The Economy’s Year End Review and Lessons Learned

American Economy 2009 Year End Review

  • Within days of assuming office, the president breaks his promise not to raise taxes on the middle class and signs off on a 62-cent tobacco tax increase—striking lower classes the hardest—the first federal tax since 2003
  • A trillion dollars wasted as the “American Recovery and Reinvestment Act” stimulus passes through Congress
  • First-time homebuyer tax credit distorts real housing prices and demand, pushing the value of homes back up a little, but creating mixed signals for the future
  • Cash for Clunkers hands out cash to stimulate the auto industry and wastes $24,000 per stimulated vehicle
  • Unemployment hits 10.2%
  • Federal deficit triples from previous year to $1.4 trillion
  • Congress extends national debt limit to $12.4 trillion in Obama’s new era of fiscal responsibility
  • Banks continue to be beleaguered by toxic debt

Lessons Learned?

  • Programs like Cash for Clunkers only take future demand and concentrate it in a specific quarter to create the illusion of growth
  • Bailing out banks only preserves the bad business models that hand out excessive bonuses
  • Trying to cap interest rates or bank fees causes credit to low-income families to dry up as financial firms are less willing to take risks
  • If you threaten to break up banks that make bad loans, there will be less lending
  • Something we didn’t learn is from the Japanese lost decade experience that you can’t stimulate an economy back to health

Is there any good news? Well, inflation isn’t out of control, the iPod nano has video now… and I saved a bunch of money on my car insurance with Geico—but it’s not much.