So the government has launched another wildly popular subsidy program with its Cash for Clunkers program, offering consumers up to $4500 for trading in their classic cars for purchasing a new one. In fact, the program is so popular that more than 250,000 trades have already been made and the original $1 billion earmarked by Congress spent in days. Uncle Sam will just request a credit increase on his credit card, though, potentially finding another $2 billion to keep the program going. Reasoning: trading in old cars for new ones creates consumption, which trickles-down income throughout the automobile industry network of suppliers and manufacturers. Plus, it preserves jobs and cleans the air. Never mind those trades going to “foreign” car companies,or that $1 billion is a pittance when spread across the automobile “industry.” Still, it got me thinking. Why not copy the Cash for Clunkers program and apply it to the housing industry by paying people to tear down their used homes?
Look at it this way: It costs about $20,000 to tear down a home. That’s about four clunker-car trades. But the money would be so much better spent, with greater trickle-down effects in the housing sector (if you believe in that stuff). The housing industry is far bigger than the automobile industry, considering the suppliers, builders, salespeople, maintenance, repair and improvement industries combined. Plus, the total dollar value of housing far exceeds autos, as a segment of the economy. So if we’re going to spend a few billion improving the economy in direct handouts, it makes sense to put it directly into the housing market.
With Cash for Clunkers, the subsidy changes the supply and demand curve by “spurring” consumption. Offering a massive “discount” to the consumer, people who might have purchased a new car in the next six to twelve months are spending money today. While that does increase the dollar circulation, it also distorts the cost of autos. Car dealers have inventory that is suddenly worth $4500 more (they know free money is coming, so they can mark up – or hold off marking down). Furthermore, since the program requires that clunckers are destroyed – car dealers must pour destructive liquids into the engines so they cannot possibly be resold – the program distorts the “resale” lower-cost used car market. This will further push up the value of new cars, and poorer households that typically purchase used cars can take public transportation to save energy and money anyway.
What a smart plan: Get some people to spend money, raise the prices of the commodity (new or used) and get poor people to take the solar powered bus.
So why not do the same things with the struggling housing industry, too?
Start by offering a government subsidy for tearing down used homes. They are so energy inefficient anyway – and millions are still “unaffordable” or empty (foreclosed), so who cares? Let’s offer a subsidy to owners – whether consumers or banks – to destroy these Clunker Homes. At $20k per tear down and $2 billion Greenbacks, we could easily demolish 100,000 homes. If we just burn them down or use dynomite, maybe more. If we recycle the scrap, we can create a self-funding program to tear down the million or more excess homes that are depressing house prices.
New home prices will rise. “Used” home prices will soar, too. Poorer consumers unable to afford either can live in Green public housing or just rent. The important point is that we’ll be giving the housing industry money to “spread around,” especially to the depressed demolition sector. And we’ll create all those the wonderful jobs in the rake-and-shovel labor market to clean up the mess!
Spending money to demolish homes will create housing scarcity, which will nicely drive up prices. Everyone keeps saying that only price stability in the housing sector will save the economy, right? So sellers will get more money for their homes and we’ll recreate the appreciation spike to save those borrowers who were duped by predatory lenders into interest-only loans from becoming upside down on their mortgages.
If we’re really lucky, we might experience some “unexpected” results, such as accidentally destroying too many homes (maybe a run-away fire in Southern California?). That would mean – wow – new homes to be built, saving jobs with builders, suppliers, laborers. Construction materials would rise in demand – their prices will rise, too, saving a lot of retirement accounts that invested in commodities. Lumber and steel companies would sell their excess inventory, and more sales mean more jobs, right? Never mind the higher costs, because those “profits” will either be taxed away or transferred to laborers through the new minimum wage laws.
More economic recovery!
With Cash for Demolition, unemployment would be solved: There will be lots of jobs tearing down neighborhoods, shovelling away debris or restoring open space to its rightful place on the empty lots. We can only imagine a stream of grateful Wall Street laborers shedding their three-piece-suits and Blackberries for sweatbands and shovels. Each dollar spent on the Cash for Demolition program would offset falling prices, expand employment and trickle throughout the housing industry. Even rental landlords would benefit, as fewer used homes meant more renters – and that would mean more jobs for superintendents and landscapers and cleaning ladies.
What a lovely, circular economic recovery we’d get! Cash for Demolition would be even more environmentally friendly than trading in smog-producing clunkers, too. Everyone knows how awful housing is for the environment. It’s ugly, all that urban sprawl. We kill trees and waste water building homes with lumber and concrete. Home heating spews pollution into the atmosphere, and toilets and ice makers just waste water. Homes use electricity, too, which means burning coal and natural gas. Tear down homes eliminates garages, which means less places to store those foreign-fuel-consuming cars.
What a win-win we’ll for Mother Nature and the economy!
Yet something doesn’t seem right… I can’t quite put my finger on it. In its infinite wisdom, wouldn’t Congress have already seen this answer? It seems like the perfect magic formula: offer tax subsidies for people to consume. Why stop at cars and homes? Why not computers, cell phones, even energy-inefficient clothing? With a Treasury Credit Card, can’t everybody get a new pair of shoes?
Still, I think we should try it. Cash for Home Demolition would definitely be a hit. What better vision of the future can you think of from our government than using tax money to destroy the two icons of America: the classic car and the family home.