As the Cash for Clunkers program begins to wind down, I nominate it as the dumbest government program ever. Here is what the program will have accomplished:
- 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 federal bureaucracy has added 1,100 people to handle all the clunker administration. Again, taxpayers are the losers.
- The environment was not helped. See here and here.
- 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. The program probably further damaged the longer-term prospects of auto dealers and automakers by diverting their attention from market fundamentals in the scramble for federal cash.
Farm subsidies are unjust. Trade restrictions are counter-productive. Energy regulations have done great damage. Housing policies helped cause the financial crisis. But for pure dumbness, Cash for Clunkers takes the cake.