Saturday, June 25, 2011

Unsustainable Intervention

Here's one key lesson I got  from the Great Recession.  If the government is going to intervene, then it should do it in a manner that is sustainable.   Said differently, the results from the intervention should correct the problem, requiring no intervention in the future.

Here are some of the excellent examples of unsustainable intervention since the start of the recession:
  • Cash from Clunkers. Let's have a $4500 subsidy for everything (subscription may be required) in The Wall Street Journal asks the question that should have been answered.   If it's such a good idea, why not have a $4500 subsidy for everything?   The answer is simply, "it's unsustainable"  Two years later, the economy is still poor, unemployment is still high and used car prices (since there fewer used cars for sale) are at record highs.

  • Are Home Buyer Tax Credits a Mistake (subscription may be required) in The Wall Street Journal points out the housing sales fell sharply after the expiration of the credit.  Now ten months after this article was published, there is serious concern the economy will experience a housing double dip. 

  • These are two examples, and there are others.  The $800 billion stimulus package that went primarily to state and local governments for "shovel ready projects."   The mortgage modification programs.  In addition, I think the TARP bailout of banks, while it appears to be sustainable because of the Fed keeping interest rates low (unsustainable), should have be implemented much differently to enable a more robust economic recovery.

    Finally, for those that think taxing the rich is a sustainable intervention, consider Teeing up the middle class (subscription may be required) in The Wall Street Journal which reports that it is impossible for only the rich to pay the taxes needed to solve the deficit issues.

    As the CEO of my company once said, "If what we're doing won't change the decline of our business, then DO SOMETHING THAT WILL."    Great advice which our government should heed.

    For more on Reflections and Musings, check back every Saturday for a new segment.

    This is not financial or policy advice. Please consult a professional advisor.

    Copyright © 2011 Achievement Catalyst, LLC

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