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Cash For Clunkers Program Is A Lemon

August 03, 2009 By: Phred Category: Uncategorized

Im sure that everyone has heard about the “Cash for Clunkers” program.  This is another one of those government programs that sounds like a good idea until you really think it through.

In an effort to both stimulate the economy and aid the environment, Congress and the Obama Administration enacted a $1,000,000,000 [$1 billion] which allowed people to trade in old cars with low gas mileage and receive a discount of up to $4,500 on new cars with high gas mileage.

Because protecting the environment was one of the goals of this program (and to protect against fraud), dealers were required to pour a solution into the engine of the car that was traded in which permanently disables the car.  The car is permanently taken off the road and is recycled.

Sounds good, right?  Not quite.

Who buys new cars?  People with money, of course.  The rest of the driving population buys their cars used from people who feel the need to buy a new car every few years.  By disabling used cars, the government is permanently removing their supply from the market.  Doing so prevents lower and middle class Americans from buying that vehicle, and has the net effect of raising the prices for used cars.

Someone who is still driving the 1995 Cadillac DeVille that they bought from their neighbor 7 years ago probably isnt very likely to go out and buy a 2010 Honda Accord, even under this program.  But, they would be much more likely to purchase the 2003 model DeVille that their neighbor bought after selling the 1995 DeVille 7 years ago.

But, rather than allowing the market to work in this fashion, the “Cash for Clunkers” program removes the 2003 DeVille–a perfectly good car–from the market and makes it tougher for the person still driving the 1995 DeVille to find a used car that fits his budget.

My personal opinion was that one of the reasons that this bill was passed was to protect the United States’ “investments” in [read:  theft of] General Motors and Chrysler.  It is clear to all that Congress and the Administration intended for this program to stimulate the economy and help the environment.  But I also believe that the government wanted to use this program to inflate the revenues at GM and Chrysler to make the American people less uneasy about the bailouts of those firms.  Think about it.  If you had just made a hugely unpopular move like taking over two iconic American automakers, you would do anything possible to convince the public that it was a good decision.  This includes funneling money to those companies to make their revenues look good.

My guess is that this program will actually hurt GM and Chrysler as compared to their competitors, namely Ford.  Why?  Well for one, a new Rasmussen poll found that 66% of Americans have at least “a somewhat favorable opinion of Ford.”  The same poll found that “General Motors is viewed favorably by 38%… and unfavorably by 56%”  It also found that 34% have at least somewhat favorable opinion of Chrysler “while 55% see the company unfavorably.”  The American people are angry at the other two companies for taking taxpayer funds, and Ford is now perceived as the only American automaker that isnt owned by the government.

They also make much better cars now than they used to.  I love my 2007 Ford Fusion.

In another poll that was published on the same day, Rasmussen also found that 46%of Americans are more likely to buy a Ford because they did not take a government bailout (13% said they were less likely and 37% said it didnt make a difference).  41% OF Americans also believe that quality of GM’s cars will get worse now that the government owns the company, while only 19% think it will get better.

[Investors like me know this.  For the sake of disclosure now that the FTC has announced that it is going after bloggers, I am a proud stockholder of Ford Motor Company and have seen the stock rise by about 18% in the last week.  Still, I am 100% opposed to this program.]

Additionally, the government’s intention was to get people to purchase cars with much better fuel efficiency and the new Ford Fusion Hybrid gets 41 MPG and was rated higher than the Toyota Camry Hybrid, making it an attractive choice for anyone who decides to trade in their clunker.

If the intention was to increase the revenues at GM and Chrysler, this program will backfire, as do most government programs.  My prediction is that the market shares of Ford, Toyota, Honda, Hyundai, and Kia will rise at the expense of GM and Chrysler.

This program also raises further questions about the competency of the government.  Love or hate this program, it was administered poorly.  No, this doesnt “prove that government cant run our health care system.”  It should, however raise at least some concern about the capability of government to administer programs.  It should also serve as a warning that when the government offers people a massive discount to use a service, people will take advantage of it (people respond to incentives).  The government and taxpayers should at least use the example of this program to think about what the effects of what will be perceived by many to be free health care will have on an already strained system.

This program should remind us to be weary of government estimates.  The $1,000,000,000 [$1 billion] allotted for this program was expected to last at least until the program’s anticipated end date of November 1st.  Instead of lasting for 4 months as estimated, it lasted less than one month before it exhausted its funding.  If the government was this wrong–way wrong–on estimates for its costs of giving out coupons for discounts on cars, can you imagine how far off could its estimates of the costs of administering a $1,000,000,000,000 [$1 trillion] “free” health care program be?

Its worth thinking about.

Americanly Yours,

Phred Barnet

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Bill To Audit The Federal Reserve Gaining Steam

July 29, 2009 By: Phred Category: Uncategorized

I have written previously about a bill in Congress to audit the Federal Reserve.

There are currently 280 sponsors and cosponsors of this bill in the House of Representatives.  This is enough to pass the bill with a substantial majority and only 11 supporters short of a veto-proof majority!

Remember, this bill is about transparency.  It is about letting the American people know where trillions of their dollars went.  The Federal Reserve is a private corporation which controls our nation’s money supply and interest rates.  It has been around since 1913 and has never been audited.

On top of that, the Federal Reserve’s Chairman, Ben Bernanke, doesnt seem to know whats going on in his own shop.  When asked by Democratic Congressman Alan Grayson which foreign banks received over $500,000,000,000 [$500 billion], Bernanke DID NOT KNOW THE ANSWER.  Watch:

We have just started to step up efforts in the Senate.  There are currently 21 sponsors and cosponsors of this bill in the Senate.  On top on this, Senator (and former hall of fame pitcher) Jim Bunning has come out in support of this bill, but has not sponsored it as of today.

I have been leading a campaign to bombard two Senators each day (one Democrat and one Republican) with phone calls in support of this measure.  Hundreds of phone calls are being made daily.  This really is a grassroots effort.  Those who follow me on Facebook are probably well aware of this campaign.  Many of you have stepped up and adopted the status messages I have posted regarding this effort.

I urge those of you who havent been involved yet to get involved.  This is grassroots Democracy at its finest.  For those of you on Facebook, I urge you to spred the word about this effort to your friends.

I recommend adopting the following Facebook status messages for the rest of the week:

Status for today (7/29):

S. 604 (The Audit the FED Bill) Now has the support of 21 Senators! Victory is within reach. Lets target 1 Democrat and 1 Republican today and bombard them with calls to get their support. Democrat: Al Franken (MN) (202) 224-5641. Republican: Jeff Sessions (AL) (202) 224-4124. It literally takes less than 2 minutes to call! PLEASE REPOST!!!

Status for tomorrow (7/30):

S. 604 (The Audit the FED Bill) Now has the support of 21 Senators! Victory is within reach. Lets target 1 Democrat and 1 Republican today and bombard them with calls to get their support. Democrat: Mark Udall (CO) (202) 224-5941. Republican: Olympia Snowe (ME) (202) 224-5344. It literally takes less than 2 minutes to call! PLEASE REPOST!!!

Status for Friday (7/31):

S. 604 (The Audit the FED Bill) Now has the support of 21 Senators! Victory is within reach. Lets target 1 Democrat and 1 Republican today and bombard them with calls to get their support. Democrat: Joe Lieberman (CT) (202) 224-4041. Republican: Mitch McConnell (KY) (202) 224-2541. It literally takes less than 2 minutes to call! PLEASE REPOST!!!

And please be sure to make the phone calls.  You can call two Senators and express your feelings on this bill in less than two minutes.  Let them know that this bill is about transparency and that the American people have a right to know where their money is going.  Remind them that the Federal Reserve has been around since 1913 and has never been auditedHere a list of contact information for all US Senators.

Americanly Yours,

Phred Barnet

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Why Democrats Health Care Plan Means Rationing

July 27, 2009 By: Phred Category: Uncategorized

President Obama has proposed universal health care in a new bill, yet given the law of supply and demand, it will result not only in lower quality of health care, but also in rationing. Let us just suppose that President Obama’s health care proposal sails through Congress today and is signed into law this evening.

Tomorrow morning we will all wake up in a world where everyone is covered with some form of medical insurance, including the approximately 50 million Americans currently without health coverage. Yet, the number of doctors, nurses, and medical staff will be the same tomorrow as it is today. Likewise, there will be the same number of hospitals, doctors’ offices, and medical care facilities as there is today.

It is worth remembering that our medical professionals are already strained, waiting rooms are crowded, emergency rooms are already plagued by long waiting times, and it often takes days to get an appointment to see a doctor.

Giving an additional 50 million Americans immediate access to the same number of medical professionals and facilities will flood our health care facilities and doctors with new patients, putting further strain on an already strained system. The result will be longer waits, more crowded doctors’ offices and hospitals, and a general decrease in the level of care.

Increasing the number of Americans with health care is a noble goal and is being pursued with the greatest of intentions. But as it is said, the road to hell is often paved with good intentions. There is no way around the fact that adding an additional 50 million people to the health care system will decrease the level of service being offered.

The current health care bill will succeed in giving more people health care, however it will result in much worse care for the over 80% of Americans who are currently covered.

This is an excellent example of the law of supply and demand. No matter what is done about health care, tomorrow’s supply of health care –the number of doctors, medical facilities, etc. – will be the same as today. Yet, implementing a nationalized health care system requires that tomorrow’s demand for health care increases dramatically. A sudden increase in demand without an increase in supply always leads to a shortage of the product in question.

In the free market, a shortage of goods causes prices for that good to increase to a level where those who cannot afford them are ‘crowded out’ of the market. The profit earned by the producers of the good encourages additional producers to enter the market. This creates an increase in supply and drops the price of the goods for all consumers. Under the President’s plan, however, demand will be raised without an increase in supply, whereby the government will be forced to allocate health care. When government bureaucrats make decisions on how goods and services should be allocated, rationing occurs.

Under the new government run health care system, the government will need to take measures to “keep costs low” in an effort to save American citizens money and prevent negative political fallout. While this also seems like a noble goal, the consequences will be devastating. Government mandated cost cutting measures also necessarily mean less profit for those who operate medical facilities.

Taking away the profit motive, will result in fewer people being willing to take risks and opening new medical facilities. Medical supply companies will be less willing to produce life saving medical devices, and the benefits of taking a medical education will diminish. The loss of profit motive will result in fewer services being shared among more consumers. This will lead to further rationing, rather than allowing market forces to make corrections.

Even the best of intentions can’t change facts. If Americans want to continue to have a decent health care system without government rationing, they must oppose universal health care coverage.

Americanly Yours,

Phred Barnet

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Health Care In Georgia VS. Massachusetts (Massachusetts Is The Model For The Obama Plan)

July 07, 2009 By: Phred Category: Uncategorized

This is an interesting and humerus video on health care.  It compares the health care systems in the State of Georgia and Massachusetts.

You may recall that the health care plans being pushed by the Administration and Democrats in Congress are very similar to the provisions passed in Massachusetts’ 2006 health care reform bill.

While it may sound good to pass a bill that will subsidize a scarce resource (in this case health care), doing so always has consequences.  In this case, dropping the price of health care has led to an increase in the number of people taking advantage of these services, resulting in a massive shortage in services.  This in turn results in an increase in the price of services for those who are notable to take advantage of the government subsidy.  Watch:

What a great video!  Please pass that along to your friends.

Americanly Yours,

Phred Barnet

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Why Income Tax Rates Should Be Lower

April 13, 2009 By: Phred Category: Uncategorized

[I wrote this article earlier and WordPress messed up and deleted most of it.  I had to rewrite the final 2/3 of this article.  I think I wrote it better the first time, but enjoy.]

I am not going to get into the philosophical reasons why I am opposed to income taxes in this piece article.  I am however going to explain why lower tax rates are better than higher tax rates.

Here is a chart that was sent to me by Mike at The Young Conservative Blog.  It shows the highest federal individual income tax rate.  It also shows the tax receipts received by the federal government as a percentage of GDP.

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[Check out Mike’s blog, theres a lot of interesting stuff there.  Also, here is a Wall Street Journal article about Hauser’s Law.

I think this is pretty remarkable.  While the highest individual income tax rates in this country dropped from 91% down to 28%, and then rose back up to the current 35%, tax receipts as a percentage of GDP has remained at a fairly stable level of 19.5%.  Cutting the rates from 91% to 70% in a few years didnt really affect the receipt rate, nor did increasing them from 28% to 40% in a few years.

Now, you might say that the reason that the tax receipts as a percentage of GDP remain pretty much the same is that when taxes on the rich are cut, the tax burden falls more heavily on the poor.  However, you may recall the chart that I posted regarding tax burden.  I was able to find an acrhived copy of the chart that the government removed from its website here.  I dont know how long it will stay up.

This chart clearly shows that the rich have paid an increasing portion of the total income taxes collected since 1979.

In 1979, the top income tax rate was 70%.  The government collected about 19.5% of GDP through income taxes, and the top 20% of wage earners paid 64.9% of all income taxes.  The top 40% of wage earners combined paid 85.1% of all income taxes.

In 2005, the last year for which data is available, the top tax rate was 35%.  The government still collected about 19.5% of GDP through income taxes, however, the top 20% of wage earners now paid 86.3% of all income taxes (a higher percentage than was paid by the top 40% of wage earners in 1979), and the top 40% of wage earners paid 99.4% of all income taxes collected.

I know this seems counterintuitive, but cutting taxes on the rich–and all Americans–actually increased the tax burden on the rich.  2005’s top tax rate (35%) was exactly half of what the top tax rate was in 1979 (70%).  Yet, the rich paid a much higher percentage of income taxes in 2005 under a lower tax rate than they did in 1979 under a higher rate.

As I mentioned in a previous post, I found this spreadsheet when I was trying to prove to someone that President Bush’s tax cuts favored the rich and hurt the poor.  I was wrong.  In 2000, the top 20% of earners paid 81.2%of all income taxes.  By 2005, this proportion had grown to 86.3% of all income taxes.  The tax burden of the top 40% increased from 94.7% in 2000 to 99.4% in 2005.  In fact, every quintile in the “bottom 80%” of wage earners paid a smaller proportion of the total income taxes in 2005 than they did in 2000.  Broad based tax cuts benefit all wage earners.

Cutting taxes allows Americans to keep more of their hard earned money.  This in turn leads to increased spending, savings, and investment.  These three factors lead directly to increased GDP growth.  Increased GDP growth means higher tax revenue for the government (which will always collect around 19.5% of GDP through income taxes).

I have already demonstrated that the government will collect roughly the same percentage of GDP–19.5%–through income taxes no matter what the top tax rate is.  This is true whether that rate is 92% or 28%.  I have also demonstrated that cutting taxes on the rich and all Americans has actually increased the tax burden on the rich.  Finally, I have explained that cutting taxes leads to higher GDP (which equals higher tax receipts).

I see no further arguments against cutting taxes on all Americans including the wealthy.

Rather than raising the tax rates on the wealthy back to what they were in 2000, the President and Congress should consider drastically cutting income taxes for all Americans.  This will lead to increased economic growth which will in turn lead to higher tax revenues for the government.  Most importantly, doing this would allow all Americans to keep more of their hard earned money.

Americanly Yours,

Phred Barnet

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