Recently, I caught a bit of news followed by a certain commercial — and something clicked in my head.
Last week, news came out that the infamous “Cash For Clunkers” program is the gift that keeps on giving. Remember that? Turn in your old gas-guzzler, get a more fuel-efficient one, and the government picks up a bit of the price. Then the government takes the trade-in and has it junked.
Well, among its effects is that there is now a shortage of used cars in the US. The price of used cars — the vehicle of choice for the economically challenged — has jumped an average 10% since the program.
That reminded me of the actual details of the program. At the time, the Obama administration touted the surge in new car sales as a great victory. Then they fell silent in the months after, when new car sales plummeted.
The “Cash For Clunkers” program didn’t really increase the number of car sales. It just pulled a bunch of them forward, enticing people who were planning for a new vehicle to jump ahead a little and take the opportunity. Actual sales over the whole year didn’t change much.
That was similar to what happened in the housing market this year. The Obama administration had an $8,000 tax credit for closing on a new house set to expire first on April 30, then June 30, then extended to September 30. (Closing date; actual contracts had to be signed earlier.) Housing prices tanked in May, and many say it was to compensate for the surge in sales just before that first deadline was extended. Once again, the program — or, more precisely, its expiration — had not increased overall sales, but had “pulled forward” sales to take advantage of an expiring government incentive.
Bad enough, right? It gets worse. This is the commercial that came on shortly after the used car market news:
I haven’t looked too carefully into this business model, but from what I’ve seen this is how it works:
Five years ago, Kevin won a million dollars in the lottery. He’s getting $50,000 a year for 20 years. But, like many lottery winners, he’s blowing it. He’s way in the hole, and he can’t hold out until the next check. So he calls the company. They tell him “You’ve still got $750,000 coming over the next 15 years. Sell us that, and we’ll give you a check for $600,000 right now. (I’m just guessing on the 20% number, but it “feels” right.)
That’s precisely the same model as what happened in the used car and housing markets this year. We borrowed from the future, and now we’re paying the price for that loan.
And here’s the final connection:
Just like those evil payday loans.
Remember those? Living paycheck to paycheck? They’ll give you a loan, almost no questions asked, usually no collateral beyond a post-dated check. But it’s due on your next payday, with a 20% flat interest rate. They’re denounced by a lot of people as “predatory” and “exploiting the working poor” and downright evil. Here in New Hampshire, they were outlawed a few years ago, and they’re banned in 14 other states.
But that is the exact same model these structured-settlement businesses are using, and the exact same model the Obama administration used with the housing tax credit and the “Cash For Clunkers” program.
Of course, there is a huge difference between the private sector doing something and the government doing it. The private sector is doing it for profit; the government is doing it in a misguided effort to help us.
And an even huger difference: in the private sector, you have the choice of whether or not to participate. When it’s the government, we all get to pay for it whether we like it or not.
I’m going to make two bold predictions. First, in the very near future some liberals will start making noises at outlawing these “structured settlement” buyout deals, using the same lingo they used to go after the payday loans — “predatory,” “preying on those in distress,” and the like.
Second, the very same people will cook up another scheme to try to give the economy another short-term boost that will end up costing us all far more in the long run.
Heck, I’ll go one step farther on the second one. They’ll do it so that we get the benefits just before election day.
And we won’t start feeling the hook until the beginning of next year.
Update: In the comments, KeithK notes that the two private endeavors I mentioned do serve a benefit, and he’s right — a point I intended to make myself. In both cases, both parties to the deal know exactly what they’re doing going in, and know exactly what the outcome will be. It is becoming more and more obvious that the same cannot be said about the Obama administration.
Update 2: Bold tag fixed. Sorry…