This article first appeared in the St. Louis Beacon, July 2, 2009 - The national economic hangover persists. In fact, a rather compelling case can be made that it's growing in intensity. Proposed remedies from Washington have thus far proved to be ineffectual or, in some cases, made things worse. The new "Cash for Clunkers" program provides a case in point.
The idea was to give owners of older cars an incentive to trade in their polluting, gas-guzzling dinosaurs for new, fuel-efficient vehicles. This would stimulate domestic auto sales, help cleanse the air we breathe and reduce our dependence on foreign oil. What's not to like?
Of course, some details had to be worked out. For the program to make ecological sense, the trade-ins would have to be taken out of circulation. Obviously, if the offending vehicles were to be resold, they would continue to pollute the atmosphere and suck up exorbitant amounts of gasoline. So, the government rebate would only apply to cars that were essentially worthless.
But that provision raises the problem of fraud. What would prevent a prospective car-buyer from towing a $100 wreck from the junkyard to the dealer's lot and then claiming $4,500 in public money for his trouble? An additional detail was thus added: The customer had to own his clunker for at least one year to be eligible.
That solution sounds reasonable; however, it raises the question of how we establish length of ownership. We can't simply rely on the bill of sale because, in the case of private purchases or junkyard transactions, this is a hand-written document that can be easily back-dated. To prevent that from occurring, a final requirement was added to the bill: The clunker had to be licensed and insured for at least one year prior to the trade-in.
Question: How many of the people driving worthless cars are properly licensed and insured? Question #2: Of those, how many can qualify for a loan or afford the monthly payment on a new car? Aren't they driving a clunker in the first place because they're broke? Question #3: Has anybody in Congress ever met a real human being?
Of course, not all of Washington's economic solutions are this goofy -- some are actually a lot worse. After all, "Cash for Clunkers" won't do much good, but it also won't do much harm. The same cannot be said for other government initiatives.
A recently enacted tax drastically raised the price of tobacco products. This tax falls most heavily upon those on the lower end of the economic spectrum, as the less affluent are more likely to be smokers. Because they're already addicted to nicotine, most will continue to smoke, leaving them with even less disposable income and thus further depressing economic activity.
The proposal to tax employee health benefits would likewise diminish the purchasing power of working Americans by requiring them to pay taxes on income they never see. Pending "Cap and Trade" legislation will inflate energy costs, leaving less money for other purchases.
As two-thirds of the economy consists of consumer spending, it's difficult to see how you can end the recession by taking money out of consumers' hands. And while the government is doing its part to prolong the misery, the banking industry is lending a helping hand to the effort.
Chase Bank recently notified thousands of customers that their minimum monthly payment was about to increase by 150 percent. These were individuals who'd availed themselves of promotional solicitations by the bank offering cash advances on their credit cards with a fixed APR of either 3.99 percent or 4.99 percent. Cheap money.
Curious as to why the bank would make it more difficult for customers to pay their bills at a time when personal bankruptcies were at record levels, I called its customer service number.
Predictably, my call was answered by an automated system -- though it was the first voice mail I'd encountered in years that didn't offer me the option of arguing with it in Spanish. After several minutes of listening to recorded messages about how important I was to the bank, a pleasant woman answered my call, identifying herself by her first name, which I've since forgotten.
She acknowledged that the affected customers were not delinquent on their loans and had done nothing wrong, but explained that the bank was trying to get its lower-yielding loans off the books. The bank wasn't reneging on its low-interest offer, merely demanding that the principal be repaid more quickly. The call concluded with both of us hoping that I'd have a nice day.
At first blush, the bank's action seemed like a typical business decision - an impersonal application of reasonable greed. But then I glimpsed the dark side of the proposition, unmentioned by my friendly correspondent from the bank. If you miss a payment, your "fixed" APR of 3.99 percent goes the way of full-service gas stations and is replaced by a default rate in the 26-29 percent range.
A person who recently lost his job, for instance, might be struggling to make the minimum payment. By more than doubling that amount, the bank will force him to default, thus plunging the poor boob into indentured servitude, paying interest forever on a balance that never goes away. If this isn't predatory lending, it'll do until a better example comes along. Note to Chase: You're welcome for those federal bail-out funds.
As a nation, we've just awakened after an economic bender. The intoxicated delusions of the night before -- universal affluence, E-Z credit and ever-ascending housing values --have vanished in the harsh reality of the morning sun. This isn't a transitory recession; it's a cruel revelation.
... Ale, man, ale's the stuff to drink
For fellows whom it hurts to think:
Look into the pewter pot
To see the world as the world's not.
And ... 'tis pleasant till 'tis past:
The mischief is that twill not last ...
The poet Housman describes our predicament thusly: And nothing now remained to do, but begin the game anew ...
M.W. Guzy is a retired St. Louis cop who currently works for the city Sheriff's Department. His column appears weekly in the Beacon.