0

FGF E-Package
The Conservative Curmudgeon
September 3, 2009

Cash for Clunkers: A Dangerous Precedent
by Allan C. Brownfeld

ALEXANDRIA, VA — The so-called “cash for clunkers” program got off to such a fast start that its $l billion allotment was gone in just one week of operation. Congress quickly allocated another $2 billion before leaving for its August recess. Now that the program is history, what lessons can we learn?

Democrats claim that this program was a great success, while Republicans argue that the fact the program ran out of money so quickly proves that government cannot run a health care system.

What the program really proves, argued The Wall Street Journal, “is that Americans aren’t stupid and will let some other taxpayer buy them a free lunch if given the chance.” The program, stated the Journal, was good for people who owned an older car or truck but were not sure they had the cash to trade it in for something new. They got a taxpayer subsidy of up to $4,500, which on some models could be 25 percent of the purchase price. Therefore, “It’s hardly surprising that Peter is willing to use a donation from his neighbor Paul, midwifed by Uncle Sugar, to class up its driveway.”

In the end, however, it is bad economics and sets a dangerous precedent for the future. In the Journal’s view, “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. By this logic, everyone should burn the sofa and dining room set and refurnish the homestead every couple of years... Since money is no object, let’s give everyone a $4,500 voucher for other consumer goods. Let’s have taxpayers subsidize the purchase of kitchen appliances, women's clothing... and new fishing boats.”

The cash for clunkers program was more about rewarding two politically powerful industries — automakers and auto dealers — than about promoting energy efficiency or stimulating the economy.

As a way to improve mileage, the program made little sense. Individuals qualified for a $3,500 credit with trade-ins that netted just four additional miles per gallon. With 10 additional miles per gallon, they received $4,500. For light trucks and SUVs, the numbers were even smaller: two and five. All trade-ins were required to get l8 miles per gallon or less, and the program provided no incentive to buy any cars getting greater than 28 miles per gallon — perhaps because this is a segment of the market in which the foreign automakers are strong.

An editorial in The New York Post noted that, “As economic stimulus, the program is bogus.... The money allocated is enough to generate about 250,000 trade-ins. While that may seem like a lot, about 200,000 would have happened anyway, industry experts say. If taxpayers are spending $l billion for about 50,000 additional car purchases, that comes to about $20,000 per car. In theory, the first $l billion clears out all the people who would have traded in anyway, so any additional money could be more stimulative to the economy. That may be so. But if the best that can be said for spending another billion or two is that it won’t be wasted like the first billion, it makes for a pretty weak argument.”

Perhaps most destructive was the provision that the clunkers subsidy is distributed only when the old cars are destroyed. Thus, a billion dollars or more was spent to destroy automobiles that could well have been sold to those of limited income in need of cars.

Senator Jim Inhofe (R-OK) declared that, “...cash for clunkers is a perfect example of why government should not get into the business of running businesses. It just doesn't work. Unintended\ consequences abound.... It seems a little suspicious to use taxpayer dollars to prop up the now-government-owned car industry, which was purchased with 80 billion of your tax dollars.... Temporary programs become permanently entrenched interests, and the public good becomes servant to a favored constituency.”

In Inhofe’s view, this program could have been ”the most regressive program Congress has ever enacted. Millionaires can get a few thousand dollars knocked off the price of a new car as long as the price tag is less than $45,000. Meanwhile, thousands of Americans, despite the government incentive, cannot afford a new car. These Americans must shop the market for used cars. Unfortunately for them, in order to save face on producing any environmental benefits under the program, traded-in cars must be scrapped. This reduces supply in used car and used parts markets, thereby increasing prices.”

It is not only free market advocates and critics of the Obama administration who found the cash-for-clunkers program objectionable. The Washington Post, usually a supporter of Obama administration initiatives, noted that, “Stimulating the economy through more government spending and tax cuts is a much disputed idea. But at least a tax cut or an increase in unemployment benefits puts money into the hands of consumers generally and lets them decide how to spend it, rather than having the government choose which sectors of the economy will benefit. ‘Cash-for-clunkers,’ by contrast, redistributed demand as between cars and other goods, or between various models of cars. Car repair shops, parts stores, and used car dealers suffer.”

Senator John McCain (R-AZ) predicted that, “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 or corporations they already own.”

Business has shown us once again that its interest is not in free enterprise and free markets — but in profits, however obtained. Thus, the cash for clunkers program was not only enthusiastically supported by the automakers and the National Automobile Dealers Association but also by the U.S. Chamber of Commerce — in the midst of its “Campaign for Free Enterprise” — and by the National Association of Manufacturers.

The philosophy embodied in this program is the opposite of what we have always known as the free market. Where will it end? “I hope one of my colleagues will propose cash for golf clubs,” suggested Senator John McCain. “I've had many calls from people who have old golf clubs and they'd like to have some cash for them.” Senator Tom Coburn (R-OK) asked, “Why not dishwashers? Why not washing machines? Why not boats? Why not RVs?”

Sadly, when it comes to getting something for nothing with taxpayer dollars, everyone seems to line up. Both the Obama administration and the business community, it appears, are co-conspirators in this effort. It sets a dangerous precedent for the future.

The Conservative Curmudgeon archives



The Conservative Curmudgeon is copyright © 2009 by Allan C. Brownfeld and the Fitzgerald Griffin Foundation. All rights reserved. Editors may use this column if this copyright information is included.

Allan C. Brownfeld is the author of five books, the latest of which is The Revolution Lobby (Council for Inter-American Security). He has been a staff aide to a U.S. Vice President, Members of Congress, and the U.S. Senate Internal Subcommittee.

He is associate editor of The Lincoln Reveiw and a contributing editor to such publications as Human Events, The St. Croix Review, and The Washington Report on Middle East Affairs.

The Fitzgerald Griffin Foundation needs your help to continue making these columns available. To make a tax-deductible donation, click here.

© 2009 Fitzgerald Griffin Foundation