Is Cash for Clunkers the Dumbest Government Program Ever?

Chris Edwards of Cato suggests "Cash for Clunkers" is the dumbest government program of all time:

• A few billion dollars worth of wealth was destroyed. About 750,000 cars, many of which could have provided consumer value for many years, were thrown in the trash. Suppose each clunker was worth $3,000 at a guess, that would mean that the government destroyed $2.25 billion of value.
• Low-income families, who tend to buy used cars, were harmed because the clunkers program will push up used car prices.
• Taxpayers were ripped off $3 billion. The government took my money to give to people who will buy new cars that are much nicer than mine! ...
• The auto industry received a short-term “sugar high” at the expense of lower future sales when the program is over. The program apparently boosted sales by about 750,000 cars this year, but that probably means that sales over the next few years will be about 750,000 lower.

We aren't too fond of Cash for Clunkers either.

Cash for Clunkers Crash and Burns

The New York Times reports that car dealers in New York have pulled out of the government's cost-shifting program to aid automakers in Detroit under the banner of environmental awareness. But dealerships are simply unable to pay employees or normal maintenance costs with the majority of their reimbursement requests still unapproved.

One dealership owner explains, “The bottom line is the bad outweighs the good,” Mr. Wondergem said. “I had to make a decision to stop participating because of the stress and the risk. This program has really consumed my life. "

The waits are so widespread that GM is now offering to deposit a temporary infusion of cash in order to shore up dealership's accounts and keep them participating in a program that has allowed the auto maker to raise production.

Meanwhile charities are hurting as vehicle donations suddenly drop, used care dealers are complaining about low inventories, and repair shops worry about the difficulties they will face when looking for spare parts.

Cash for Clunkers Falls Prey to Laws of Economics

Congress's  ill-named "cash for clunkers" program has, like so many programs before it, failed to defy the laws of economics.

As typically happens when government subsidizes something - the price for cars has gone up. The blog "Legal Insurrection" looks at car sales data and notes that consumers are getting far less "discount" off the sticker price - which makes sense, given that dealers have less incentive to lower prices, as consumers need to buy now to take advantage of the "cash for clunkers" voucher.

They also note that the price for used cars is increase, which also makes sense, when you consider that the cash for clunkers program requires trade-ins - which would otherwise be resold (likely to lower-income households than those trading them in) - to be destroyed.

And Matthew Gagnon notes on the Next Right that all Congress has done is create another "bubble" - this time in the automobile market.  Lots of folks are buying cars now to take advantage of government subsidies, which will only result in a steep drop in sales later.

If Only Congress Passed an "Economics for Dummies" Program

It always amuses me to see "cash for clunkers" ads on TV these days. This government subsidized program, like hundreds of others, has been a tremendous failure.

The transportation Secretary, Ray LaHood said on Sunday that unless the Senate approves $2 billion in additional funding, the Obama administration could be forced as early as Tuesday to halt the "cash for clunkers" program that has become one of the most visible and fast-acting of the government's economic-stimulus programs. This legislation is a prime example of economics going completely senile in the hands of the state. This program would be the same as everyone burning a sofa and dining room set and refurnishing their homestead every couple of years.

In effect, the government has opened up a Pandora's box of problems. Firstly, taxpayer money is being used inefficiently. Second, this stimulus money is nothing short of a bailout for large companies with a lot of leverage. Ford Motor Co. expects to post its first year-over-year monthly increase since 2007, in part because of the bounce from the program. Third, this program has shot up demand in such a way that dealers have not been able to meet supply, forcing companies to cut rebates that were promised. Fourth, only individuals with cars that have low gas mileage (read: SUV, Hummer drivers) are the ones getting this rebate.

No wonder Nathan Benefield is still upset that his car wasn’t eligible, especially now that many of the SUVs that are traded in as “clunkers” and are destroyed are better than his new car.

Cash for Rich People Who Drive Hummers

It is pretty clear that the Cash for Clunkers proposal is a dumb idea to intervene government in the economy and distort the market (or as Charlie Dent called it, a lemon). But it is also likely to pass, as it is included in the War Appropriation bill (Don't see the connection? If we don't pass Cash for Clunkers, the terrorists win.)

So I got to thinking, "Daddy needs a new car", so let's see what I can get out of this dumb idea.

Turns out, I get nothing. The official fuel economy on my car is just a hair over the 18 mpg limit (granted, I don't get 18 mpg, but that's how it was listed when the car was new).

But what really gets me is that fuel economy is the only definition of "clunker" - that is, my 1995 Buick Riviera with the dent in the side that makes a lot of noise it shouldn't is not a "clunker" - but my bonehead neighbor's 2008 Hummer is. In other words, this is simply a subsidy program for rich people who bought SUV's a couple of years ago, and are now regretting that decision.

It should also be noted that cars traded in for the subsidy have to be destroyed - which may mean my neighbor won't traded in his 2008 Hummer, since he would get more in trade-in value.  But for me, I get the shaft again, because the type of car I am in the market for would be about a $3,000-$4,000, slightly newer car or truck - i.e. the ones my tax dollars will be buying and destroying.