Unfortunately, none of the program's objectives were met. As we look back on the historical monthly sales rate, it becomes apparent that new car sales actually did spike upwards the last month of the rebate program, Unfortunately, as soon as the incentive ended, sales plunged when measured on a seasonally adjusted basis. The obvious conclusion is that many of the sales were not incremental, the program just pulled forward sales that would have happened anyway. All it did was give away billions of dollars to car buyers, most of whom would have spent their own money anyway. Other problems, that we will not rehash today, included the fact, that contrary to the program's intent, many of the vehicles sold were not fuel efficient ones that were hoped for and that the used cars that were turned in were destroyed, drying up the used car market, and driving up prices for those Americans that could not afford a new car.
Given that failure, one would have hoped that the political class would not launch another such program. Unfortunately, that hope was dashed when in 2008, the government launched a rebate program for first time home buyers, hoping to spark a rebound from low home sales volumes. The program eventually evolved so that first time home buyers would get an $8,000 tax credit and repeat buyers would get $6,500. The only criteria is that buyers had to enter into a contract for a home by April 30, 2010 and close on the house by June 30, 2010.
You can only guess what happened. In an Associated Press article by Alan Zibel on June 22, 2010, the National Association of Realtors reported that sales of existing homes fell 2.2% in May, contrary to the recent trend and far below what many housing experts expected. The article reported that many of these experts now think that sales will continue to trend down as the new home owners rebate program ends later this month. Thus, we will likely see the same results as Cash For Clunkers, many of the home sales for the past few months, leading to that upward trend, were nothing more than people moving their purchase plans forward to grab the $8,000 and $6,500 rebates. It is highly likely that existing housing sales were continue to drop in the next few months since the sales that would have happened, already have under the program.
And now today, Mr. Zibel wrote another housing article where he reports that the sales of new homes in May were down a whopping 33% on a seasonally adjusted basis, the lowest level since tracking began in 1963. According to the article, "analysts were startled by the depth of the sales drop." If they had tracked the Cash For Clunkers program, they would not have been surprised. The government incentives ended and thus, the market did not pull forward any more sales. I expect that you will continue to see a very low level of sales of new homes since many of them had already been pulled forward, much like Cash For Clunkers.
Thus, the government and the political class continue to learn nothing from their experiences in providing incentives. These programs rarely work in that they do not generate a substantial amount of incremental sales, the basically give away taxpayer money to people that would have eventually used their own money for the car or house purchase, and the administration of such programs is usually sloppy, inefficient and worse, subject to fraud. According to recent news reports, based on an analysis by the Treasury Department's Inspector General Russell George, the investigators found the following instances of fraud just from 2008, when the home rebate program began:
- The IRS paid out $9.1 million to just under 1,300 people who were in jail at the time they said they bought a home. This computes out to about $7,000 per prisoner
- 241 of those prisoners were in for life terms, making it highly unlikely they had bought a home or would ever buy a home.
- $17.6 million were paid out to 2,555 people who purchased their home before the program started but who still received their tax credit.
- Over 10,000 people got a tax credit rebate for a home that also was used by another taxpayer to claim the credit. In one case, 67 different people claimed, and received, the tax credit for the same address. Can you say "organized crime?"
- Eighty seven IRS agents themselves filed fraudulent claims for homes that did not qualify for under the program.
- In a late 2009 Bloomberg report, some of the early claimants for the tax credit were made by kids under the age of 18 with one of the more infamous cases involving a four year old who filed for the tax credit.
But lets not stop here with government/political class incompetence in the housing market. According to bloomberg.com as reported in The Week magazine on June 25, 2010, the two government mortgage giants, Fannie Mae and Freddie Mac, will need $389 billion in taxpayer subsidies between now and 2019. This is in addition to the $145 billion they have already received. Thus, these two government operations will cost every American household about $4,600 on average to pay off ($534 billion divided by about 117 million U.S. households). Such a deal.
These are just a few examples of the economic ignorance of the political class. The home buyer tax credit/rebate credit was supposed to prop up housing prices, according to it supporters. However, just the opposite is needed. Prices need to fall to the level where people are willing to use their own money to buy a home. By artificially propping up housing prices through the tax credit program, it just delayed the time when the housing market will turn around, i.e. when prices are in line with income levels. Until that happens, no short term incentive program is going to turn around a massive segment of the economy. All it does is needlessly give away taxpayer money to people who likely had enough money to purchase a house anyway.
Both Fannie Mae and Freddie Mac need to be eliminated as soon ass possible in an organized systematic way. They control (i.e., politicians control) far too much of the economy and have proven that they cannot operate their respective operations unless taxpayers give them a half a TRILLION dollars, money that could be better spent remaining in the wallets of taxpayers. Too much control means lack of freedom, too much incompetence means too much of a financial burden.
Several steps from "Love My Country, Loathe My Government" would address these issues. Step 36 would require all government employees including members of Congress and the Presidential administration to take and pass a course in basic economics so that we no longer see these wasteful rebate and tax credit programs that never work. Step 1 would start an immediate downsizing of government since most of it does not work effectively or efficiently. The half a TRILLION in savings form shuttering Fannie and Freddie would be a great way to start reducing our national debt. Step 39 would institute term limits so that we could get rid of these tired, economic illiterate politicians who have been in office for decades but who still insist on rolling out ineffective government economic programs (Cash For Clunkers) and ineffective government bureaucracies (Fannie and Freddie).
All of this bad news on bad government programs and we did not even address the Cash For Caulkers and Cash For Appliances failures....
Our new book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.
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http://www.cato.org/
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http://www.robertringer.com/
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