File the “cash for clunkers” bill under “we never learn”.

The last time I checked, there were a lot of pretty smart people making a pretty darn compelling argument that this whole recession is a “chickens coming home to roost moment”. We’re paying the piper now for a long debt dance during which people financed homes they couldn’t really afford and lived with little plastic cards clutched tightly in their hands. We overextended as Jane and John Doe. The big banks went too crazy. Everyone ran around writing checks that they couldn’t cash and finally the entire credit-based artifice began to crumble, crushing many underneath the rubble.

So, what would the smartest possible reaction be to all of the mayhem?

I’ll tell you what it wouldn’t be… It wouldn’t be a government program designed specifically to encourage people to make large purchases on credit.

I mean, really, if you said the best way to create a sustainable economy involved increasing consumer debt loads, you’d be a laughingstock, right?

Wrong. Enter the “cash for clunkers” law.

This legislative gem provides folks who are driving fuel-inefficient used cars with a voucher worth either $3500 or $4500 (depending on the car’s mpg rating) to use toward the purchase of a brand new chunk of American steel!

Now, as you’ve probably noticed, new cars tend to cost more than $3500 or $4500. The Yugo is long gone. Even the el cheapo, no features standard vehicles run around twice the max voucher amount.

So, you’re tooling around in a 1990 Continental featuring a primer gray, yellow and red color scheme due to the previous owner’s affinity for fender bending fun. You’re sucking gas like a dehydrated guy holding a Super Big Gulp. Even if the car had tires with tread (those little wires poking out don’t count), it wouldn’t be worth $3500. But now, you can get a $4500 voucher to put towards the purchase of a brand spanking new Chevy Cobalt.

Where are you getting the balance of the money? Well, duh, the helpful people at GMAC Auto Finance will loan it to you. Or someone else will. Some dummy will spot you the extra moohlah, even though you might end up paying fat interest on the loan.

End result? You just added big ol’ chunk of change to your debt load. Instead of owning your Continental outright, you’re working part of every day just to pay GMAC.

Now, we can probably assume that you don’t have a ton of cushion in your monthly budget. Most folks limping along in rustbuckets aren’t living the high life. Thus, when something BAD happens (and it will), you’re going to have an issue making that car payment. Or you’re going to stiff someone else. Or you’ll go hungry (which seems like a high price to pay for a Cobalt). Odds are that you’re going to be trying to find a way to stave off the repo man when you become the unlucky person who officially pushes us into 10% unemployment.

More debt without more income? Bad. More debt in an already “iffy” economy? Bad.

Plus, cars are a miserable investment in the first place. Depreciation is faster than a new Mustang.

So, the cash for clunker law exists to encourage people to increase their consumer debt by purchasing an item that will lose value before the ink on the loan agreement dries.

Wow.

And that’s not all. It’s going to mess with the market value of older cars, artificially increasing their value and making them harder for the working poor to afford. It’s the worst kind of economic engineering.

The silver lining? It might not make a difference. It might be that the reeling credit industry won’t bother writing loans on new cars for voucher holders, anyway.

So, the cash for clunkers law would either make things worse or have very little real impact whatsoever. A loser either way.

If you want to read about the details of who can get what in exchange for what car and other assorted fun facts about this bit of foolishness known as “cash for clunkers,” check here.

Some other good reading: Elizabeth Hovde and I don’t share the same overall political perspective, but she’s so right about this law that I almost want to kiss her.

I think I do a pretty good job of keeping politics out of my posts here at Personal Finance Analyst.  Occasionally, I slip a bit and provide some clues regarding my personal outlook, but I really do try to keep my posts out of the nasty and generally ineffectual back-and-forths that too often pass for blog-based political debate.

I’m going to try to maintain that with this post, although the subject matter makes it tough to remain “above the fray” or non-partisan.

Here’s the deal.  President Obama and a Democratically-controlled Congress ran, at least in part, on the idea that it was time to pump some bucks into the economy in hopes of staving off a deeper and nastier recession.  Since his election, Presiden Obama has signed into law provisions creating more spending than anyone can truly comprehend as means of turning the economy around.

The economy isn’t turning around.  The stimulus doesn’t appear to be stimulating.  After reading a recent Associated Press article about the White House’s approach to the not-so-stimulating stimulus, I thought people might be interested in trying to figure out why it isn’t doing the trick.

Instead of giving you my personal take on why this is happening, I thought it might be nice to share a few possibilities.

It needs more time. Only a fraction of the money planned for stimulus spending has been pumped into the economy at this point and some supporters of the stimulus package will tell you that it will start working once the circulation of the cash begins to grow.  More of that money is supposed to be in action this summer, so if you take this position, you’re probably expecting progress soon.

It could be worse. You don’t hear this a lot, but I think that it might be fairly persuasive.  It’s possible that the stimulus hasn’t pulled us out of recession but that things would be a heckuva lot worse if we hadn’t done anything at all.  The President sort of hinted at that when he recently stated:

“Now, I know that there’s some who, despite all evidence to the contrary, still don’t believe in the necessity and promise of this recovery act.”

“And I would suggest to them that they talk to the companies who, because of this plan, scrapped the idea of laying off employees and, in fact, decided to hire employees. Tell that to the Americans who received that unexpected call saying, ‘Come back to work.’”

Rose-colored glasses have limited the stimulation. This seems to be a developing theme among those who are speaking on behalf of the stimulus package and the White House.  Basically, they’re telling us that the original plan was created based on estimates that were later shown to be a little too optimistic.  That’s why we’re not back down to 8% unemployment and it’s why the economic graphs aren’t yet showing an up-tick.  The apparent solution to this error in estimation would be a little patience and/or more stimulus spending.

It’s not going to work.  Period. While the other explanations assume that the core thinking behind the stimulus package is sound, maniy will argue that it was doomed from square one and that the programs and spending aren’t going to do solve any economic problems but will instead exacerbate them.  As you’d probably expect, most of these arguments seem to be coming from free marketeers and the loyal GOP opposition.  The fact that they’re biased doesn’t mean they’re not potentially right (that holds true for the previously mentioned takes, too).

So, if you’re trying to figure out why you’re wallet isn’t being stimulated and are questioning the whole shebang, you can take your pick from those explanations.  Regardless of which one(s) you choose, the fact of the matter is that things aren’t yet looking up.  Until they do, it behooves all of us to do our part to back the approaches we feel offer the greatest chance for success and to do our best to keep our own financial houses in order throughout this downturn.

I know I promised to try to keep my politics out of this, but I don’t want to be accused of surreptitiously spinning the issues here.  So, I’ll come right out with it.  While my vote is always in play, I vote with the Democrats more often than with the Republicans.  I voted for Barack Obama and would do so again against the same competition.  That being said, I am not convinced of the stimulus package’s wisdom and an unimpressed with the unwillingness of Americans to accept the temporary pain of market adjustments.  I’m hoping I’m wrong, though.  I’m hoping that we’ll start to see and feel that stimulus package kicking in soon.  Misplaced or not, I always hope for the best after something’s been done, even if it’s not what I would’ve done.

Keep your fingers crossed.

I had a specific question about the 2009 economic stimulus package.  I hopped right on the Google train and crafted a precise search, sure that I’d find out exactly what I wanted to know.  I didn’t get an answer.  None of the first 20 sites on the list provided anything close to genuine information about my specific question.  Not even close.

Instead, I found myself looking at a collection of extremely opinionated sites and blogs that were more interested in ax grinding than in providing real information about the American Recovery and Reinvestment Act of 2009.  There were those on the far left who decried the bill as an Obama sell-out.  There were those on the right who seemed to think that calling it “porkulus” is so clever and who pepper every other sentence with “socialism” or “communism”.  The mainstream left seemed to be more interested trumpeting imminent success of the legislation than in discussing its actual composition.  The mainstream right wanted to discuss deficit spending–not the actual components of the bill.

It made me wonder.  Where can you actually get information about the economic stimulus in detail?  You know, real information about what’s in the law, as opposed to opinion about the legislation in general terms or specific attacks/praises of a few individual provisions…  There’s plenty of healthy (and unhealthy, for that matter) debate out there about the package, but the actual provisions of the law are drowned out in all of the screaming, smarminess and editorializing.

Don’t get me wrong.  I like opinions.  I have a few myself.  I like sharing them, too.  I enjoy a vigorous debate.  Sometimes, though, you just want a little factual information without all of the hollering.

In hopes of putting folks in touch with a little bit of that, I’ve compiled a brief list of where you can get some relatively straightforward information about the American Recovery and Reinvestment Act.  Here’s where you can learn about the economic stimulus package in detail…without too much editorializing.

The Full Text of the Law. Sometimes, you need to take a long look directly into the horse’s mouth.  You can read the whole law.  It’s provided in PDF form, so make sure you have the latest installation of Acrobat up and running.  If you’re not interested in wading through all 400+ pages of the online version of the bill, you can search the PDF.  The search tool is surprisingly fast, considering the size of the document and seems to work well.

Bubble Chart and Other Graphics. If you’d like to see a breakdown of how the stimulus money is being spent, you can take a look at the bubble chart from Recovery.org.  Obviously, this is coming from the current Admininstration which means that it was drawn up by a supporter of the law.  As such, you have some language choices with which not everyone would agree.  However, the bubble chart breakdown, the per state distribution map and the list of expenditures on a per agency basis are all seemingly solid sources of core information about the law.

Another Graphical Breakdown. Here’s a more detailed graphical representation of where the stimulus money is going.  The overall accuracy seems good, though I’m sure we could argue over details.  The trick here is to scroll to the right as you evaluate the information.  It’s an interesting way of showing how resources are to be distributed.

Read the Stimulus. This site was originally set up while the law was still under consideration.  It called for greater transparency during the deliberative process.  Today, you can still use the site to search the full text of the ARRA.  You can do that with the official government PDF, too, but this does seem a little quicker and may be a welcome alternative for those who don’t like dealing with PDFs.

There are a number of reports available dealing with individual provisions of the economic stimulus package in detail, as well.   Once you pinpoint the aspects of the law using a search of the full text of the law, these become much easier to find.

If you want specific information about the actual provisions and details of the ARRA or just need an overall picture of what it actually contains–not what people think about its politics or the likelihood of its success–you may want to start with the above-mentioned resources.  Sometimes it’s nice to just find out what’s really in there instead of dealing with folks on both sides of the political divide claiming that an apocolypse/massive economic boom are on the immediate horizon!

Fidelity Investments surveyed over 1,000 millionaires to see how those perched toward the top of the economic ladder are feeling these days.  Nearly half of them said they didn’t feel wealthy.

It’s true, the millionaire crowd has taken a massive whipping in the marketplace.  The stock market nosedive and all of the associated bad economic news has taken a toll on their investment holdings.  It’s never fun to lose money, even when you have some of it.  It’s probably more than a little frustrating to see your portfolio shrink faster than a 400-pounder on The Biggest Loser.

And while some of the dissatisfaction expressed by 46% of the millionaires may have been an attempt not to rub others’ noses in their cash heaps when times are tough, the resounding message coming out of the Fidelity survey could be expressed like this:  46% of millionaires have absolutely no sense of perspective.

Unemployment is around 9%.  Although we’ve slowed the slide toward economic armeggedon and will undoubtedly survive this downturn, things aren’t going to get better tomorrow.  Life is tough out there for many, many people.  It was tough before the downturn for many, many others, too.  While the millionaires are bummed about losing money, they should try to remember that they were fairly lucky to have some money to lose in the first place.

People have lost their homes.  There are over 100,000 people in chronic homeless nationwide–and that’s just “chronic” status, who knows how many people are temporarily in trouble right now?

While millionaires lament the status of their portfolio and the drop in their home’s value over a slightly smaller cut of Kobe beef, someone out there is sucking ketchup packages in the rain.  While the millionaires don’t “feel” wealthy, some kid is not feeling well because of malnutrition.  Who do you think is better-positioned to come out of this downturn in good shape?  I’m thinking the millionaires are.

Forgive me if I don’t weep a crocodile tear for the dissatisfied millionaires of America.

Don’t get me wrong. This isn’t some kind of crazed “eat the rich” populist rant.  I don’t dislike the rich because they have things.  I understand the role those with greater wealth play in the well-being of the overall economy.  I know that they’re people, too, and I want them to be happy.

HOWEVER…  Anyone who can look out over the economic landscape right now with a net worth in the millions and feel anything less than wealthy just doesn’t get it.  Hey, 46%ers, it’s time to recalibrate your perspective!  Maybe you shouldn’t “feel rich”.  Perhaps, instead, you should feel “wildly rich and much, much better off than so many other people that I thank my lucky stars fifty times per day”.

According to Fidelity’s survey:

Asked what made them feel wealthy, most said to “live within means with little or no debt and with spending under control.”

Here’s a solution, based on that response, for the sad millionaires among us.  Spend less and adjust your idea of what “living within means” really means.  That’s what everyone else has been doing for the last year or two.  Welcome to the party.

Let’s get things moving.  A better economy.  Let’s eradicate poverty to the extent possible.  If we can do that in a way that allows millionaires a little more breathing room, so be it.  I’m not just on the side of the poor.  I’m on everyone’s side–even the Thurston Howells of the world.

In the meantime, if you’re toting a net worth of a million dollars or more, develop some perspective.  You might not feel wealthy but you are.  If you’re not sure, ask someone who’s gone from a working class home to a homeless shelter.  Ask a few of the half million people who lost their jobs last month how you’re doing.  I’m sure they’ll let you know.

The Major League Baseball season is in full swing.  Even though the negative press swirling around A-Rod and the fact that “Manny being Manny” seems to mean “Manny taking stuff that would allow a donkey to win the Preakness” has been a downer, there’s a lot of good stuff happening out there.  Zack Greinke and the Royals (yes, THOSE Royals) are in first place, the Rangers look better than they have since John Wetteland was closing out games with his mega-sweaty ballcap and it’s hard for many of us not to enjoy all of those Yankees fans calling for Joe Girardi’s head.

It’s a great time to head out to the stadium to watch the boys of summer do their thing.  Unfortunately, many people who would have a blast at the old ballyard are staying home because of the costs involved.  Attending a little slice of the nation’s pastime can be an exercise in excessive spending.  Tickets aren’t cheap, you could fill in every pothole on Main Street for what it costs to park and concessions nearly require a second mortgage.

Luckily, there are ways to root, root, root for the home team on the cheap.  Here are a few pointers that might just convince the penny-pinchers of the world to get out there to boo the ump.

Sit in the cheap seats. Although tickets are getting expensive, most of the big league teams have one or more cheap ticket options.  You don’t have to drop $80+ for a lower level “look I’m on TV” seat.  You can watch the game from outfield bleachers or cheap uppers for a fraction of that price.  Colorado Rockies tickets start at $9 per person.  You can catch the Oakland A’s for as little as $9.  Even the Yankees have an option for less than $15.  You may have a hard time snagging the cheap seats for popular games–those sell out fast–but if you aren’t too picky, you can get in on the cheap.

Look for special deals. The recession is taking a bat to the ballclubs, too.  Thus, they’re willing to deal.  Almost every franchise has specials.  You can get four tickets with concession vouchers on the cheap.  There’s one night of the week with special low-price tickets.  There’s a special day where they have a better than usual deal.  Visit your local team’s website to find out what kind of deals are going on with your home team.  Also, look for special prices for those who purchase tickets online.

Tailgate. If you eat out in the parking lot, you can pay Costco prices instead of concession prices.  Bright your mini-Weber and grill up some hot dogs.  If you’re a beer drinker, a six-pack from the local liquore store will probably cost less than a single beverage in the stadium, so take care of your imbibement needs prior to entry.  You get the idea.  Bring your own and eat in lot.  It’s fun, too.

Take a bus. Most teams have some kind of shuttle to and from the stadium and it’s often much cheaper than paying for parking and gas.  It might not be compatible with tailgating, but it can be really convenient.

Bring your own. Most stadiums are okay with fans bringing in their own plastic bottle of water and I’ve never seen a woman with a bag of sunflower seeds or a few sandwiches in Ziplock bags booted out of the stadium.  Check your local stadium’s rules to avoid inconvenience, of course, but you should be able to save some bucks by bringing a few of your own goodies.

You hear these horror stories about how it costs $300 to take the family to a ballgame.  It’s possible to do that.  If you’re buying $10 drinks and $8 hot dogs for everyone, it adds up.  With a little planning though, big league ball can be affordable.

So, we’re in a recession.  We’ve been in recessions before.  We know what a recession is, definitionally, but that doesn’t really give us any idea of why we have them.  What are the causes of economic recession?

Quite frankly, the answer to that question will depend upon who you ask!

David Cornish blames unrestrained capitalism and exessive greed.

Gaynor Borade sees a link between oil price spikes and the onset of recession.

Tejvan Pettinger argues that tight fiscal policy and fast, unsustainable growth have both led to recession in the past.

Stormy Brain explains why so many people are happy to blame the Fed for recessions.

A Washington University news article maintains that experts blame excessive consumer debt for our current economic downturn.

Love a Recession has three lists of potential causes.  The “mainstream” outlook, the authors personal opinion and other potential causes.  The range from speculation to underwhelming consumer confidence to Satan.  Take your pick, right?

Love to Know has an article with the title, “Causes of Economic Recession” that doesn’t even bother to list a single potential cause of recession.  Instead, it maintains that it’s “difficult to predict the causes of economic recession”. 

Another vote for high oil prices in this video.

How about government spending overseas, inflation and the fear of a recession.  Maybe FDR was onto something with that “the only thing we have to fear…” thing, huh?

Those crazy kids who don’t mind being associated with Lew Rockwell blame excessive government regulation.  No.  Really.

Are you getting the gist of this yet?  NO ONE REALLY KNOWS WHAT CAUSES A RECESSION.

That doesn’t stop them, however, from pretending as if they do have an answer.  Not so coincidentally, the causes they uncover are often linked to specific governmental programs of which they don’t approve on other grounds, too.  

In other words, if someone tells you that George Bush caused the recession, that someone probably doesn’t have a “W” bumper sticker.  

If someone tells you that the recession is a direct results of government policies designed to promote minority home ownership via subprime lending, you can probably guess how they’d feel about that policy even if we weren’t in a recession.

For every so many people who blame deregulation for the recession, there is at least one person out there who will take the contrarian view that regulation caused it.  

As far as I’m concerned, you can spin the wheel and embrace whichever pet “cause” it stops on, because your causal analysis isn’t going to amount to a hill of beans anyway.  

The more important consideration at the moment is the fact that we’re in a recession and we might wanna think about how to get out of it before too many more people end up losing their jobs and/or homes.

Which is why I’m proposing the Big Omnibus Recession Elimination Solution (BORES).  Basically, it boils down to developing alternate energy sources to reduce the price of foreign oil and our exposure to price spikes while we engage in less restrictive monetary policy and encourage increased consumer spending (but not debt).  We do this while cutting foreign aid to our allies and banning speculative stock trading.  We’ll deregulate all business by drafting better regulations that will make us more recession-resistant, even though we’ll recognize the inevitability of recessions as part of the business cycle.  Oh, we also need to find a way to defeat Satan.

That’s BORES.  And that’s what you end up with if you start believing the various single (or even “one or two”) issue explanations of the underlying causes of economic recession.

Most of us aren’t particularly keen on recessions.  We tend to thing of them as negative events, the kinds of things with which we’d rather not deal.  Sure, the repo men are loving the downturn, but everyone else seems to be suffering–or at the risk of suffering.  

The idea of examining the benefits of a recession seems a lot like marveling at the great clown performances John Waye Gacy turned in at various children’s parties, in a way.  No matter how many kids he made giggle, it couldn’t possibly make up for the corpses in the crawlspace.  So it is with a recession.  On-balance, it’s such bad news for so many people that it feels a little unsavory to talk about the upside.  There is, however, a real potential set of advantages to be gleaned from this current economic mess and we should recognize them before we become completely convinced that the we’re approaching some kind of Apocolypse.  

First, if you’re relatively insulated from the economic downturn and have sufficient security to make purchases and/or investments with some element of risk, there are real bargains to be had out there.  The stock market features a slew of undervalued issues (no, I’m not going to provide specific stock tips here) and houses are cheap at the moment.  If you’ve got a little room in your finances or have a great credit score, you might want to go shopping.

Second, the Fed’s efforts at staving off a recession have largely consisted of pushing down interest rates.  So, if you fall into the aforementioned group, you’re going to see lower price tags on major purchases and lower price tags on the money you’ll borrow to make them.  Between these two factors, you can get a whole lotta house on the cheap these days.  Just in case, though, buy something you plan on living in, okay?

Third, there’s a big picture reason to at least partially embrace the recession.  It’s going to clean house.  It will force businesses to become more efficient and will reward creativity and quality while punishing the fat and lazy.  In the U.S., everyone claims to love a free market until they see this part of the cycle.  It’s necessary, though.  It prunes out those who made poor decisions and creates openings for smarter, leaner businesses.

Fourth, sticking with the big picture theme, a recession creates an impetus to evaluate the way we’ve been doing things as a nation.  Sometimes, you can actually learn a lesson or two from the consequences of your bad behavior and this could be such a situation.  Maybe it’s not bad for us to come to grips with the fact that credit overuse/overextension and a pollyannish belief in perpetual growth weren’t the best ways to run our financial houses.  

Fifth, if you take it down to the personal level, this economic downturn can be viewed as an opportunity for a little personal development.  Even if that isn’t really part of the benefits of a recession, it is an opportunity to do something worthwhile.  Look at these lists.  Some of the alleged “benefits” aren’t too impressive, but others do offer some potetial to come out of this mess a better and smarter person than the one who entered it.

I’m sure there will be those who disagree, but I happen to think that periodic contractions of the economy are natural parts of a cycle of growth and correction.  I think that they’re inevitable when you are talking about an economy that retains at least some traits of a true market system.  When things go up, we overshoot and come back to the “right” place.  When things go down, we overshoot in the opposite direction before bouncing back.  

This recession isn’t a good thing by any stretch, but there is some good in it.  You just have to look carefully to find it.

We’re going to be discussing the recession and what it means to us as individuals and a society over the next several days.  It seemed like the best way to kick off this conversation was by positing the titular question and getting a grip on what this whole economic downturn thing really means in terms of actual impacts.

Here we are, stuck right in the midst of a recession.  Now what?  What happens during a recession, really?  Understanding the various definitions of the term “recession” (and I think we’re meeting all of them these days) let’s us know where we are, but it doesn’t really help to explain what’s going to happen to us on a real level.  The link between reductions in the GDP and what’s happening in your neck of the woods (or on TV for that matter) isn’t allows easy to spot.

Here’s a quick rundown of some of the things that happen during recessions.  

First, unemployment increases.  This is probably the most obvious impact of a prolonged economic downturn.  In recessions, we’re producing less.  That reduced output requires less labor.  Recessions also tend to put people into a “savings mode” where they spend less, reducing demand for products, which further decreases the need for workers.  Companies struggling to stay profitable and/or afloat will also look at payroll cuts in the form of layoffs or firings as one way to decrease their expenditures.  It’s a nasty little circle, with which negative consequence feeding another.  

Second, the stock market takes a dive.  It’s not hard to figure out why that happens, is it?  Companies are selling less and making less money.  That doesn’t make their stock an attractive investment.  Worries about job and income stability encourage people to become more conservative with their money.  They save instead of purchasing stock or making other, higher-risk investments.  It’s another ugly loop.  People invest less, which drives the market down.  People see the market going down and become even less likely to invest.  

Third, interest rates sink.  The Fed tries to abbreviate the downturn by making capital more readily available to those who could use it to make purchases and longer-term investments.  The hope is that the lower rates will encourage the kind of spending that might begin to right the lilting economic ship.

Fourth, people go absolutely nuts.  During a recession, one may wonder if the doors to a million asylums were kicked open or if some enemy of the state dumped some mind-altering substance into the drinking water.  

Politicians seem to manifest the symptoms of recession looniness first.  They use the downturn as an excuse to pont the finger at rivals for power.  They leverage fear and concern to support their own agendas.  They take bizarre positions on the farthest ends of both political poles.  

The craziness extends to the rest of the population.  Encouraged by media personalities and the above-referenced politicos who have a twisted need to whip people into a frenzy, millions begin to quickly smell conspiracy and develop a thirst for the blood of anyone they can even link remotely to the overall state of the economy.

 Throughout the whirlwind of rants, polemics and fabrications, no one seems to take even a modicum of personal responsibility for the situation.

Okay, the last one is my take on the situation.  The first three, on the other hand are accepted widely as results common to most recessions.

I can think of some very bad decisions a person might make.  Right up there on the list, somewhere between drinking a 32 oz. bottle of bleach and telling your mother-in-law what you really think of her is taking out a payday loan.

Those mega-interest short-term loans are a Faustian bargain for people who have their backs against the wall.  In order to secure a few portraits of Ben Franklin to meet some kind of emergency expense, borrowers often end up creating even tougher circumstances when the balance comes due.  The only way out?  Extending the loan (which costs a bundle) or taking out another one.  

Look, I understand why people take out those loans in some circumstances.  When the only thing standing between you and a jail sentence, the repossession of your only means of transportation or having empty shelves and hungry kids is shaking hands with a shark, taking out a payday loan makes a twisted kind of sense.  You know it’s a horrible deal, but it’s a little less horrible than receiving a massive immediate butt-kicking.

My remaining libertarian instincts leave me a little bit cold on the issue of regulating payday lenders out of business.  I believe that people should have as much freedom as possible–even when that opens the door to stupidity.  There’s no law against telling your mother-in-law off, and I can tell you for a fact that isn’t the best course of action.  Who thinks it’s a good idea to serve cocktails at a Thanksgiving dinner, anyway?

In any case, recent events in the state of West Virginia provide a great object lesson in the motivations others have in trying rein in the practice of payday lending.  Whether you think it’s sticking up for the little guy and protecting his interests or an example of the worst kind of state paternalism, the arguments being leveled by the West Virginia Attorney General’s office perfectly encapsulate the “let’s regulate it  to death” perspective.

Here’s the scoop.  Payday loans are illegal in West Virginia.  You won’t find those storefront lenders anywhere in West Virginia.  That should give you a good idea of how the state government feels about the practice.  It also makes me wonder what kind of businesses are operating in those little strip mall spaces between the discount cigarette joints and the “car insurance for people with a history of DUI convictions” places.  What goes into those spots when payday lenders are illegal?

Desperate souls in the state pulled an end-around on the law.  Instead of walking up to a storefront lender, they’ve gone straight to the Internet, securing online payday loans.  Those Internet operations, which aren’t located within WV, extended credit to the least creditworthy among us.  The state is a little irate over that.

They’re so irate, in fact, that the AG is going after 12 online lenders.  They maintain that it’s illegal to make the loans to West Virginians or to market them within the state.  Following non-compliance on the part of the lenders to investigative subpoenas, the AG is asking for a court order to force the companies to pony up the information about their potentially illegal activities.

This series of events has led to some interesting comments from West Virginia officials.  

“It’s a very very shadowy industry, and it operates very much off the grid. The only answer to payday lending is to ban it,” said Assistant AG Norman Googel.  In a nice overview of the situation in the The Times, a WV paper, you can get a clear picture of how the government feels about these loans.

They see people making bad decisions with serious repercussions.  They don’t like the fact that people suffer as a result of their own poor decisions and they want to protect them accordingly.  They’re willing to tear up the notes on these loans, allowing the borrowers to walk away from their agreements without owing a dime.  They’re actually encouraging people who’ve agreed to pay back money to lenders to report to the AG’s office so that they can escape their poor decisions.

I’m no fan of payday loans and I don’t question the good intentions of those who’d like to ban them.  I do question the wisdom of that.  Can we really protect ourselves at every turn?  And even if we can, wouldn’t it make a lot more sense of the government of the fine state of West Virginia to focus on ways to improve the economy so that people might be able to afford to make ends meet without feeling like usury is a way out?

I don’t think this is necessarily a situation that requires babysitting.  It calls more for a look at why the economy makes these bad deals so attractive.  It justifies consideration of why people are willing to make these lousy bargains in the first place.  

Then again, it might be time for the legislature of West Virgina to consider a bill banning critical comments to mothers-in-law.  Let’s put a rider on there to punish the Clorox every time someone downs a cool glass of bleach, too.

So, I’m wandering my local grocery store and I’m beginning to notice just how much money I’m “saving” by carrying the store’s loyalty card in my wallet.  I couldn’t snag pot roasts on the “2 for the price of 1″ deal without it.  My block of Velveeta, which will eventually become part of a NCAA Final Four Nacho Slam Dunk Feast (by the way, I have Louisville winning the whole thing) would’ve cost an extra $1.75 without the card.  The card even allowed me to pick up a good can of creamed corn with the green giant on it for a little less than the store brand.  

By the time I made it past the tabloids and checked out Valerie Bertinelli’s new bikini body (hubba, hubba) on the cover of People, I had cut my bill down by at least $50 by using that handy-dandy little “rewards” card.

You might be thinking that’s the moral to this particular story:  Get the card and use the card.  The discounts add up.

It isn’t.  It may be true, but the decision about using those cards is actually a little more complicated.

I know you love the supermarket and you’d like to consider you part of their extended family.  There’s a helpful smile in every aisle and the guy at the meat counter treats you like you’re his favorite person in town.  The bakery people slide you the occasional free cookie and the one older lady who runs a checkout line on weekends is a dead-ringer for Aunt Gertrude (only without the creepy moles).

This fun-loving bunch of your commercial amigos, however, isn’t shoving that little plastic card into your billfold because of love.  It’s not about wanting to take care of you.  It’s not a matter of wanting you to be able to put your kids through college.  They give you the card (and the “savings”) because…  Well, because it makes them a boatload of money.

First, the loyalty cards do encourage people to keep coming back to the same store.  You keep going to the same place instead of trying that other market, in part, because you know you can “save” with your loyalty card.

Second, the card is a data source.  Good research makes the corporate world go ’round and those cards provide a great deal of data about you and what you’re buying.  It also gives them a good idea of how often you’re buying the stuff, what you’re willing to pay, what items you buy in tandem with one another, etc.  The store can use that info to maximize its bottom line.

That’s a fair trade, right?  You give up some personal spending data for them to use and they trim a little off the bill.  Nothing wrong with that, is there?

It depends.  It depends on how much personal data you really want to share with the corporate masterminds who run the card programs.  It also depends on how you feel about the way the stores use the data.

There are organizations who are committed to getting rid of these loyalty programs because of the way the data is used.  They argue that supplying the grocery store with all of that information in pursuit of a bargain can lead to:

Higher prices.  The store figures out how badly it can beat you up before you just won’t buy something.  Personally, I don’t have a problem with stores finding the point of price equilibrium, but some do.

Misleading “rewards”.  The store will jack the prices up on certain items, using your card will only bring them back down to earth.  It’s not really saving you anything over the competition.  Meanwhile, it could be making life tougher for the poor or cardless.

Customer-base sculpting.  Grocery stores make most of their profits from top-tier customers.  Those folks toward the bottom of the socioeconomic ladder buy food, but they don’t by the high-margin stuff.  As such, the stores are primarily interested in catering to those folks at the top and don’t really mind if they freeze out the poor altogether.  This can have some serious social consequences, according to critics.

So, are you going to use that loyalty card?  I’ll be honest with you.  I’ll probably still pull it out when they run the “2 for the price of 1″ deals on expensive cuts of meat.  In other cases, after reading what groups like CASPIAN have to say, I might just keep it in my wallet…  At least until I have time to reall think this all through.