The Clunker Crash

American Spectator has a nifty article today exposing the con of the Cash for Clunkers program. I've always believed that the program is a poor idea because it is an artificial manipulation of the normal economic cycle which always backfires on the other end.

Yet many are extolling the virtues of the program, celebrating the fact that dealers showrooms "are packed!" with people and "cars are selling!". Of course, the problem is that soon the $500 per month car payment will come due and not long after that, the repo man for some of these cars. Some of these buyers can afford the car and were probably waiting for the right incentive to leap, but a disproportional number, I'm betting, couldn't afford the purchase in the first place which is why they were still lumping to work in the old Toyota with 150,000 miles.

After the program runs its course, the artificial stimulation of new buyers will dry up the cobwebs will grow over the doors of the dealers.

The Specator article also addresses, of course, the fact that good, used parts to keep your car running will now disappear as the Clunkers are destroyed. Goodbye salvage yard. And the folks dependent on those used parts for their cars? Bus fare.

Read the whole thing; it's enlightening.

Let's Try a Cash for Computers Program - I Could Use a New One of Those

Cash for Clunkers is already out of money; it ran through $1 billion in one week, and now Congress has voted to extend the program by another $2 billion. The Senate has not yet approved; if the Senate does not approve, Transportation Secretary Ray LaHood says the program will be suspended. Senator McCain has vowed to filibuster a move to give the program more money.

The Wall Street Journal has a piece this morning suggesting that we also subsidize other industries that are in trouble: "Let’s have taxpayers subsidize the purchase of kitchen appliances, women’s clothing, the latest Big Bertha driver—our Taylor-made is certainly a clunker—and new fishing boats."

This is a similar suggestion to one I heard on Mike McConnell this weekend when he suggested "Cash for Carpet." It's all tongue in cheek, of course. Certainly Congress would not consent to assisting those industries, partly because Congress has no vested interest in them as it does with the auto industry.

Is Cash for Clunkers a success? Does running out of money mean you are a success? I'd suggest it shows simply that Americans aren't stupid (for the most part) and if the government wants to help buy them a car, they're in for the ride, so to speak. The WSJ concurs, saying, "What the clunker policy really proves is that Americans aren’t stupid and will let some other taxpayer buy them a free lunch if given the chance."

This issue came up in the comments of another post on this blog yesterday with the commenter extolling the virtues of Cash for Clunkers and it's potential to rev up the economy ("cars got sold in the middle of a severe recession"!). But it all seems at cross purposes to me. First of all, of course a $4,500 tax credit will help someone buy a car; but who is paying for the car? That $4,500 comes from Joe Taxpayer. You. Why does the American taxpayer have to buy someone else a car?

And who is making the cars that are being sold? Chances are, it's a government owned auto company. And who is lending the money to buy those cars made by auto companies the government owns? Probably a government owned bank.

Meanwhile, perfectly usable cars are being destroyed and dismantled under the program (which means those parts won't be in your local salvage yard). The car must be drivable to be eligible for the program and in many cases the car was probably getting somebody to and from work on a daily basis. Now they get to go in a new car bought by you.

I've got nothing against anybody having a new car, but the WSJ calls this "crackpot economics":

On the other hand, this is crackpot economics. The subsidy won’t add to net national wealth, since it merely transfers money to one taxpayer’s pocket from someone else’s, and merely pays that taxpayer to destroy a perfectly serviceable asset in return for something he might have bought anyway.

Maxwell Power at The Examiner shows how the program really isn't going to benefit dealers in the long run. He calls it "feel good crap," and suggests lowering taxes on small businesses would be a better tool for saving the economy.

It's kind of like redistribution of wealth, if you look at it that way. Senator Jim DeMint has said that Cash for Clunkers is an example of “stupidity coming out of Washington right now.” The government has no place in the used car business, some assert. But they do when they own the auto industry. Noting his intention to filibuster the Senate bill to give Cash for Clunkers more money, Senator McCain said, “Within a few weeks we will see that this process was abused by speculators and people who took advantage of what is basically a huge government subsidy of corporations that they already own."

All in all, the Cash for Clunkers program is rather incestuous in it's cross purposes; it also shows how the government once again underestimated or misjudged how things would go. (Remember when Biden said they misread the economy?) Do we really want these people running our health care industry? Crikey!

(More at Memeorandum)