Yellowstone Partners Blog

The NY Times has done it again with another brilliant interactive tool. Data from thousands of participants has been gathered to create a visual representation of how people spend their time.

It’s fascinating to see the variation across education levels and various other metrics.

Click here to see the study.

Warren Buffett wrote an interesting Op-Ed piece in the New York Times recently. The subject of his discussion is the growing federal deficit and government’s efforts to resolve it through quantitative easing.

Buffett’s Op-Ed

Buffett makes some compelling points about the national debt relative to historic levels and the nature of inflation as a dangerously-wielded tool.

The interesting point in his observation is that for all of government’s projected fear and distaste for inflation, the truth is that it is their most effective tool to hide the consequence of their excesses, all the while devaluing the assets of individual citizens.

With inflation as an inevitable reality, the best way to combat it is to invest in assets which will outpace the rate of inflation – hard assets like oil, basic materials and precious metals.

We’ve been comfortable overweighting the materials sector for some time now given the prospect of aggressive global growth and emerging countries’ infrastructure outlay. The spectre of inflation only adds to the opportunity in this area.

I have seen government conjure some idiotic ideas – among them the concept of a “National Homeownership Strategy.” As a general rule, these ideas are cleverly disguised by tactically selected titles which make them sound intelligent. The most recent of these obtuse ideas is no different by its formal title: Consumer Assistance to Recycle and Save (CARS). Yet its informal title does little to hide its absurdity: Cash for Clunkers.

The stated objective and benefit of the program is to replace low fuel economy vehicles with more environmentally friendly, fuel-efficient vehicles. The positive byproducts mentioned include stimulating the beleaguered auto industry and employment impact of over 230 employees for a period of six months. Not bad for a billion dollars.

First, let us establish that although the government has become quite proficient at printing money, those funds come from the American taxpayer – present and future. The money that is being frivolously salted upon grinning new car buyers and even wider-grinning car dealers is not the government’s money. May I provide the ever-necessary reminder that government has no money of its own.

Because these car buyers already gobbled up one billion dollars in the first week of the program, lawmakers have declared it a success, and paused their back-scratching to do some back-patting – hurrying to pile on another two billion under the mistaken impression that it is a success because of its popularity.

While I can’t fault people for taking advantage of another of government’s follies to make the program as popular as it has been, I believe that it will ultimately fail on two key points: The auto industry stimulation will be tilted towards foreign carmakers and will flare and die in vacuum of pent-up demand, and the environmental impact will be so slight that it will be entirely irrelevant.

Statistics from the Department of Transportation show that five of the six vehicles bought by CARS participants are made by foreign companies.

I’ll grant that many of those cars are still manufactured in the US, but it doesn’t solve the problem that two of our three major domestic auto manufacturers are insolvent, owned by the US taxpayers, and run by an all-star management team of those that bankrupted them in the first place, the government, and the unions.

What the CARS program doesn’t create is long-term viability for domestic auto manufacturers – that is what allowing them to fail in the first place would have done. What the CARS program does create is artificial demand – the same kind of artificial demand that is the hallmark of government subsidy and the catalyst for the cataclysmic bubbles that have exacerbated economic cycles throughout history.

Then, if the program does little to stimulate a broken industry, at least we’ll have the benefit of fuel efficiency and the reduction of carbon emissions, right?

According to figures calculated by the Associated Press, if the better fuel economy for these new vehicles goes exactly according to plan, it will save the equivalent of a single hour of U.S. carbon dioxide emissions. Not bad for a billion dollars.

It would be superfluous to mention that the environmental impact of producing the new cars to replace those that are being scrapped nearly if not exceeds the resulting efficiency, and effectively nullifies the benefit but not the expense.

Ultimately, what we have in the cash for clunkers program is another in the long list of government subsidy spurred bubbles.

No different than the “a home for every American” mindset that tipped off the most recent economic peril, “a new fuel-efficient vehicle for every American” is sure to yield the same results – tragedy.