By George F. Will
The Washington Post
Sunday, September 12, 2010; A25
Looking back with pride, the British are commemorating the 70th anniversary of the Battle of Britain, when Churchill said of the pilots fighting the Luftwaffe: Never "was so much owed by so many to so few." Looking ahead with trepidation, Americans are thinking: Never have so many of us owed so much.
Actually, they owed slightly more when the recession began, when household consumer debt was $2.6 trillion. The painful but necessary process of deleveraging is proceeding slowly: Such debt has been reduced only to $2.4 trillion. Add to that the facts that the recession has reduced household wealth by $10 trillion and that only 25 percent of Americans expect their incomes to improve next year. So they are not spending, and companies, having given the economy a temporary boost last year by rebuilding inventories, are worried. Hence, rather than hiring, companies are sitting on cash reserves much larger than the size of last year's $862 billion stimulus.
Democrats who say that another stimulus is necessary for job creation but who dare not utter the word "stimulus" are sending three depressing messages: The $862 billion stimulus did not work; the public so loathes the word that another stimulus will not happen; therefore prosperity is not "just around the corner," as Herbert Hoover supposedly said (but did not). Consumers and businesses are responding to those messages by heeding Polonius's advice in "Hamlet": "Neither a borrower nor a lender be." Hoover -- against whom Democrats, those fountains of fresh ideas, have been campaigning for 78 years -- is again being invoked as a terrible warning about the wages of sin. Sin is understood by liberals as government austerity, which is understood as existing levels of government spending, whatever they are, whenever. Treasury Secretary Tim Geithner recently said that Germans favoring reduced rather than increased state spending sounded "a little bit like Hoover." Well.
Real per capita federal expenditures almost doubled between 1929, Hoover's first year as president, and 1932, his last. David Kennedy, in "Freedom from Fear," the volume in the Oxford history of the American people that deals with the Depression, writes of Hoover:
"He nearly doubled federal public works expenditures in three years. Thanks to his prodding, the net stimulating effect of federal, state and local fiscal policy was larger in 1931 than in any subsequent year of the decade." Barack Obama has self-nullifying plans for stimulating the small-business sector that creates most new jobs. He has just endorsed tax relief for such businesses but opposes extension of the Bush tax cuts for high-income filers, who include small businesses with 48 percent of that sector's earnings. The stance of other Democrats seems to be that the Bush cuts were wicked in conception, reckless in execution -- and should be largely, and perhaps entirely, extended.
Does this increase anyone's confidence? About as much as noting the one-year anniversary of the end of another of the administration's brainstorms.
The used-car market is an important mechanism for redistributing wealth to low-income persons: The price of a car drops when it is driven out of the dealership, but much of its transportation value remains when it enters the used-car market. Unfortunately for low-income people, the average price of a three-year-old automobile has increased more than 10 percent since last summer. This is largely because the Car Allowance Rebate System, aka "Cash for Clunkers," which ended in August 2009, cut the supply of used cars.
Cash for Clunkers provided up to $4,500 to persons who traded in a car in order to purchase a new car with better gas mileage, but it stipulated that the used car had to be scrapped. The Boston Globe's Jeff Jacoby reports that a study by Edmunds.com shows that all but 125,000 of the 700,000 cars sold during the clunkers program would have been bought even if no subsidy had been available. If this is so, each incremental sale cost taxpayers $24,000.
Even on environmental grounds the program was, Jacoby argues, "an exorbitant dud": The reduction in carbon dioxide from removing older cars from the road cost, according to research at the University of California at Davis, $237 a ton (the international market prices carbon emissions credits at about $20 a ton) and the new higher-mileage cars mean a reduction of carbon dioxide emissions of less than what Americans emit every hour.
Obama is desperately urging consumers and investors to have confidence in his understanding of economics. They may, however, remember his characteristic certitude that "cash for clunkers" was "successful beyond anybody's imagination."