skidrowe

The government recently offered up $8,000 as an incentive to get you to buy a new house.  That is, if you have never bought a house before or if you haven’t owned one for at least three years.  Now, as nice as your Uncle Obama is, he didn’t offer to cough up the eight grand because he likes you so much and he wants you to have a house.  He did it so that you would spend 150,000 – 200,000 or so of your own money on top of his eight thousand.  Not your own money, really, but a big load of the bank’s dollars which you would then promise to repay over the next twenty to thirty years.

And why would Big Government want you to do that?  Because then the realtors, the banker, the seller, the title agent, the lawyers all get paid.  Then they go out and spend some of that money, the money that you borrowed from the bank, on cars, CDs, umbrellas, and maybe even a house of their own.  Then the money turns over again and again, growing into an economic juggernaut.  The car salesman makes a killing and goes on a fancy vacation, the CD store owner expands to a second location, and the umbrella guy has to hire two assistant umbrella guys to keep up with demand until there is no more financial crisis.

Such was the plan.  And home sales did increase a bit.  Even though $8,000 amounts to nothing more than a 5% discount on a $160,000 house, it was enough to spur some buyers to pull the trigger and buy their own little piece of real estate.

But consumer confidence numbers released this week indicate that we, as a country, are not too optimistic about the future.  The trickle down effect didn’t make it as far as the government had hoped.  Without the promised new jobs, consumers are still too scared to go out and spend what little they have saved up.

1.8 Million buyers claimed the credit, for a total outlay of $14.4 BILLION tax dollars spent on the project.  The government took $14.4 billion of your money and gave it to somebody else (a bunch of somebody elses, to be fair) so that they could buy a new house.  But remember, the point wasn’t for those somebodys to buy houses, it was for another bunch of somebodys to get and spend that house money.

There is no real way to measure, so we’ll never really know how many of those 1.8 million buyers would have bought a house anyway.  We’ll never know what the true impact of the credit was.  But we do know that $14.4 Billion to slightly increase housing sales while watching consumer confidence continue to dwindle was not money well spent.

Call it the law of unintended consequences.  The government tries to fix one problem, but the legislation passed creates another, entirely new and unforeseen problem.  Consider the Obama administration’s push for universal health care.  The problem:  selling the health care reform to a leery electorate in spite of the crippling financial burden that it entails.  The solution: throw a bone to the unions in exchange for their backing.  Simple enough, a page straight out of the classic Democratic playbook.

But here’s the snag, the token ‘bone’ that the administration chose to offer the unions was slapping a tariff on China’s tire imports.  While the move did please the 15 million or so union members (and eligible voters) in the US, it royally cheesed off China and her 1.3 billion citizens.  Unintended consequences – a move to bolster support for a domestic initiative has opened the door for an international trade war with our largest trade partner.

The troubling thing here is that the White House has turned this purely domestic policy issue into a situation that threatens to escalate into a serious harm to our economy.  China is unlikely to sit idle while we place their tire manufacturers at a competitive disadvantage.  And lest anyone misunderstand, this tariff is no small tax.  The surcharge on tires imported from China would start at 55%, a punitive amount by any measure.

China has responded by threatening to increase tariffs on US automotive parts and chicken.  If they go through with it, the US will almost certainly retaliate by raising tariffs on other goods from China.  In no time at all, the two sides could ‘go to the mattresses’, as Sonny Corleone would say, and engage in a full-on trade war.

When the US imposes tariffs on foreign imports, the US consumers lose by paying higher prices for goods.  When other countries impose tariffs on their imports from the United States, US goods become more expensive to buyers in those countries.  The US worker loses out on the deal as lower international sales mean fewer jobs in this country.

No one wins a trade war.  Escalating tariffs are no good for anyone in the long run.  Although this consequence was unintended, it should have been foreseeable.  It is time for the Obama administration to fix this problem of its own creation, even if it means creating the next problem.