Cash for Good Spending Ideas

The "Cash for Clunkers" program gave Americans generous rebates for trading in their old cars for newer and more efficient cars.  Hot on its heels is a new program that will give rebate incentives for Americans to replace their old appliances.

The idea behind these programs is to bring forward major household purchases from some future point in time (presumably when the car/applicance needs replacing) to the present (when the car/appliance is working fine.)  The goal is to stimulate the economy by incentivizing consumers to replace the car/dishwasher when they would not do so otherwise....hence creating jobs in building those appliances/cars. 

These programs are wrapped in a veneer of environmentalism by replacing an older (presumably less energy efficient model) with a shiny new model that is more energy efficient.  However I haven't seen any studies being quoted to suggest that replacing large vehicles/appliances before their time has any useful net environmental benefit.  (It may well be that the carbon emissions during the production phase of the newer appliances will outstrip the benefits of lower future energy use.)

It makes sense that no environmental studies are being quoted because the point of these programs isn't the environment.  The point is to stimulate demand and jobs.  There is no question that increased demand will create jobs in the short term.  The dearth of future demand as the market gets sated early might well cost more jobs....but hey maybe then the recession will be over anyways.

It is truly bizarre that the federal government is now subsidizing the purchase of cars, dishwashers, refrigerators and dryers.  So widespread is this stimulus spending that one wonders if anyone is spending any of their own money to buy things?  So what will happen when the trillion dollar deficits being used to fund these programs create a national debt that future generations have to pay for??

Would you be happy knowing that you bought a new dryer that your grandchildren will still be paying for into their middle age?  If not then i suppose you could comfort yourself by knowing that buying a new energy efficient dryer that will save energy for the next 20 years will help to ensure that the planet is saved for future generations.

Of course that only holds true if you don't replace that 5 year old dryer and 5 yr old car when the next recession (and stimulus package) hits in 5 years.....or less!

Is President Nero Done Fiddling?

Indications in the news media are that President Obama will soon announce a surge of some 30,000 troops to "finish the job" in Afghanistan.  This falls short of the 40,000 troops that his General McChrystal has asked for.

Anonymous aides are saying that President Nero will be stressing a hawkish commitment to finish the job as well as communicating the message that the commitment is not open ended.

President Obama is the Commander in Chief and the US Military answers to the civilian authority.  However he has no experience in military matters.  His military experience falls short of the widely ridiculed service records of Dan Quayle and George W Bush.  By failing to heed the advice of his commander on the ground, he risks providing insufficient resources to "get the job done."

More concerning is the fact that words like "victory" and "win" seem to be lacking in their dictionary.

A commitment to train up the local forces to take over from American troops as they make their exit is a formula that was tried in a prior conflict.  That conflict was Vietnam.  An open ended commitment to victory has also been tried in both World Wars.

He who forgets the lessons of history is doomed to repeat its mistakes.  It is good that President Obama has put his fiddle away.  It would have been better if he could have come to a sounder decision and done so sooner.

History Devalued

Two years after the New England Patriots made "history" by going 16-0 in the regular season (before losing in the Super Bowl), the media hordes are beginning to note that "history" may be made again this season.

Currently the Indianapolis Colts and New Orleans Saints are both 10-0. 

You may recall that Tom Brady led the Patriots to the first ever 16-0 season and that this was "historic" because the only other team to have a perfect season did so in a shorter 14 game season in 1972.  It was also "historic" because the 16th game was of such interest that it was triple cast on three different networks.  Indeed a wall certainly fell on that day.

So the next 6 weeks promises to be a momentous time in the "history" of mankind as one or both of Peyton Manning or Drew Brees leads their respective teams to a perfect 16-0 season.    The Indianapolis Colts have actually won 19 straight regular season games but that is not as relevant to "history" as having a perfect season.

As the media publicity machine cranks up and we begin to lead the nightly news with biographical profiles of Peyton Manning (hey did you know that his brother Eli won a Super Bowl with the Giants as well and his dad Archie used to be a quarterback in the NFL too?????) and the less well known Drew Brees, ask yourself if anyone of this nonsense qualifies as anything more than mildly interesting to even sports fans.

There is a beauty to sport and many lessons on life.  The lesson here is that media hyperbole will often distort a simple game into something that sounds far more important.  Don't buy in.  There is no David vs Goliath struggle here and no magical insights into mankind. 

This is just a rush for ratings and sponsor dollars.  I will read about it and maybe watch a game or two....but i certainly won't remember this any more than Tom Brady's "historic" season two years ago.....except with irritation.

The Ugly Game

A few days ago i wrote about an inspiring moment that showed the best of sport.  Today I must express my disappointment at what has happened to the most universal of sports....soccer.  It is known as the beautiful game yet it is anything but.

Yesterday evening Ireland played France in the Stade de France with qualification for the World Cup on the line.  It was the second leg of a two game aggregate score match.  A tied aggregate score (after overtime) is decided on the basis of who scored the most goals as a visitor.  If it is still tied, then it goes to penalty kicks.

There is no question that Ireland was a heavy underdog.  France was a finalist in the last World Cup and had won the 'away' leg 1-0.  Ireland is a nation of 3 million without the history of success on the world stage.

Yet the scrappy Irish team got the away goal and finished regulation up 1-0 levelling the score in aggregate at 1-1 and even on away goals.  A tremendous upset was in the cards as they went to overtime.

In overtime, Thierry Henry used a handball manouevre worthy of a basketball player to set up the winning goal.  The referee did not see what 80,000 spectators saw.  After the game Henry admitted to the handball and the French press are besides themselves with embarrassment.

Any soccer match i have watched is marred by the spectacle of grown men who are supposed to be world class athletes falling over like they've been shot at the slightest brush.  The swan dives and histrionics are embarrassing to watch.  This pathetic lack of sportsmanship teaches all the wrong lessons to the children watching.

Irish eyes should still be smiling today.  They have nothing to be ashamed of.  The French.....if there is any justice, they will be eliminated early on the World Cup where they don't belong anyways.

European Union

European integration has been moving along since the Treaty of Maastrict of 1993.  There have been grandiose predictions of political integration into what would become a "United States of Europe."

Much like in the times of Jefferson and Washington, there is much debate about how much sovereignty will be retained by member states.   Some member states such as Britain have opted to be part of the common market while retaining their own currency and monetary policy.

With the ratification of the Treaty of Lisbon, the EU Presidency will no longer be held on a rotating basis by one of the member nations.  Instead it will become a permanent office with fixed terms.  There is talk of a European army that could function as a rapid deployment force with the EU President serving as the Commander in Chief.

Despite the self professed sophistication of European nations, they have gone about this in a most unsophisticated way.  Tony Blair was considered a front runner to be the first EU President.  Yet despite his interest and profile, it appears that Tony Blair will not be successful.  He has failed to successfully lobby the member nations in the back rooms where the deal is done.  Some small nations are said to insist that the President come from a smaller nation.  Some of the larger nations simply do not want a Brit to lead the EU.

Hey I have an idea:  maybe the Executive leader of 500 million people ought to be elected rather than selected through backroom deals??

While this may be a revolutionary idea on a continent where several 'sophisticated' countries continue to have hereditary monarchs as heads of state, it would seem to be an obvious choice.

The European Union is a dynamic economic entity where goods and labour move freely.  It has helped to create prosperity throughout its member nations.  However the record on non-commercial matters is shameful.

When the former Yugoslavia descended into chaos and genocide, the powerful nations of Europe did not act. Sadly this is a continuation of patterns established during the rise of the Third Reich.  The great powers let tragedy unfold in their very own backyard (some would say that it is more apt to say that it happened in their living room.)  As in the Great War and the Second World War, the killing did not stop until a duly elected President of the United States of America ordered his nation's military into action.

Europeans bemoan the fact that America often acts as the world's policeman yet the EU is richer and more populous than America.  The United States of Europe could act as a democratic counterweight and/or partner to the United States of America and this would be good for the world.

But first they need to figure out how to create a strong and duly elected office of the President.  They need not reinvent the wheel.  They can just look across the pond to find an example......unless they are too sophisticated to do so.

Miracle on Ice

While the major news networks have now marked the fall of the Berlin Wall 20 years ago, today I turn to another anniversary that is coming up.  In Feb it will be 30 years since the "Miracle on Ice" at Lake Placid.

This was another Cold War era battle with all of the additional drama and symbolism.  It was East vs West.  The Winter Olympics were being held in Lake Placid, New York while the Summer Olympics were scheduled for Moscow later that year.  (some may recall that both winter and summer versions of the Olympics were held in the same year until fairly recently).  Jimmy Carter was considering a boycott of the Moscow Summer Games as a protest against the Soviet invasion of Afghanistan.  He would later make good on his threat and the Soviet Bloc countries would dominate the medal podiums at the summer games.

Despite all of the Cold War rhetoric, the Miracle on Ice was something more important in the eyes of a child. It was the beauty of sport and a metaphor on life.  

Russian hockey players did not play in the NHL as they do now.  At the time, the best Russian players played for Central Red Army while the best North American players played in the NHL.  The Olympics were open only to "amateurs" which the Russians were technically as they were paid to be soldiers not hockey players.  The best North Americans were pros and therefore ineligible for the Olympics.

As you might expect, the Russian players were older, more talented and more experienced than the team of college players that made up the American team.  It was a battle of men against boys.   In a pre-Olympic exhibition game, the Big Red Machine demolished the American team 10-3.  The Soviet Olympic team seemed to demolish all who stood in their way and they were prohibitive favourites to win the Gold.

Yet the scrappy American team under Coach Herb Brooks shocked the world by defeating the Soviet Union in the semi finals and then Finland to win the Gold.  I still get chills when i see the replay of the moment when a bunch of hustling youngsters threw their sticks in the air as the buzzer went and the Russians went down to defeat.

The lessons learned were many:

• Stand up to the bully in the playground.  
• You can make up for lack of talent with hard work and a never say die spirit.  
• Never ever listen to the naysayers and defeatists.
• Miracles do happen.

Some of the players went on to have careers in the NHL.  Ken Morrow followed up his Gold Medal by winning 4 Stanley Cups with the New York Islanders.  However most of the roster did not go on to have hockey careers of note.  Captain Mike Eruzione didn't do much.  Goalie Jim Craig filled the stands for an Atlanta Flames home game before it became obvious he couldn't play in the NHL.

The majority of the players on that team went on to have ordinary careers and live ordinary lives.  They couldn't play in the NHL because......well because they weren't that good.  However for one shining moment in Feb of 1980, they stood as the best in the world.  They did it with teamwork and hustle and provided a shining example of what is right in the world of sports.

The Passenger Pigeon and GM

The passenger pigeon was once the most numerous bird in the world. New world settlers marvelled at the spectacle of flocks that numbered in the billions. A blast from a shotgun could bring down multiple birds, so thick was the sky. This easy hunting made them a popular source of food.
Theories on their extinction used to focus on overhunting and habitat loss. However it has never been explained why the passenger pigeon suffered extinction when other, similar birds merely declined in numbers.

Modern theories yield an interesting hypothesis. The massive flocks were an evolutionary strategy for survival. The theory goes that massive flocks that blanketted hundreds of miles were needed in order to locate the rich food sources required to feed these birds. As the flocks shrunk in size, they lost their ability to locate food and swarm effectively. In effect they survived by maintaining a critical mass that was far above that seen otherwise in the animal kingdom.

General Motors survived for many decades by using a similar strategy. At one time, they grew by building the best cars for the money. In recent times, they sold cars by blanketting markets with dealerships. They even created different brands which required different dealers in the same market. By putting a Chevy dealership next to a Pontiac dealership next to an Oldsmobile dealership, they gave consumers the appearance of choice but were really just crowding the market.

Now that GM has decided to massively cut their dealer networks, the passenger pigeon analogy applies. It is a move designed to cut costs. It may well do that but the revenue side of the ledger will suffer more.

Without the massive flocks of dealers, one wonders how many consumers will now find it easier to choose a Honda, Toyota or VW.

This move does not solve GM's fundamental problem. They are a car maker that makes poor cars. GM is still fighting the last war. The countdown to their next Chapter 11 filing has begun.

Tax Follies

Death and taxes are said to be the only sure things in life.

We do our best to avoid both unpleasant realities.  However it is a sad fact that taxes are a necessary evil.  Without taxes there would be no border security, no social services and public schools would be non-existent.  In short, government would cease to function.

It is the visceral reaction to taxes (and my conservative brethren are often guilty of fanning these flames) that holds tax policy hostage to emotion and leads to bad policy decisions.

The Ontario government is the latest political body to venture down a misguided path driven by political considerations rather than on substantive reasons.

As everyone knows, Ontario will be harmonizing the Provincial Sales tax with the Federal GST.  This is a long overdue measure that will increase the efficiency of collection and administration. 

The Holy Grail for economists is efficiency and in simple terms we can look at this as the percentage of taxes paid that actually reach government coffers net of collection costs.  There are additional measures of efficiency that deal with the effects of the incentive/disincentive aspect of differences in application of the tax.

The HST will  exempt fast food that costs less than $4, newspapers, books, children's clothing, diapers, car seats and feminine hygiene products.

While it is politically appealing to exempt such purchases, it increases the costs of collection and distorts consumer choices as well as increasing the cost of doing business. 

A business like Wendys will faces the difficulty of keeping prices below $4 in order to avoid triggering the HST.  Raising the cost of a 3.99 meal by one penny increases the cost to the consumer by significantly more.  A level like this is not indexed for inflation and as such the business will suffer compressed margins and consumers will face a gap move in costs at 4.00.   I might ask exactly what is so magical about a 4 dollar figure anyway? Also why would we specifically exempt fast food (hence encouraging its consumption)???  As smoking rates decline and obesity rates rise, fast food may become more deadly across society than the effects of smoking.

Why are books exempt?  Books are not inherently good....only good books are.  Books are a consumer good and should be taxed like any other.

Newspapers are not taxed but magazines are.  Why does this distinction exist?

Feminine hygiene products?  Yes I'm aware that only women need these and hence it is inherently unfair that only women have to pay this cost.  It is also true that men and women exhibit very different buying patterns across many consumer goods.  Men generally consume more calories......very unfair I'd say.

The purpose of taxes is to raise funds for important spending priorities.  People should remember that and politicians should shepard these resources very respectfully.

All goods for purchase at your supermarket should be taxed at one uniform rate.  With the exception of specifically targetted products like tobacco and gasoline which have a separate delivery system, there should be no exemptions.  Greater exemptions mean higher rates of taxes on non-exempt items and greater administrative costs.

This is not an ideological argument.  Where taxes get spent can be an ideological battle.  Increasing the cost of collection and creating bad consumer choices (ie in favour of fast food) is just plain dumb.

Premier McGuinty....shame!

President Nero

President Obama has marked one year since his election.  He now suffers from approval ratings that fluctuate with economic releases and other events.  This is both right and proper.  While the economy tanked before he assumed office and he was not the one to order the invasions of Iraq and Afghanistan, everything that happens now is on "his watch."

One year since he received his mandate from the American people, President Obama is still fiddling while Kabul and Kandahar burn.  His military commander in Afghanistan has recommended an Iraq style "surge" of 40,000 troops to manage the Taliban insurgency.  Obama advisors are split and there are conflicting reports about which way President Nero is leaning.

During Officer training, we were taught to be decisive.  We were taught that not making a decision was a decision in itself but it is rarely the right decision.  The reason for this is very simple:  not making a decision against an enemy that is making decisions shows weakness and you allow the enemy to set the pace.

While he dithers the Taliban continue to bleed the undermanned allied forces.

The surge was succesful in Iraq, even the most vocal critics of the Iraq war admit this.  President Obama should stop dithering and make a decision.  He risks becoming another Jimmy Carter if he does not.