences of legislation.

The amount of willful ignorance it mush take to be consistently wrong, but still think you’re helping now or will be helpful in the future is simply astounding.

But shooting fish in a barrel will only get us so far.  In our system of government, the end result is that the voters are truly responsible.  Politicians run on incentives like us all & as long as voters don’t hold them accountable for their mistakes, they have no obvious reason to change course.

If we as voters show, by our very actions, that we are ok with a system that rewards incumbency without contemplating actual results, rewards style over substance, rewards politically correct talk as opposed to direct debates, we are contributing to a system which will allow these actions to continue.

But since there doesn’t seem to be any grassroots effort aimed at actually changing the system itself instead of ensuring “our team” wins, we might as well ask the question:

How much did they say health care would cost?

Before the last stimulus bill, the Obama administration trotted out how dire and desperate things are and would be without the all powerful government.  According to their reports, unemployment rates without the money would hit 10%, while with spending would not go above 8% (here).

By the government’s own standards and the new unemployment numbers of 9.5%, they have failed. But like true politicians, facts are just numbers that haven’t yet been spun.

With trillions of dollars in “stimulus” already spent on pet projects, buying up failed companies,  green jobs, and anything else the government can think of, the only thing they are now positive of is that it wasn’t enough.

Through Mr. Obama’s remarks after the G8 summit (here):

“While our markets are improving, too many people are still struggling,” Obama said at a press conference in L’Aquila, Italy after a summit of the Group of Eight nations. “Full recovery is still a ways off.”

and senior administration officials putting our feelers (here):

Senior administration officials think further stimulus might eventually be needed but they do not want to have this fight now. Both the economics and the politics call for postponing a decision to late this year or early in 2010.

& of course, the sage Warren Buffet’s self-serving advice (here):

As folks in Washington and the rest of the country grumble about the depressed job market and underwhelming consumer spending reports, the calls for a second stimulus continue.

“I think that a second one may well be called for,” Warren Buffett , the widely respected investor, said Thursday morning on ABC’s “Good Morning America.”

It appears we’re on a path to spend more money we don’t have.  Effectively, the government is acting just like the poor investors and home buyers did – buying a lot of stuff for too much money, which is completely borrowed.

As Cato notes:

Investors understand that increased government spending diverts valuable resources away from the private sector and ends up imposing even more demoralizing taxes on labor and capital.

A major study of 18 large economies by Alberto Alesina of Harvard and three colleagues appeared in the 2002 American Economic Review. This paper, “Fiscal Policy, Profits and Investment” found that the surest way to make economies boom can be through deep cuts in government spending–the exact opposite of the “fiscal stimulus” snake oil.

Like the problems of social security, medicare, and medicaid though, we’re simply going to borrow all of this money and kick the major problems down the road for whatever generation will suffer from our mistakes.  They will pay the higher taxes for lower benefits all because we can’t control our spending.

So for those playing the home game – the solution to alcoholism is to drink, just as the solution to a spending binge is more spending.