The government wanted to reanimate the auto industry. It allocated billions to car makers to help them produce more energy efficient vehicles. This might reduce our dependence on wasteful polluting vehicles in a few years, or it might not. Just by offering cash for clunkers, however, within one week tens of thousands of inefficient gas guzzlers were replaced on our roads by more efficient, less polluting cars.
The government wanted to reanimate the real estate sector. It concocted elaborate, brilliantly thought out programs that got stuck in a bureaucratic morass and have proved virtually useless in achieving their desired aim. Then first time buyers were offered up to $8,000 toward the purchase of a new home and unsold houses suddenly began to be sold by the thousand.
The government wanted overall consumer spending to increase. The major effort to bring this about has involved sinking literally trillions of dollars into the banking sector to encourage banks to lend more so consumers could spend more. The banking sector has been “stabilized” by these initiatives, but banks didn’t turn around and lend out what they were given, so consumer spending didn’t benefit. But when the government gave $250 cash to Social Security recipients a few months back, much of this money was spent immediately.
There’s a lesson in all this —a lesson so simple and so obvious it seems to be largely beneath the notice of our economic masters. Since I’m a simple and obvious guy, however, I’ll note it here anyway. Give money directly to targeted consumers (car buyers, home buyers, etc.), or directly to folks who might save some but are more likely to spend most (like the elderly), and the economy will revive. Get cute instead, exhibit planning brilliance rather than common sense, trust clever middle men to pass it along as hoped, and watch the money disappear down the rabbit hole.