The initial bailout plan would have taken $25 billion from the Troubled Asset Relief Program administered by the Treasury Department. Secretary Paulson and President Bush have both made it clear that they would not support this diversion of funds away from the intended purpose of propping up the banking system. Apparently they see no irony in the fact that they have already diverted the money away from the original intended purpose of purchasing troubled assets.

Convinced by the auto executives that their survival hinged on immediate action, proponents of a bailout set their sights on another pool of unspent funds. Passed in 2007, the Energy Independence and Security Act contained several provisions, including an increase in Corporate Average Fuel Economy standards, and a mandate for the increased use of biofuels. The bill also created a $25 billion fund known as the Advanced Technology Vehicle Manufacturing Incentive Program to be administered by the Department of Energy. This is the money that lawmakers now seek to redirect to aid the Big 3.

It has been widely reported that the intended purpose of this fund was to help the automakers retool to build more fuel efficient vehicles, with the assumption being that the funds were specifically targeted at GM, Ford and Chrysler. This is simply not true. The act specifically stated that the Department of Energy should use the funds to provide “grants and loans to eligible automobile makers and component suppliers for projects that re-equip, expand, and establish manufacturing facilities in the U.S. to produce light-duty vehicles and components that make meaningful improvements in fuel economy.” Any company that meets the technological and financial requirements set forth by the DOE is eligible to participate. Nothing in the act indicates that the Big 3 are the intended recipients of the funding.

Tesla Motors is one of several new automobile companies formed in recent years to manufacture electric vehicles in the U.S. They recently began production of their two seat roadster model that offers a range of 244 miles per charge. They have plans to begin producing a five passenger sedan in 2011. Their current vehicles are quite expensive which is to be expected for a low volume producer. As with any new technology, we should expect to see the price fall dramatically as production volume increases.

Tesla has applied for a $400 million loan under the ATVMI program. The company intends to use the money to construct a new plant and purchase tooling to build their sedan model. If Congress raids the fund to provide a bailout for the Big 3, new companies like Tesla will find it nearly impossible to get the funding needed to bring their revolutionary products to market on a scale that will make them affordable to the general public.

Supporters of the Big 3 tell us constantly that automobile manufacturing is vital to our economy and to our national security. I agree with them wholeheartedly. Where I disagree is with the notion that GM, Ford and Chrysler are vital. If they disappeared tomorrow, there will still be a healthy demand for automobiles that someone will build in the U.S.

Tesla Motors is not alone in the development of revolutionary green vehicles that are ready for large scale production. The Aptera 2e will be available for sale in California starting next year, and Fisker Automotive is taking orders for their plug-in hybrid sedan for delivery in 2010. The plans of all three companies could be jeopardized by the current lack of available credit. We should not hinder the growth of new businesses offering revolutionary products in order to prop up failed companies that will only give us more of the same. If Congress truly believes that automobile manufacturing is vital to our national interests, they should demonstrate their convictions by leaving the ATVMI program intact.

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LINKS

http://www.teslamotors.com

http://www.fiskerautomotive.com

http://www.aptera.com

Mr. Obama tells us that he has instructed his economic advisors to craft a plan that will create 2.5 million new jobs by January of 2011. How he plans to do this remains unclear. Since the president lacks the power to simply create jobs out of thin air, a healthy dose of skepticism is in order. If we pause to do the math, our skepticism should be replaced by alarm and outright anger. $700 Billion divided by 2.5 million jobs equals a cost to the taxpayers of $280,000 per job “created” under this plan.

As unsavory as this all sounds, if our only choice is between bailing out failed companies or repairing our crumbling roads and bridges, the decision is a no-brainer. When our grandchildren are presented with the bill, they will at least have some tangible evidence that we didn’t simply flush their money down a rat hole. In terms of providing an immediate stimulus to the economy, however, this plan cannot possibly succeed. It didn’t work during the 1930’s and it won’t work now.

The major problem with large scale public infrastructure spending is that it typically takes years to get a project off the ground. If Congress appropriated $700 billion on Mr. Obama’s first day in office, much of it would remain unspent on his last day. Most of the time that goes into major public works projects is spent during the planning stages. There simply isn’t a massive backlog of projects that we can start building tomorrow.

In order to get a major road building project under way, there are countless political and bureaucratic hurdles that must be cleared before the first shovel is turned. A spending bill of this magnitude will undoubtedly set off the greatest feeding frenzy in political history as every member of Congress fights to bring home his or her share of the pork. In the end, much of the potential economic benefit of the program will be lost as the money is divvied up by congressional districts rather than being directed to projects with the greatest stimulative potential. The “Bridge to Nowhere” will look like a perfectly reasonable project compared to what we will see if this plan becomes a reality.

After Congress destroys any hope that the plan can produce a meaningful economic stimulus, the real work can begin. Depending on the size and scope of the various projects, this can mean months or years of design and engineering studies, followed by endless legal battles over right of way acquisition, environmental impacts, and good old fashioned NIMBYism. When the legal hurdles are cleared, soliciting bids can take months, and then the losing bidders can challenge the results. By the time the final obstacle is out of the way, the price tag for the project will have increased substantially, leading to further delays. This process might keep a lot of engineers and lawyers busy, but it will take years before any actual construction work begins.

Even though the Bush administration has already thrown trillions of taxpayer dollars at the financial crisis with no quantifiable results, political expediency will require Mr. Obama to do the same as soon as he takes office. In order to deliver on his promise of change, he will probably be forced to abandon the present course of action long before the impact can be determined. In the end, the taxpayers will be left holding the bag for the failed policies of two administrations, but at least we will get some badly needed infrastructure improvements from one of them.

I’m not an economist, but I did stay at a Holiday Inn Express last night. From my point of view, there is one central issue that we need to address before our economy can begin to recover. We must figure out a way to stabilize the housing market. Dramatic declines in the value of our homes is the primary cause of the global crisis, and until those values are stabilized the problem will not be resolved.

When mortgage balances exceed home values, foreclosures naturally rise, especially in situations where homeowners have little or no equity to begin with. Even if they can afford to stay in their homes, upside down borrowers with damaged credit histories have little incentive to continue making payments. As the rate of foreclosures increases, the value of mortgage backed securities falls. There are simply too many of these highly convoluted instruments in circulation for the government to buy, so it is essential that we figure out a way to stabilize their value. Financial markets will remain paralyzed until then.

The median home price in the U.S. has fallen by over 11% in the past twelve months alone, and in some parts of the country values have fallen 30% or more. The problem is that prices are declining from an artificially high level brought about by irresponsible lending practices that fueled the speculative boom in the first place. Most of the excessive building occurred in California, Florida and Nevada, but we are all paying the price for what began as a series of localized feeding frenzies. Investors in mortgage backed securities are left holding the bag, making them reluctant to take further lending risks. The inability of buyers to obtain financing leads to a glut of homes on the market that drives down sale prices even further. This vicious cycle will continue until lenders are once again willing to make loans to qualified buyers on reasonable terms.

Instead of the continuing to shore up financial institutions with massive infusions of capital, we should consider an alternative approach. The government can provide incentives in the form of tax credits for anyone who purchases an existing home. Incentives can’t work unless buyers are also able to obtain financing, so the government can assist by proving loan guarantees for buyers who meet conventional standards of credit worthiness. These incentives would remain in place until the excess housing inventory is absorbed. Once this occurs, housing prices will stabilize naturally, making it possible to finally determine a realistic value for the troublesome mortgage backed assets.

One of the main problems with the current plans to restore economic order is that there is no mechanism in place to implement them. We’re making it up as we go along and creating new government bureaucracies to figure out how to spend the money. This is incredibly inefficient and creates a significant delay in distributing funds that have already been appropriated. On the other hand, the Veteran’s Administration already has a proven mechanism in place for administering government guaranteed home loans, and since 1944 they have backed over 18 million mortgages. Why not take advantage of an existing program that has worked for decades instead of continuing to fly by the seat of our pants?

One of the most blatant falsehoods is the frequently repeated claim that 1 in 10 American jobs is directly related to the U.S. automobile industry. The claim is based on a 2003 study by the Center for Automotive Research using data collected between 1998 and 2001. Not only have the domestic auto manufacturers already shed hundreds of thousands of jobs since then, but the report is based on the entire U.S. industry including Toyota, Honda, Mercedes Benz-Benz, BMW, Subaru, Nissan, and Hyundai who all manufacture cars in U.S. plants.

The study also goes to ridiculous lengths to establish a relationship between various jobs and the auto industry. If the 1 in 10 figure is true, that would mean 14 million jobs would be threatened in the event of a Detroit collapse. It’s perfectly legitimate to include Big Three employees and those of their exclusive suppliers, but the report goes far beyond this to include workers with even the most tenuous connection to the industry. It actually counts taxi drivers and car wash employees among those with a direct relationship to auto manufacturing. Are we really supposed to believe that every car wash in the country would go out of business if GM stopped producing cars?

Detroit also claims that the employees of their 14,000 U.S. dealerships would lose their jobs if the companies are allowed to fail. The fact is that hundreds of these dealerships already close every year as a result of excess capacity. The enormous dealer infrastructure is a relic of the days when Detroit controlled virtually the entire domestic market for automobile sales. Foreign manufacturers now account for roughly half of all U.S. auto sales, and they do it with a dealer network that is less than half the size of the domestic brands. One of the keys to the survival of the Big Three is a dramatic downsizing of their dealer networks. The sad fact is that many of these jobs are going to be lost no matter what.

Recent ads run by the Big Three have gone so far as to claim that all domestic auto production would come to a halt if they are allowed to fail. This tenuous claim is based on the assumption that all of the major parts suppliers would also fail in their wake. There is simply no evidence to support this claim. While it is true that many suppliers would be forced to reorganize in the event of a total collapse of the domestic manufacturers, the notion that they would cease to exist is pure nonsense.

It should also be noted that this entire doom and gloom scenario is based on the assumption that without a federal bailout, the Detroit automakers will simply vanish. This is absolutely not true. While the prospect of operating under Chapter 11 represents a real risk that consumers will be reluctant to buy their products, when faced with the ultimate decision between reorganization and liquidation, common sense will prevail. When they emerge from bankruptcy protection they will be much smaller than they are today, but they are absolutely not going away. Congressional leaders must understand this and have the courage to call their bluff.

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I wrote a post last week about the fact that I don’t believe in God. I made it clear that I had no interest in changing anyone’s mind about their own beliefs, and that no one should feel the need to change mine. One of the comments I received was from a Christian Scientist who wanted to share his personal experience of healing cancer through prayer. He also told me about the fact that his son had recently held an audible conversation with God. I wasn’t sure what to think at first, but after reading his comment several times it became obvious that this man was offering to aid in my conversion. The more I thought about it, the more offended I became. I had offered a rational explanation as to why I did not feel the need for a supernatural presence in my life, and this man felt compelled to tell me otherwise. What possible difference does it make to him if I don’t share his beliefs?

The Mormon Church has been in the news lately for their organized opposition to same-sex marriage in California. Is it just me, or does anyone else find it ironic that a group that only reluctantly abandoned the open practice of polygamy should suddenly be the self-appointed defenders of traditional marriage? Even more bizarre is their insistence on the posthumous baptism by proxy of Jewish holocaust victims. Jewish groups have been fighting the practice since 1995, but the Mormons persist in a rite intended to allow conversion in the afterlife. What makes them believe that people who died as a result of their faith will be receptive to their proselytizing efforts in another life?

What compels Fred Phelps and his followers at the Westboro Baptist Church to show up at military funerals with their God Hates Fags banners? Is it pure audacity or blind faith that drives evangelical missionaries like Heather Mercer and Dayna Curry to create an international diplomatic crisis by attempting to spread Christianity in Afghanistan? I don’t know what makes these zealots believe that people will simply abandon their own deeply held beliefs. Maybe I’ll ask the next time a Seventh Day Adventist knocks on my door, or maybe I’ll just hand them a brochure of my own.

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Bloggers played a larger role than ever before in the election of 2008. Unfortunately, we did not contribute nearly as much to the spread of worthwhile information as we did to the breakdown of rational discourse. One of the problems is that blogging permits anyone to make themselves heard, even when they have nothing worthwhile to say. Unfortunately, the loudest voices are often the most venomous and least informed. If your only contribution is an endless loop of regurgitated partisan talking points, then you have made no contribution at all. The only thing you accomplish by flooding the blogosphere with mindless diatribes and incessant repetition is to drown out the voices of reasonable people, making it harder for those engaged in thought provoking discussions to actually make a difference.

The words we use to vilify our political opponents tend to make us lazy. It is far easier to apply a derogatory label than it is to explain why we support a specific candidate or cause. If we ever hope to engage our opponents in a civil fashion, we must stop relying on negative labels and choose words that force us to actually think about our positions. Let’s banish words like socialist and neo-con from our vocabularies. Let’s quit calling our opponents fascists, radicals and extremists, and concentrate instead on defeating them with the power of our ideas. If we can learn to behave ourselves like adults, our politicians may one day follow our example.

While other minority groups have made great strides in gaining public acceptance, people who share my secret are still largely in the closet. A few have come out and become militant activists, and others have never felt the need to keep their identity secret. Because many of us fear public reprisal, it’s impossible to know our true numbers. I’m not sure why I’ve chosen this moment to come out, other than that I feel the need to finally get it off my chest. The frustration has been building up inside me for long enough that I feel like shouting from the rooftops. I DO NOT BELIEVE IN GOD!

Many skeptics and disbelievers report a growing sense of doubt or a gradual loss of faith, but that was never the case for me. From my earliest childhood, I cannot recall a moment that I did believe. I don’t know when children develop the intellectual capacity to deal with abstract concepts like religion, but I know that I have never considered it to be anything other than a mythology. Even as a young child, I never doubted that religion was a purely manmade construct.

It’s hard to say whether my upbringing had anything to do with my non-believing status. My parents came from very different religious backgrounds, and neither of them ever attempted to indoctrinate me in their way of thinking. My mother took me to church on a sporadic basis until I made it clear that I was not buying into the program. She gave up by the time I was ten or eleven. My sisters became what I call social members of the Episcopal church as teenagers, and they have followed that path ever since. I have not attended a church service for at least 35 years.

The only time I have ever seen my father in a church was for a wedding or a funeral. He seems to have some vaguely spiritual beliefs, but I don’t have any idea of the specifics. Whatever he believes, he keeps it very much to himself. The only thing I know with certainty is that he is offended by my lack of belief, and tells me that it is incredibly arrogant to assume there is no higher power in the universe. Unfortunately that’s as far as the conversation ever gets.

My mother was raised a strict Christian Scientist, and her mother died in her early forties after refusing medical treatment for breast cancer. She also had a younger brother who died around the age of six or seven. I still don’t know the specifics because it was never spoken about, but from what little I have been able to determine he died from a purely preventable childhood illness while his parents prayed for his recovery. My mother kept this a secret until I was in my twenties, and only admitted it when I found a picture of him. I know his name was Robert, but that’s the only detail she ever shared.

At some point before I was born, my mother left the Christian Science church and became an Episcopalian. Until the final few years of her life, her involvement with the church was infrequent and purely social. I’m not sure what triggered it, but around the age of 60 she returned to Christian Science. I believe she was drawn by the social aspect since they had recently moved to a new city, but the church very rapidly became the main focus of her life and remained so for the next several years.

My mother faced a true crisis of conscience when she was diagnosed with cancer, and ultimately made the decision to accept medical treatment in spite of her faith in the healing power of prayer. I think this was an extraordinarily difficult decision, and it left her feeling guilty and isolated from the people who should have been her support network when she needed them most. I truly believe that the decision broke her spirit and diminished her will to fight. Her condition deteriorated rapidly and she died within a few months.

Given my parents’ wildly divergent backgrounds, I suppose I could have grown up believing almost anything. One might assume that my lack of belief is simply a rejection of my mother’s faith, but that is not the case. She was so secretive about her background that my beliefs were fully formed before I was ever aware of hers.

I’m not the kind of militant atheist who seeks to disprove the existence of god, or even to ban the Pledge of Allegiance. I have no problem with the fact that we celebrate Christmas as a national holiday, and I find the efforts of those who attempt to secularize the holiday season to be pointless and silly. I am not offended by anyone’s religious beliefs, and no one should take offense at mine. All I really wish is that we could establish clearer boundaries between the realms of politics and religion. We are all free to believe as we see fit, but none of us should expect to see our particular beliefs enshrined in law. The fact that we are a nation largely of Christians does not mean that we are a Christian nation.

The most common proposals to reform the system include legislation that would require employers to provide coverage, expanding eligibility for existing government programs, or the creation of a government run single-payer system. All of these proposals are based on the idea that routine health care expenses are somehow different from any other item in our family budgets. Where did this notion come from? Maybe the question we should be asking ourselves is not how can we increase the number of people with insurance, but what would happen instead if no one had health insurance?

By definition, insurance is intended to compensate for catastrophic losses that we could not otherwise afford to bear. It makes perfect sense to insure ourselves against the potentially devastating financial impact of a major illness or injury. Unfortunately, what we call health insurance in this country has been transformed through legislation and consumer activism into something that no longer meets the traditional definition. We are insuring ourselves against runny noses and sniffles. What we really have today is a system of non-refundable prepaid medical care. With the exception of certain cell-phone plans, there is no other product or service that we purchase on a prepaid basis, so why should medical care be any different?

The average annual cost for an individual policy is rapidly approaching $5000.00, while families pay nearly $13,000.00 for healthcare coverage. The reality is that the overwhelming majority of us pay for substantially more medical care than we actually consume, so why do we pay for it in advance? Even more curious is why we continue to pay so much more every year for services that most of us do not use. Health insurance costs have increased 27% from 2004 to 2008, and a whopping 119% since 1999.

One of the major problems with the current system is that employees are woefully ignorant of the true cost of their health benefits. While companies have passed an increasing share of the premium cost onto their workers in recent years, the bulk of the burden is still borne by the employers. On average, employees only pay 16% of the total premium cost for a single policy, and 27% of the cost for a family policy. That means employers are paying nearly $9500.00 toward the cost of a family policy, and in many cases the employee is never aware of the contribution. The reason that wage growth is stagnant is that healthcare benefits represent an ever increasing portion of total employee compensation. Most workers never consider the fact that their cash compensation would be substantially higher if their employers did not cover the cost of health insurance premiums.

Prepayment is not the only peculiar aspect of our current system. What other product or service do we ever buy without knowing the price in advance? We would never fill our grocery carts or purchase any other product without a clearly marked price, yet those of us with insurance never inquire about the cost of routine medical procedures. There would be far fewer unnecessary tests performed, and far more generic drugs prescribed if there was a logical connection between the price we pay and the medical services we receive. That connection is completely broken under our current system.

While policymakers remain focused on the idea of providing private insurance coverage for everyone, there is another idea that is worthy of consideration. Perhaps the answer is to dismantle the current system of prepaid care and return to a traditional fee for service model for routine medical services. Under this scenario, everyone would be required to have insurance against catastrophic illness or injury, but the cost of such a policy would be quite small in comparison to the current all-inclusive prepaid plans. By reestablishing the connection between the price we pay and the services we receive, we would all become more rational consumers of healthcare services.

Skeptics will claim that the cost of routine care is simply too high to be borne out of pocket by the average family, but the average family with private insurance is already paying nearly $13,000.00 in annual premiums. Costs would fall rapidly when rational consumers force medical service providers to compete on price, and when the providers are no longer responsible for the huge administrative burden associated with processing billions of insurance claims. Prescription drug prices would fall dramatically for the same reasons. The most effective way to control healthcare costs is by restoring a more direct relationship between consumers and healthcare providers.

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A cursory examination of the percentage of federal taxes paid by filers in various income brackets demonstrates that those at the upper end of the income spectrum are already paying more than their fair share of the total burden. The true extent of the progressivity is not clear without also examining spending on transfer payments for programs like Social Security, Medicare and Medicaid that explicitly benefit certain groups at the expense of others.

Who Pays Taxes and Who Receives Government Spending is a detailed analysis published by the Tax Foundation. The 123 page report is a bit of a slog for those who aren’t fascinated by the minutiae of tax policy, but it contains a great deal of fascinating information on the burden of federal, state and local taxes borne by households in various income brackets. It also provides a breakdown of government spending as it is directed to those same income brackets. While I disagree with some of the methodologies employed in the study, the overall findings make it abundantly clear that we are already spreading the wealth more generously than Mr. Obama would like us to know.

According to the study, 41.8% of all local, state and federal spending in 2004 consisted of transfer payments. These payments took many forms including housing assistance, Medicare, Medicaid, retirement and disability benefits, unemployment benefits, welfare and social services. Total spending on these items in 2004 amounted to $1.475 trillion. When you look at who receives these benefits, the extent of the redistribution that is already taking place becomes obvious. Households in the lowest 20% of income earners received $8.21 in direct federal, state and local spending for every dollar of taxes paid, while those in the top 20% received $0.41. This results in a net transfer in excess of $1trillion between those in the upper and lower income brackets. Mr. Obama’s use of refundable tax credits to households that already pay little or no federal income tax would increase these numbers substantially.

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