$1 Billion in Government Giveaways

C.A.R.S. is the new program that provides incentives for consumers to trade in their old low MPG vehicles for new higher MPG vehicles. The idea is two-fold. First, the auto industry is suffering in the current economic crisis, and consumers need incentives to shop for new cars. Second, it is environmentally friendly to drive vehicles that use less fuel. Let us examine both of these theses, and then look at how it affects the "common man".

According to The Oregonian, several local dealerships claim to be doing quite well without the rebates, although the C.A.R.S. program has brought in a lot of business in the last few days and probably will continue to do so for the next few months. The fact is that our society in the U.S. is geared toward automobiles. One for the husband, one for the wife, and one for each child of driving age is what the various media throws at us constantly. We will not even touch the "soccer mom" sub-culture at this time.

The real problem with the automobile industry isn't that consumers are not buying vehicles, it's that the manufacturers make too many similar vehicles and expect the consumer to buy, or lease, a new vehicle every year or two. The supply out-stripped demand, and when the economy turned sour, consumers decided to hold onto their vehicles longer than they might have under normal economic conditions. So, yes, large rebates are going to help.

My favorite joke recently has been, "How many Oregonians does it take to screw in a light bulb?" The answer: 100, 1 to screw in the bulb and 99 to measure the environmental impact. Yes, we all need to do our part to help the environment. I caught myself feeling bad because we left our environmentally-friendly, reusable shopping bags at home when we did the grocery shopping last night. I probably shouldn't mention that we then opted for plastic bags that we generally use to throw away disposable diapers.

Anyway, our society makes it far too easy to be environmentally unfriendly and then gives us small ways to feel better about it. For example, the reusable grocery bags, or that our children are obese from drinking too much soda and eating too many pre-packaged meals, but for only pennies a day we can feed starving children in a third-world country. Getting back to the second thesis, driving high MPG cars is better for the environment, but the impact probably isn't is grand as it might sound unless we eliminate the use of fossil fuels and make more of the vehicles recyclable.

What does this have to do with you and me? To start with, unless you bought your gas hog during the SUV frenzy before gas prices got up to $4 a gallon, you probably do not qualify for the rebate. Our 2000 Saturn SL, with 175k miles on it, does not qualify, because when it was manufactured it claimed to have a combined MPG of 27. This does not take into consideration that the MPG calculations were still flawed at that time, or that MPG tends to decrease over time and mileage. Your vehicle has to get less than 18 MPG to qualify. True that the Saturn probably still gets over 20 MPG, but that doesn't help me help the auto industry.

Our 2005 Kia Sedona qualifies for the rebate at a miserable 17 MPG. However, we need a minivan to transport our family, and we still owe nearly 3 years of payments on it. In addition, after searching the website, I could not find any 2010 minivans that would give more than a 3 MPG improvement, and most of them offered less than a 2 MPG improvement. To qualify for the rebate, the improvement must be at least 2 MPG. Is upgrading my fairly new family minivan for a brand new family minivan that gets the same MPG or only slightly better really going to help the environment. That is doubtful, but it would help the banks and the auto industry...and it will make me feel better about using slightly less fuel to get to the grocery store.

If I were Emperor, fuel-efficiency would be a dying term because auto makers would be mandated to provide more options for alternative fuels with each new model year. Also, any rebates would not be based solely on the MPG of the old car, but on the total improvement in getting that car replaced.

What do you think? Are you going to explore whether you qualify for the rebate? Do you think you might buy a new car if you do qualify? Were you considering upgrading to a more environmentally friendly vehicle even without the rebate? Let us know your opinion in the comments.

Perception or Reality

"I cannot admit it," said Sergey Ivanovitch, with his habitual clearness, precision of expression, and elegance of phrase. "I cannot in any case agree with Keiss that my whole conception of the external world has been derived from perceptions.” Leo Tolstoy, Anna Karenina. What Sergey failed to understand is that everyone’s existence is molded by what they experience through their senses. One child sees and hears his mother get beaten every night by his father, and when he grows up he decides to open a shelter for abused women. Another child lives in a similar situation, and when he grows up he decides to be an abusive husband. Similar experiences, different results, both molded by their experiences. They are each reality, but the two children perceived reality differently. The former perceived that abusive behavior is wrong and abused people need a safe place to get help. The latter perceived that abusive behavior was normal and thus continued it.

Believe it, or not, we are not here to talk about abusive spouses and domestic disputes. We are here to talk about how economics is affected by perceptions. Before we continue, let us define some terms.

• To perceive: “To become aware of directly through any of the senses, especially sight or hearing.” American Heritage Dictionary.
• Reality: “The state of things as they are or appear to be, rather than as one might wish them to be” Collins Essential English Dictionary.

Note that the definition given for reality leaves a lot of room for perception but no room for fantasy. This is a very important distinction that I hope you understand, because we do not have space for it here. If you want to discuss it further, post a comment.

Here is a generalized timeline of the current economic crisis based upon my perceptions. American consumers over-extend their credit to the point where most of their paychecks go toward paying debt and the associated bills. This leaves very little for discretionary spending. Money lenders encourage this and find “new and improved” ways for consumers to extend their credit. The house of cards topples over, and the amount of bad debt held by various levels of lenders piles up. As the crisis escalates, the news coverage grows at a feverish pace. Economists of all shapes and sizes talk about how bad everything is going to get and the Stock Market crumbles costing consumers most, if not all, of their retirement accounts. The housing market bites the dust, and consumers stop spending, causing business to fail from lack of sales. This in turn puts hundreds of thousands of people out of work across the country.

We are in the reality of the greatest economic crisis since The Great Depression, and we are having a hard time climbing out of it. Every day a new report comes out about one economic factor or another, and the news services eat it up. Sometimes it seems to be good news, and the Stock Market reacts accordingly. Sometimes it appears to be bad news, and the Stock Market reacts accordingly. Can all of this be stopped? Could the harshness of the recession have been avoided?

If I were Emperor, during an economic crisis the first group of people to be laid off would be the economists. Why can’t we have one day of the month where all of the economic reports come out instead of multiple reports coming out at all different times of the month? The answer to that is simple…it would not be good for the news services. I personally know of people who had good stable jobs that stopped spending their money because they kept being told every day how bad the economy was. Maybe if they had continued to spend their money in their usual patterns, a few people could have held onto their jobs. Maybe if everyone in this situation had continued to spend like normal, then thousands of workers would still be working.

The only way to successfully break out of a recession is through positive economic growth. The only was to accomplish this growth is for consumers to spend money. Once consumers start spending money, then more jobs will be created which will in turn create more consumers to spend more money. However, this will not happen while potential consumers perceive that the economy is shaky. The government can throw money, created by over-extended credit, at the problem, but that will not fix the underlying issue.

We started with a existential discussion, from a work of fiction, dealing with the differences of perception and reality. Then we dove into an example of how different children my deal with abuse to illustrate the differences. Finally, we realized that perceptions about the economy must improve if we want the economy to truly improve. Let us end with an article by CNN on July 2, “Thursday, a new national poll indicated that nearly half of all Americans think the economy has stabilized, but only one in eight think a recovery has started.”

Am I right or wrong? Am I a blubbering idiot, or a Wise One? Let me know in the comments.