A Cash for Clunkers Postmortem

Brian Doherty | August 28, 2009

Irwin Stelzer at the Washington Examiner with a calm and measured explanation of why cash for clunkers wasn't a good idea no matter how much money it gave away and funnelled to the new, All-American auto industry. (He's a lot calmer about this mega-economically ignorant example of the "broken window" fallacy in action than I am.)

Highlights:

Government forecasters are really bad at their job. The program was originally funded with $1 billion of taxpayer money to cover rebates of $3,500-$4,500 on cars traded in for more fuel-efficient models, and the money was expected to last for about six months. It lasted for one week.....No surprise, then, that the government just discovered that its forecast of the deficit in the coming decade is light by a mere $2 trillion, or almost 30%.

...the government's talents, whatever they might be, do not include efficient administration of its programs......The Department of Transportation assigned 2,000 workers to process dealer paperwork, but they seemed unable to get the money to dealers who, having laid it out in response to promises of prompt repayment, desperately needed the cash. So if you think the President's plan to "reform" health care will make it easier to cope with the paperwork surrounding hospital and doctor's bills, think again.

....programs such as Cash-for-Clunkers have no regard for lower-income consumers. By mandating the destruction of trade-ins, Congress removed 700,000 cars from the used-car market, inevitably driving up prices of the cars that lower-income consumers tend to buy.

And by ordering that a trade-in's engine be destroyed by replacing its engine oil with a sodium silicate solution (which turns out to be in short supply!), Congress sharply reduced the salvageable used parts that are bought mostly by poorer consumers to keep their cars running.

Reason Online has poured silicate in the engine of this dumb plan plenty of times in the past month or so--check out these links, one and/or all.

Comments

TallDave|8.28.09 @ 10:47AM|#

Already, the Obama administration is planning to move forward with a program to make American houses more energy-efficient called "Cash For Broken Windows."

When reached for comment, economists banged their heads on their desks.

creech|8.28.09 @ 11:00AM|#

Why does the Obama administration hate low income Americans?

|8.28.09 @ 11:02AM|#

But think of all those lucky college kids going off to school in *new* cars, instead of Mommy and Daddy's crappy old hand-me-downs!

Your IRS|8.28.09 @ 11:04AM|#

Wait till Turbo Tax informs you next year that your rebate counts as income!
We're still laughing at that one here. Have a nice day!

|8.28.09 @ 11:09AM|#

When reached for comment, economists banged their heads on their desks.

Bah! I think it's a great idea. Mail everyone in America brick. It will prop up the brick industry, keep the USPS running for a few more months, and the glaziers will vote Democratic for decades! Win, win, win.

|8.28.09 @ 11:17AM|#

But Doktor- the extra weight in the UPS trucks will cause a surge in fuel use.

Oh, wait- never mind.

|8.28.09 @ 11:27AM|#

Ha, ha, ha, Mr. Brooks! Yes! Driving us closer to peak oil and the true liberty of being crammed asshole to elbow on an electric bus.

No one is free as long as they still have to choose.

kilroy|8.28.09 @ 11:45AM|#

I can't wait to see what the final $/gal fuel economy improvement figure will be. I'm betting the average improvement was around 6mpg and the average rebate was around $4k. That's $666 we paid for each mpg. I think that speaks for itself.

mark|8.28.09 @ 12:08PM|#

The Chinese probably had some of their hardest laughs at us when the Congress extended C4C.

|8.28.09 @ 12:49PM|#

Cash for Clunkers has a kind of perfection to it, which makes it so very instructive, and hopefully permanently emblematic of the age of Pelosi-Reid-Obama.

What I mean by perfection is that it really has it all: direct, explicit economic asininity as a real live example of the broken window fallacy, a textbook example of the government's inability to run even the simplest of projects efficiently, another illustration that what the government is really all about is funneling resources inefficiently from dispersed groups to favored firms/individuals, capped off with "universal recognition" of how "successful" it was, especially in the opinion of the smug and self-satisfied politicians who concocted it.

To my mind, this is our government's Mona Lisa.

|8.28.09 @ 3:54PM|#

Does it matter? Every statist I know loves this program, several people took advantage of it. I tell them it's bad for poor people because it raises the prices of other used cars and they say "no one wants my car" even though it has a blue book value, someone obviously wants it.
I tell them it takes almost 7 tons of carbon to create a new car, it's not environmentally friendly to trash working things, but they say "oh but this gets more mileage" even though they drive it more.

They don't care about facts, about consequences, it's free money from the government. They don't care where it comes from. No one cares.

I feel the same trying to talk about health care. Or anything, the government wants to give me money? cool! sign me up! How can anyone be against that?

I want to give up

Mr. Chartreuse|8.28.09 @ 8:36PM|#

The funny thing is that they really end up paying people to break windows, will windshields. I'm not sure if Bastiat or Hazlitt thought the government would ever go that far.

qwerty|8.28.09 @ 11:04PM|#

By mandating the destruction of trade-ins, Congress removed 700,000 cars from the used-car market, inevitably driving up prices of the cars that lower-income consumers tend to buy.

You don't get it. Democrats hate cars. They want us all to live in urban highrises, have 1.7 kids, and take the monorail to the government jobs. No doubt they consider this a good thing.

|8.29.09 @ 2:10PM|#

"Already, the Obama administration is planning to move forward with a program to make American houses more energy-efficient called "Cash For Broken Windows."
Uh, I hate to break this to you put there are numerous cash incentive programs for people to make their homes more energy efficient.

|8.29.09 @ 2:13PM|#

"Congress removed 700,000 cars from the used-car market.." how could they be removed from a market they were never on in the first place? If the program allowed you to buy used cars this would kind of make sense, but it didn't.