Stimulus, Bailout and More on Golf Carts
Stimulus/Bailout America keeps humming along. Now we've got a quarter of positive GDP, thanks to "cash for clunkers," the first-time homebuyer incentives, and a couple other government goodies. We'll see if the good news can continue into the 4th quarter. Maybe the cash for golf carts will keep things moving along (see our last post).But we wouldn't bet on it.
Why? Well, it's just that anytime government starts trying to direct consumers towards products they either don't need, don't need now, or (sometimes) things they don't really want (e.g., methanol mixed up with their gasoline), things get discombobulated.
Admittedly not an economic term, I still like the word. "Discombobulated" pretty much captures the effect of government programs like "cash for clunkers, " et al. Basically, the issue is one of consumer preference.
When consumer preference drives companies to create products and services, you wind up with sustainable economic activity. If everyone love pizza in your town, a smart businessman will open pizza joints and assuming they make a good pizza, they should make a decent living.
Of course, pizza's not the healthiest thing in the world to eat, especially if you eat too much. It's all that darn cheese and meat. So maybe one of these days the government will offer that businessman some incentive to serve, let's say, pizzas topped only with kasha. (Kasha's a pretty tasteless, not very appealing, but oh-so-healthy grain product.) Ah, kasha pizza. I can feel the pounds melting off and my energy level soaring just thinking about it.
Problem is, kasha's not going to have the customer's drooling for more. In fact, I'd give the pizza place no more than a couple of weeks before they're out of business. Trust me, you wouldn't be able to give it away - even if the pizza's made in those trendy wood-burning pizza ovens that are all the craze here in New York.
Admittedly, "cash for clunkers" wasn't "cash for kasha." But all it really did was pretty much drag people into the showroom who were going to have to buy a car eventually. Now they won't be buying then what they bought now. So what happens then? Sales of cars go down.
Maybe cash for kasha makes more sense. When no one buys the kasha, they'll at least still be buying goold old cheese pizza.
(By the way, eat all the kasha you want. It really is good for you. All I can tell you is that I tried, more than once, to acquire a taste for it. Heaven knows I could always improve my diet. But even my wife gave up making it after a while. There just wasn't any real consumer demand in our house.)
So, to put all this in more economic terms, consumer demand stimulates real, sustainable economic activity (the pizza place). Anytime the government provides an artificial stimulus (cash for clunkers, cash for gold carts, cash for kasha), it's generally not responding to genuine consumer preferences. It's usually trying to artificially stimulate consumer demand.
That's just not a recipe for sustained economic activity.
Why? Well, it's just that anytime government starts trying to direct consumers towards products they either don't need, don't need now, or (sometimes) things they don't really want (e.g., methanol mixed up with their gasoline), things get discombobulated.
Admittedly not an economic term, I still like the word. "Discombobulated" pretty much captures the effect of government programs like "cash for clunkers, " et al. Basically, the issue is one of consumer preference.
When consumer preference drives companies to create products and services, you wind up with sustainable economic activity. If everyone love pizza in your town, a smart businessman will open pizza joints and assuming they make a good pizza, they should make a decent living.
Of course, pizza's not the healthiest thing in the world to eat, especially if you eat too much. It's all that darn cheese and meat. So maybe one of these days the government will offer that businessman some incentive to serve, let's say, pizzas topped only with kasha. (Kasha's a pretty tasteless, not very appealing, but oh-so-healthy grain product.) Ah, kasha pizza. I can feel the pounds melting off and my energy level soaring just thinking about it.
Problem is, kasha's not going to have the customer's drooling for more. In fact, I'd give the pizza place no more than a couple of weeks before they're out of business. Trust me, you wouldn't be able to give it away - even if the pizza's made in those trendy wood-burning pizza ovens that are all the craze here in New York.
Admittedly, "cash for clunkers" wasn't "cash for kasha." But all it really did was pretty much drag people into the showroom who were going to have to buy a car eventually. Now they won't be buying then what they bought now. So what happens then? Sales of cars go down.
Maybe cash for kasha makes more sense. When no one buys the kasha, they'll at least still be buying goold old cheese pizza.
(By the way, eat all the kasha you want. It really is good for you. All I can tell you is that I tried, more than once, to acquire a taste for it. Heaven knows I could always improve my diet. But even my wife gave up making it after a while. There just wasn't any real consumer demand in our house.)
So, to put all this in more economic terms, consumer demand stimulates real, sustainable economic activity (the pizza place). Anytime the government provides an artificial stimulus (cash for clunkers, cash for gold carts, cash for kasha), it's generally not responding to genuine consumer preferences. It's usually trying to artificially stimulate consumer demand.
That's just not a recipe for sustained economic activity.
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