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The Clunker Contest Is Over

August 24th, 2009 . by economistmom

hengewidesnd

Well, the “Cash for Clunkers” program ended earlier this evening (Monday).  It started as a $1 billion program that was expected to go on for four months (the original rule was from July 1st through Nov. 1st, or when the money ran out).  It ended up a program triple the size (after $2 billion in additional funds were added) that managed to run out of funds in less than half the time.

Whether the program was that wise for the environment and resource “conservation” could certainly be questioned (I worried here about the wasteful death of still-useful vehicles turned in as “clunkers”), but the program has been an obvious success as a pure fiscal stimulus program:  it brought customers to the dealerships, and they indeed bought the new cars without the usual (especially recessionary) hemming and hawing and mulling the purchases over.  Potential buyers knew it was “now or never” to get the $4500 federal rebate before the money ran out, and the contest-like feel to the program really kicked those competing American consumers into action.

Now we’ll watch to see what happens in the aftermath of the program.  Will it have served as an effective and sustainable “jump start” to the U.S. auto industry?  Or will it have merely concentrated the timing of car purchases into these past few weeks without having boosted demand over the longer run?  Will the autoworkers called back to the assembly lines still have their jobs a few months to a year from now?

I never went to the dealer with my minivan, deciding I wanted to try to “recycle” my van at the “proper” time, rather than rush to kill it.  (My van would have ended up like part of “Carhenge” pictured above.)  As soon as I decided to opt myself out of the Cash for Clunkers pool, I realized I had no incentive to rush out to the dealerships, and that, in fact, I’d better wait until the clunker dust settled before shopping for my new car.  Now everyone is out of the Clunkers pool, and instead of it feeling like a contest, it may start to look like a dance where everyone’s back to being wallflowers.

Cutting Off One’s Healthy Foods to Spite One’s Grocer’s Health Reform Ideas?

August 19th, 2009 . by economistmom

wholefoods-veggies

The Washington Post’s Steven Pearlstein offered up lots of reasons why the so-called “public option” is not the “be-all and end-all” of health care reform.  That’s why it’s all the more puzzling why liberal organic-food lovers would choose to cut themselves off from their beloved Whole(some) Foods just because the CEO of Whole Foods weighed in with his personal opinion (and not his company’s profits) on health policy, which happened to not include endorsement of the “public option”:

Whole Foods aficionados who assumed the company’s management was as crunchy as the brand are feeling betrayed.

They have stormed Twitter, Facebook and the blogosphere to vent their rage at John Mackey, the chief executive. In an op-ed column in the Wall Street Journal last week, he argued for health-care savings accounts and declared that health care is not an intrinsic right– ideas with a conservative bent, which made Whole Foods’ liberal customer base go ballistic.

They are even talking about a boycott…

What’s wrong with this picture?

“A lot of people have been paying a premium for the Whole Foods brand for years,” said Mark Rosenthal, a playwright living in Massachusetts who founded the Boycott Whole Foods group a few days ago. It has nearly 14,000 members. “A lot of people are sad to look at this corporation and see that it is just like any other, if not worse.”

Whole Foods spokeswoman Libba Letton said that Mackey was expressing personal opinions in the op-ed and that the company has no official position on the issue. Whole Foods has sent letters to customers apologizing for any offense and created a forum on its Web site to discuss the issue. There are more than 10,000 posts, compared with 77 posts on the raw foods forum…

Why are these Whole Foods customers so willing to give up all that’s good about Whole Foods company policies and Whole Foods FOOD?  And how do those Whole Foods, pro-public-option customers know that the CEOs of the other places they could buy food from are any more aligned with their political views?  Imagine how hard it would be to buy anything if we had to interview every seller first to make sure we liked their soul as well as their merchandise?

Psychology Matters in Health Care Reform

August 17th, 2009 . by economistmom

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The New York Times’ David Leonhardt had an interesting column in the Sunday magazine.  He thinks that in the health care reform debate, policymakers aren’t paying enough attention to the influence that policy could have (and perhaps should have) on human psychology.  David leads with the story of the Cleveland Clinic, which adopted a “hire no smokers” policy two years ago:

[I]t is so striking to talk to Delos M. Cosgrove, the heart surgeon who is the clinic’s chief executive, about the initiative. Cosgrove says that if it were up to him, if there weren’t legal issues, he would not only stop hiring smokers. He would also stop hiring obese people. When he mentioned this to me during a recent phone conversation, I told him that I thought many people might consider it unfair. He was unapologetic. “Why is it unfair?” he asked. “Has anyone ever shown the law of conservation of matter doesn’t apply?” People’s weight is a reflection of how much they eat and how active they are. The country has grown fat because it’s consuming more calories and burning fewer. Our national weight problem brings huge costs, both medical and economic. Yet our anti-obesity efforts have none of the urgency of our antismoking efforts. “We should declare obesity a disease and say we’re going to help you get over it,” Cosgrove said.

David then points out that the largest contributor to people’s health, more than “substandard medical care” or social and physical environments or even genetics, is “behavior.”  And today’s worst health problem is a big behavioral problem called obesity.

What does David think public policy could do about changing the bad behavior that leads to obesity, short of arresting or just not hiring obese people?  He thinks we could use prices to create an economic incentive to avoid obesity.  We need to charge a penalty for obesity because obesity imposes costs on society, not just on the private citizens who “choose” (selfishly) to be obese:

Today, the great American public-health problem is indeed obesity. The statistics have become rote, but consider that people in their 50s are about 20 pounds heavier on average than 50-somethings were in the late 1970s. As a convenient point of reference, a typical car tire weighs 20 pounds.

This extra weight has caused a sharp increase in chronic diseases, like diabetes, that are unusually costly. Other public-health scourges, like lung cancer, have tended to kill their victims quickly, which (in the most tragic possible way) holds down their long-term cost. Obesity is different. A recent article in Health Affairs estimated its annual cost to be $147 billion and growing. That translates into $1,250 per household, mostly in taxes and insurance premiums.

A natural response to this cost would be to say that the people imposing it on society should be required to pay it…

One idea is surely too controversial because it seems to attack obese people so personally (some of whom have more of a genetic predisposition than others):

Cosgrove mentioned to me an idea that some economists favor: charging higher health-insurance premiums to anyone with a certain body-mass index. Harsh? Yes. Fair? You can see the argument.

So David’s favored approach is via what economists call a “corrective tax”–one which taxes an activity that generates external costs (social costs in excess of market prices) in order to bring private incentives more in line with socially optimal choices:

The solutions to these problems are beyond the control of any individual. They involve a different sort of responsibility: civic — even political — responsibility. They depend on the kind of collective action that helped cut smoking rates nearly in half. Anyone who smoked in an elementary-school hallway today would be thrown out of the building. But if you served an obesity-inducing, federally financed meal to a kindergartner, you would fit right in. Taxes on tobacco, meanwhile, have skyrocketed. A modest tax on sodas — one of the few proposals in the various health-reform bills aimed at health, rather than health care — has struggled to get through Congress.

It’s true that tobacco taxes have increased dramatically of late, and that will help to decrease smoking further (as well as provide needed revenue to fund children’s health care), but as an ex-smoker myself, I can attest that the social stigma from signals (or “cues”) that an activity is “bad” can often be a far more effective way to change behavior than are (just) higher prices.  Many policies that are designed to affect private economic (purely pecuniary) incentives have a bonus effect of signaling what society scorns or values–and I mean even beyond the size of the tax or subsidy.  Sometimes the easiest (and cheapest) way to get humans to change their behavior is to suggest that their current behavior is “totally uncool.”

Take the Cash for Clunkers program, for example.  It’s easy to complain that the program does not do the best job of encouraging fuel efficiency and resourcefulness; the mileage standards are pretty low, and to get the federal subsidy on the new car, you have to destroy (effectively waste) the old vehicle (which doesn’t necessarily have to be that old at all).  One doesn’t have to buy a hybrid or other highly-fuel-efficient vehicle to qualify–for example, one can do what my parents did and turn in their old Ford Explorer SUV for the smaller Ford Escape (even the non-hybrid version) which is nonetheless still an SUV.  Yet reports of the types of new vehicles purchased by Cash for Clunkers participants suggest that people haven’t been just “squeaking by” with the minimum mileage improvements; the most popular cars purchased have been the compact cars.  That observation is consistent with two explanations:  (i) a purely economic incentive in that the smallest cars tend to be the cheapest models, so the $4500 clunkers rebate is a larger percentage off the compact car’s price–plus there’s an “income effect” that should encourage more purchases of cheaper cars during a recession, even apart from the bigger markdown (price or “substitution” effect); OR (ii) a “social response” of consumers to “do the right thing” given that the government is rewarding them for their supposedly “common good behavior” (not just selfish gain) and that maybe they’re feeling a little guilty about destroying their old, less fuel efficient, but still useful vehicle.

OK.   Maybe my last theory sounded a little “touchy, feely” to you.  What kind of “economist” am I, saying that more than prices matter and talking about feelings driving people’s economic decisions?  Well, it turns out that I am, in Myers-Briggs speak, an “ENFP” economist–that’s an “Extroverted, iNtuitive, Feeling, Perceiving” economist.  Which sounds pretty crazy for an economist trained in neoclassical theory, doesn’t it?  It turns out the Myers-Briggs type of people that make the best economists are (at least according to this site) “INTJs” (Introverted, iNtuitive, Thinking, Judging)–the opposite of me in 3 out of 4 of the traits.  I’m currently trying to conduct a Facebook survey among my economist Facebook friends to see if most of them are indeed INTJs.  The problem is that those economist friends of mine who are also on Facebook are probably a biased sample of my economist friends; they’re probably the ones least likely to fall into the typical I, T, and J categories because they’re interested in being on Facebook, after all.  (They’re probably “weird” economists, like me.)  And I haven’t collected many data points because I think my economist friends on Facebook are actually the least likely to spend time on Facebook out of all my Facebook friends.  (This is sort of like being “the economist” on a Democratic congressional staff; take my experienced word for it–the economist always turns out to be the least liberal of the staffers.)

Which brings me to Part II of why “psychology matters in health care reform.”  I think the psychology of our political leaders matters in terms of how successful (or not) any health reform effort will be.  This past week while I’ve been so fascinated about my unusual-for-an-economist ENFP personality, I discovered that many people speculate that President Obama is also an ENFP.  From a Slate article written during the 2008 presidential campaign (by Emily Yoffe, emphasis added):

Barack Obama—no one will be surprised to learn—is an Idealist. His specific type is an ENFP, what [psychologist David] Keirsey calls “the Champion.” ENFPs, says Keirsey, are “filled with conviction that they can easily motivate those around them.” Champions work to “kindle, to rouse, to encourage, even to inspire those close to them with their enthusiasm.” Idealists “usually have a tongue of silver” and are “gifted in seeing the possibilities” of institutions and people. Here’s Obama on leadership: “[W]e need leaders to inspire us. Some are thinking about our constraints, and others are thinking about limitless possibility.”

This ability to move people through imagery and rhetoric carries a danger for the ENFP, says Keirsey—a belief in “word magic.” “Word magic refers to the ancient idea that words have the ability to make things happen—saying makes it so.”

Keirsey says Idealist leaders should be called catalysts because “[t]he individual who encounters such a leader is likely to be motivated, animated, even inspired to do his or her very best work.” The New Yorker’s Packer writes, “Obama offers himself as a catalyst by which disenchanted Americans can overcome two decades of vicious partisanship. …”

Idealists are deeply introspective. According to Keirsey, their “self-confidence rests on their authenticity,” which makes them “highly aware of themselves as objects of moral scrutiny.” Idealists, such as Thomas Paine, Mohandas Gandhi, and Martin Luther King Jr., tend to be leaders of movements, not office-holders. If Obama is elected, not only would he be the first black president, but according to Keirsey, he’d be the first Idealist president.  [According to this site though, Bill Clinton is a "verified" ENFP.] (Kroeger speculates that Lincoln may have been an Idealist.) Idealists are rare in any executive position…ENFPs themselves are rare—Keirsey estimates only about 2 percent of people are ENFPs. Kroeger says the ENFP can be an effective boss. “At their best they bring a refreshing alternative style to top management and decision making.”

Keirsey says that the Idealist is the unusual leader who is “comfortable working in a climate where everyone has a vote.” In a Vanity Fair profile, Todd Purdum quotes a Harvard Law School classmate of Obama’s describing his collaborative style as editor of the Law Review…In a speech, Obama described this ability: “If you start off with an agreeable manner, you might be able to … recruit some independents into the fold, recruit even some Republicans into the fold.”

As leaders, Keirsey says, the Idealists possess a “diplomatic intelligence.” They “seek common ground,” want to “forge unity,” arrive at “universal truths,” and are “trusting.” Given these qualities, it should be no surprise that Obama says that as president, he would quickly sit down with our enemies…

The ENFP can have a problem with “restlessness,” says Kroeger. “As a task or responsibility drags on and its mantle becomes increasingly routine, the ENFP can become more pensive, moody, and even rigid.” Obama himself referred in a debate to his disorganization and dislike of paperwork—and his self-knowledge that “I need to have good people in place who can make sure that systems run.” But as Purdum writes, it is Obama’s “restlessness” that prompted him “to take a chance, to aim higher—when others told him to wait his turn.”

Now that might not sound all that wonderful for Obama’s ability to get the health care reform job done quickly and efficiently.  But contrast that description of Obama’s ENFP personality with the same article’s explanation of how Hillary Clinton’s ESTJ personality may have doomed the Clinton Administration’s (ok, Hillary’s) health care reform effort:

ESTJs are most comfortable in the world of the specific. Keirsey says they will listen politely to “theoretical or fanciful” conversation—what an ESTJ surely thinks of as a certain other candidate’s gasbaggery—then “shift to more concrete things to talk about, more solid and sensible topics” using their ability to call up at will “an enormous fund of facts.” (Ever heard a Hillary speech?)

It is this ESTJ-ness that may explain the failure of Hillary’s health-care initiative as first lady. ESTJs like nothing better than digging deep into the specifics of a system and batting out proposals with trusted staff, then presenting the perfect fait accompli to a grateful public. As [consultant Otto] Kroeger points out, ESTJs can be stunned when the plans fail: “Having packaged the argument so neatly and precisely, how could anyone possibly disagree?” Keirsey says this blindness comes from the concrete-thinking ESTJ’s pronounced weakness at the abstract arts of strategy and diplomacy. Hillary neither foresaw the attacks by competing interests nor had the people skills to win over her opponents.

So those are a couple ways in which “psychology matters” in health care reform: (1) if we’re going to “bend the cost curve” in a cost-effective manner, we ought to devote some of our creative thinking toward clever ways to affect human psychology to get people to start losing weight; and (2) we better get our ENFP president to inspire not just the American public, but also those nasty partisans on both sides of the aisle in Congress, to come on board.

Hello from 34,000 Feet

August 4th, 2009 . by economistmom

virgin-america-interior

I’ve always wanted to be so “tech savvy” that I’d be blogging from an airplane. Well, here I am! I’m on a Virgin America flight (coolest airline ever) from DC to San Francisco–going to give a talk out there for my Concord Coalition work, and then spending a few days with friends and family and bringing my 16-year-old daughter back from her five-week art school pre-college program.

But while I’m here, let me point out Stan Collender’s intriguing column in today’s Roll Call (copied here on his blog).  Stan says the “Cash for Clunkers” program is like a new (pretty sneaky) federal entitlement program.  Some of his points sure hit close to (my) home:

I’ll leave it to others to debate the environmental and economic benefits of the program. But from a budget perspective, the critically important point here is that, when faced with the option of saying the fiscal equivalent Roberto Duran’s “No más,” many of those who in theory want to do something about the deficit and were in a position to make it happen instead demanded that additional funds be provided. The discretionary program that had been enacted with a specific dollar limit on what could be spent quickly became the equivalent of an entitlement with anyone who qualified being allowed to participate…

At most this is a reconfirmation that very little has really changed in the budget debate. Even those who over the past few months have been routinely and resoundingly criticizing the federal deficit as being too high are willing to tolerate it being even higher if they personally benefit from the spending increase or tax cut being considered. It’s still everyone else’s subsidies, benefits and tax reductions that are questionable…

Here’s the additional clunker-related information we need to know to get the full picture.

First, it almost goes without saying, but let’s see if the cash for clunkers program is extended again when, if it’s appropriated, the next $2 billion runs out.

Second, by state and Congressional district, it would be good to know how many people take advantage of the program. My strong suspicion is that it will be as popular in districts considered fiscally conservative as those generally thought to favor more spending. This, rather than a poll that doesn’t cost the respondent anything to respond, will be a far better assessment of what the American people actually believe.

Third, a similar analysis by income would also be helpful. Anecdotal reports so far seem to indicate that the program is as popular with those who earn more as those who earn less. This would not be surprising but would still be good to know when assessing the real politics of today’s deficit.

Finally, we should watch to see if any of the associations that regularly demand the deficit be reduced but have members who will benefit from the program support more cash for clunkers dollars regardless of whether the additional spending is offset…

Ouch!  (I hang my head down in shame…)

Could I Really Kill My “Clunker”?

August 1st, 2009 . by economistmom

So, most of the rest of my family has taken our 2004 Ford Freestar minivan to the beach for the week. (There are several reasons why I’m not traveling with them.) If the van is good enough to reliably take them there and around and back, do I really think it’s a “clunker” deserving of this fate?  From this morning’s Washington Post:

“We poured it into that Dodge and it killed it in eight seconds,” said Brooks, pointing to another vehicle as he put down the half-gallon jug of liquid called “Clunker Bomb.” The chemical is sodium silicate. [It renders the vehicle inoperable, thus preventing fraudulent resale (or even continued use).] In red lettering on the bottle, it reads, “Engine Grenade,” and there’s a skull and crossbones over the profile of a car.

I don’t think I can do it… not even if the dealer says the trade-in value is worth (even substantially) less than the $4500 I would get from the Cash for Clunkers program.  (I mean, look at all the time and money (and love) I’ve poured into the (already) old beagle I adopted almost two years ago.)  It just seems very wasteful (and somehow “heartless”, even with a car) to prematurely end a “life” that still could be valuable to someone–doesn’t it?

It’ll be another week before I’ve got the van back with me and can discuss the possibilities with the local auto dealers.  I do still really want to trade the van in for a small, very fuel-efficient car.  I guess in the meantime I could hope the Clunkers program runs out of money again, or that the van turns out to be really unreliable (i.e., a true “clunker”) for my family this week…  No, I’m just kidding about both.

What?! No More Cash for My Clunker?

July 31st, 2009 . by economistmom

So all this week I’ve been planning to start a series of posts about the new “Cash for Clunkers” government rebate program which has just gotten underway.  The program is designed to help stimulate the economy (and the auto industry in particular) by encouraging people to turn in their fuel-hogging vehicles (18 mpg or less) and purchase new, more fuel-efficient vehicles.  It turns out I have a “clunker”–a 2004 Ford Freestar minivan (official EPA-estimated fuel efficiency of just 17 mpg) that I’ve really wanted to trade in anyway for several months now, for a new compact car (probably another Ford Focus, if I stay loyal to my sister’s employer).  It’s too big for my needs now (I never transport all four of my kids at once anymore, now that some of them are driving their own vehicles), and it’s felt just plain wasteful for me to drive (just) myself to work in it.  (And it doesn’t really fit in my parking space, either.)  Well, it turns out the trade-in value of my Freestar, given its mileage and condition, is right around $4500–coincidentally the value of the government rebate I would receive under the Clunkers program.

So it’s pretty much a toss-up for my own pocketbook:  I’d get a $4500 rebate credit under Clunkers for “trading” my Freestar for the Focus, or I’d likely get a $4500 trade-in credit from the dealer for literally trading in the Freestar for the Focus.  But the outcome for society would be quite different under the two options:  under the Clunkers program, the Freestar would have to be destroyed (insuring that it is “taken off the road” but also destroying any value still present in the decently-functioning vehicle), and the government (i.e., the taxpayer or rather the future taxpayer given the deficit financing of the program) would be giving me the $4500.  Under a normal trade-in, someone would eventually get more utility than I do from driving my used Freestar (instead of zero utility from a bunch of shredded metal), and the $4500 would be paid by the dealer, not the taxpayer.  So I’m thinking that ironically, a program designed to encourage us to be more socially conscious, might actually encourage me to be more wasteful with my Freestar.  Not only would the government (future taxpayers) be paying me $4500 for something I would have done anyway (buy a new, fuel-efficient car), but the program would be encouraging me to “waste” (destroy) any remaining value in the old vehicle instead of transferring the vehicle to someone (the highest bidder) who values it more than I do.

As these MSNBC and CNN-Money articles explain, the Clunker deal is an especially “sweet” one if your old vehicle has a trade-in value considerably less than $4500.  Then you (personally) are clearly better off participating in the Clunker program and having your vehicle destroyed.  You’re also more likely to have been more anxious to buy a new car anyway (given the low value of your old car), and hence more likely to be getting this big subsidy without it necessarily changing your behavior (unless you would not have otherwise chosen a more fuel-efficient vehicle for your new one).  And because it’s such a sweet deal for no doubt many people with gas-guzzling vehicles with trade-in values of less than $4500, it turns out many people seized the opportunity this week–so many that earlier this evening it looked like the government would have to suspend the Cash for Clunkers program (and perhaps spare me the social dilemma), less than a week after it got started.  From tonight’s CNN-Money report:

NEW YORK (CNNMoney.com) — This much seems certain about the Cash for Clunkers program: Consumers are happy to take government rebates to buy new cars.

The fate of the $1 billion trade-in program was up in the air late Thursday over concerns that it may have already burned through its funds less than a week after it was launched.

Congressional sources said earlier in the day that the program would be suspended…

As of Wednesday afternoon, nearly 30,000 Clunker transactions had already been submitted to the National Highway Traffic Safety Administration, the agency said, with requests totaling almost $96 million in disbursements.

But later this evening (around midnight), the story was revised to say (emphasis added):

A White House official and a source at the Department of Transportation later said the program would not be suspended. The DOT official said the administration would try to work with Congress to find more funds to keep it going.

Indeed, one of the program’s main champions in Congress, Sen. Debbie Stabenow, D-Mich., called on the administration and Congress to appropriate more money for it.

So we’ll see how this turns out and whether I’ll be able to keep writing about my Freestar becoming a possible “clunker” after all.  If the program isn’t suspended, the first thing I’ll need to do is see what the dealer would give me if I trade it in, the “normal” way.  Stay tuned.

In the Midst of a Tough Recession, a Restorative Reunion

July 20th, 2009 . by economistmom

reunion-for-blog

I’ve been out of town the past few days, having gone back to my home city of Detroit to attend my 30th high school reunion.  It was certainly a tough year to organize a big, happy event in a city that’s certainly down on its luck–or just down for a variety of reasons.  Over the past year it’s been awkward at times for me to talk about my fiscal policy work here in DC with those family and friends who work for the auto industry back home.  While they were fearful of losing their jobs and agonizing over buyout offers, I would opine at two very impractical levels–alternating between purely theoretical and purely emotional–about what the federal government ought to do to help, and I would do this without really understanding the practical challenges faced by an industry that was too late to adapt to a changing market (which the government did so little to clarify).

Many of my friends back home in Detroit have had a hard time in the past year, having either lost their jobs outright or at least lost a tremendous amount of job security.  In contrast, there’s pretty high demand for economists working in DC on fiscal policy issues.  So when I first broached the subject of our 30-year reunion about a half year ago, I wasn’t sure I’d get a very enthusiastic response.  But I did, and together with a few classmates, we managed to plan a “budget” version of a class reunion.  Ten years ago our 20th reunion was held at a fancy hotel with a formal dinner and open bar very much like a wedding reception.  It required about 18 months of planning and a significant up-front financial commitment.  This year’s reunion was planned largely using (free) Facebook and other online social network services, was held at a sophisticated martini bar owned by a friend of a classmate who offered us the upper-level space for free, and was financed on a strictly individual, “pay as you go/drink” basis.  We also secured some reduced rates for rooms at walking-distance hotels, so that out-of-towners and in-towners alike could party responsibly.  The “right price” and no-commitment policy helped us get good participation and created a relaxed atmosphere where everyone was able to have a lot of fun.  Without time to plan a reunion “agenda”–and with a bar not exactly being the kind of place for speeches and “games”–we were able to spend more quality time catching up with our classmates one on one.

One of the “extracurricular” pleasures I have is yoga, and I teach a “restorative yoga” class every Saturday in northern Virginia–but of course, not this past Saturday when I was in Detroit for the reunion.  Google “restorative” and you will find some of these definitions:

  • tonic: a medicine that strengthens and invigorates
  • renewing: tending to impart new life and vigor to; “the renewing warmth of the sunshine”
  • corrective: a device for treating injury or disease
  • recuperative: promoting recuperation; “recuperative powers”; “strongly recuperative remedies”;
  • Something believed to have restoring properties; Of or pertaining to restoring…

…which is why I think of the reunion we just had as a “restorative reunion”–especially given the hard times many of my classmates have been through this year.  It had a “restorative” effect on me, too, despite the fact that I haven’t been worried about losing my job.  Because no matter how far one goes in life and how successful one’s career, sometimes all the superficial, checked-off “to do” lists fail to resonate.  Sometimes one needs to take a step back and remind oneself of the friendships developed a long, long time ago before our lives became busy and complicated and before our outer layers were caked on–by spending some time with those people who knew us when we were in many ways our pure, genuine, uncensored selves.

I graduated from high school in 1979.  In that year, Chrysler received a federal bailout to help turn itself around, and it did.  Now 30 years later, Chrysler and the rest of the Detroit auto industry are trying to turn themselves around again.  I may not have the industry expertise to be able to objectively and impartially predict how it will turn out, but I sincerely hope it works out just as well this time around, for the sake of my precious friends and a city that I realize I still consider “home.”

“Government Motors” in the Motor City

June 1st, 2009 . by economistmom

gm-logo

So I’m back here in Detroit on the day when GM files for bankruptcy, sitting in my Ford-engineer sister’s home with my GM rental car (a Chevy Cobalt) in the driveway, with plans to meet up with my Chrysler-(still) employed friends later today.  It’s a weird and difficult time for Detroit, so it’s a good thing the Red Wings are doing so well (because besides being the MotorCity and Motown, it’s a big HockeyTown, too).

I have such mixed feelings about what is happening here.  I want the auto industry here to survive, and I think it can only do so with the government’s help.  But I also want it to do more than survive; I want to see it thrive by getting smarter and moving in the best direction in can.  And I want the government and the national economy as a whole to survive–and thrive–as well.  So I worry about how much federal money will be spent on the auto industry and if it sets up the right incentives.  The problem with the government’s borrowing more money to subsidize the auto industry is that that’s all about relaxing budget constraints, not tightening them, and that doesn’t necessarily force the industry or the federal government to make the (really) tough choices–choices that, yes, could involve greater short-term pain but would lead to greater health in the longer run.  Instead of “bribing” Americans to buy new, fuel-efficient vehicles (the “cash for clunkers” idea), and instead of mandating and subsidizing the auto industry to produce those more fuel-efficient vehicles, I wish we could rely on a smart carbon/climate-change policy to get the price signals right while actually raising money instead of spending it.  Of course, the Obama Administration thinks that way, too, but their ideas for carbon policy and the revenue it might raise aren’t going over so well with Congress…

Here is yesterday’s segment on This Week with George Stephanopoulos, where George Will and Paul Krugman disagree about the role of government in saving the auto industry.  At one point in this discussion the panelists comment on how the federal aid to GM and Chrysler seems to put Ford at an unfair disadvantage.  But here in Detroit, I don’t hear any Ford employees griping about that, because every piece of the auto industry seems so dependent on the overall health of the whole.  And I think people here have a real sense of community and a “we’re all in this together” attitude.

That same video segment segues into a discussion of the Obama health care reform plan.  Paul Krugman says that although the plan won’t pay for itself over ten years, it will likely pay off over the longer term, and that a ten-year cost of maybe $1 trillion-plus is not that large in the grand scheme of things–it’s still under 1 percent of GDP.  But a trillion here and a trillion there, and no concrete plan on how to pay for it, and pretty soon you’re talking really serious money (and debt).  It’s not that the benefits of those policy decisions (universal health care, saving the auto industry) aren’t obvious.  It’s that we still need to consider the costs of achieving those policies and whether those benefits are worth those costs, and if not, to not abandon the effort, but to take some time or at least a moment’s thought into how we might improve those tradeoffs by either raising the benefits and/or decreasing the costs.  There are smart ways and not-so-smart ways to do “good” things.

Why Is President Obama Favoring the Bush Tax Cuts Over His Own?

May 21st, 2009 . by economistmom

goolsbee-obama

I posed this question to Obama economic advisor (Council of Economic Advisers member), Austan Goolsbee, today at a National Tax Association conference in Washington.  I merely pointed out that the single most costly item in the Obama budget is the extension of most of the “Bush tax cuts”–$2 trillion worth out of $2.6 trillion of them, entirely deficit financed–and that by the Obama Administration’s own choice their own tax cut, the extension of the Making Work Pay tax credit, in contrast is being held to a deficit-neutral standard, linked to an offset that no one in Congress seems eager to pursue (carbon revenues which no one wants to actually raise).  So I asked which tax cuts does Austan like better, those Bush tax cuts or the Obama ones?  Because it still puzzles me why the Obama Administration would present a budget that lowers the bar on the Bush tax cuts over their own.  Austan took my question with good humor and style, regretting that he had called on me, then pointing out that I was bringing up the old “baseline issue” and launching into the Obama talking point about how the Obama budget actually reduces the deficit (relative to Bush policy extended) by $2 trillion.  I followed up insisting that I was not getting at the baseline issue but merely asking him about their choices about tax policy–that even with a policy-extended baseline and the large revenue reductions implied by it, that doesn’t mean that extension of those “middle-class” Bush tax cuts, specifically, is the only way to get there.  I merely wanted to know: Why does President Obama think the Bush tax cuts are more worthy than his own?

Austan then said something about the label “Bush tax cuts” being just semantics.  He never really answered the heart of my question.  But here’s another label for those deficit-financed Bush tax cuts that might not just be semantics:  “NOT the largest tax increase in American history.”  My friends at the conference reminded me that that’s probably the honest answer to my question.

Chrysler: Happy to Be Bankrupt?

April 30th, 2009 . by economistmom

You know the President has a reassuring way about him, when he’s able to make Chrysler’s bankruptcy sound so darn good.  Why, watching his press conference, for awhile one might not have even realized Chrysler was going to file for bankruptcy, as it took something like 7 minutes before the “B” word was even uttered by the President.

I mean, how great does this sound?:

After consulting with my auto task force, industry experts, and financial advisors, I decided to give Chrysler and Fiat 30 days to reach an agreement. The standard I set was high: I challenged them to design a plan that would protect American jobs, American taxpayers, and the future of a great American car company.

But over the past month, seemingly insurmountable obstacles have been overcome. And Chrysler’s most important stakeholders, from the United Auto Workers to Chrysler’s largest lenders, from its own — from its former owners to its suppliers, have agreed to make major sacrifices.

So, today, I am pleased to announce that Chrysler and Fiat have formed a partnership that has a strong chance of success. It’s a partnership that will save more than 30,000 jobs at Chrysler and tens of thousands of jobs at suppliers, dealers, and other businesses that rely on this company. It’s a partnership that the federal government will support by making additional loans that are consistent with what I outlined last month.

As part of their agreement, every dime of new taxpayer money will be repaid before Fiat can take a majority ownership stake in Chrysler. In addition, considering Chrysler’s extensive operation in Canada, the government of Canada is also committing resources to ensure that Chrysler has a chance to succeed, and we’re working closely with them.

It’s a partnership that will give Chrysler a chance not only to survive, but to thrive in a global auto industry. Fiat has demonstrated that it can build the clean, fuel-efficient cars that are the future of the industry. And as part of this agreement, Fiat has already agreed to transfer billions of dollars in cutting-edge technology to Chrysler to help them do the same.

Fiat’s also committed to working with Chrysler to build new fuel- efficient cars and engines right here in America.

Now, this partnership was only possible because of unprecedented sacrifices on the part of Chrysler’s stakeholders, who are willing to give something up so that this company and all the men and women whose livelihoods depend on it might see a better day…

Kind of makes everyone wish they could go bankrupt, too!

Now, it turns out that the bankruptcy will put some Chrysler workers out of work–at least temporarily–as the plants shut down during the reorganization.  As the workers put it, the “roller coaster” for them isn’t quite over.  But I’m sure many of these Chrysler employees are just happy they haven’t (yet) been asked to step off the ride.

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