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Wednesday, August 12, 2009

They are at it again!

Yes, the Business Cycle is driven by psychology. When everyone thinks things are going to get better, they actually do, so on one hand you can't complain about all the happy talk coming from Washington this week.

The trouble is that the facts undercut the happy talk. Right now, there are about 15 million unemployed Americans and about another 9 million are only working part time. With 67% to 70%
of the U.S. economy driven by consumer spending, recovery cannot begin until those people start spending money again, and that won't happen until they have jobs.

But the really scary part is that about 5 million have been unemployed for six months or more. The jobs they did are gone and they are not coming back, end of story. The government should be spending money on re-training those people for jobs that actually exist now! Instead they are spending $3 Billion on buying up old automobiles. That program has one good outcome and two very bad ones.

The good outcome is that auto dealers lots are now emptying out. But the first bad outcome is that there is every appearance that all the program has done is shift sales ahead by six to twelve months so that very shortly the auto companies and their dealers will be back begging for another bailout. What do you think the chances are that they will get it?

The second bad outcome is that the Clunkers program has seriously reduced the supply of older, cheaper cars that low income people need to be able to buy to get on with their lives. Not only that but the prices on the used cars that are available has gone up. Even a dumb economist should know that when supply is shrunk and demand remains constant prices will go up!

But I guess you shouldn't be surprised by all of this since Washington's economic policies are being set by millionaire economists and lawyers who don't have the faintest idea how you and I live. And it looks like, given the evidence, that they truly don't give a damn either.

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