Sigh. Will the error never end? If you listen to Washington, you would think that taking money from taxpayers, who otherwise would buy cars, homes, computers, and any number of other items, and giving it the same taxpayers to get them to buy cars is a great way to stimulate the economy.
Of course, the Keynesian hope is that Americans will spend rather than save, as if the best way to resolve a crisis resulting from too much spending and borrowing is to encourage more people to spend and borrow more. Alas, Washington has never met an expensive new program that it didn’t like.
In fact, the “Cash for Clunkers” program is an even dumber idea than most “stimulus” proposals. Cato’s Alan Reynolds notes how easily the program can be manipulated to frustrate the objective of improving auto gas mileage.
Moreover, the initiative probably doesn’t increase auto sales. Rather, it primarily rewards people who would have bought a new car anyway. Explains Jeremy Anwyl in the Wall Street Journal:
Nearly everyone now seems to be praising “cash for clunkers”—the federal program recently launched that will credit you up to $4,500 to trade in your old car for a more fuel-efficient vehicle. President Barack Obama says the program “has succeeded well beyond our expectations and all expectations.” Transportation Secretary Ray LaHood claims “this is the stimulus program that has worked better than any other stimulus program that was conceived.”
But cash for clunkers is also a program in limbo, having quickly run out of the $1 billion budgeted for it. Congress must now decide whether to let it die or whether to pump more money into it. So it’s time to ask if this program is really a good idea.
It is true that Internet car shopping activity, showroom traffic, and sales are all up, which is why the auto industry wants to keep the program going.
I love a good sales surge as much as anyone. But it’s not that simple. First, it’s not clear that cash for clunkers actually increased sales. Edmunds.com noted recently that over 100,000 buyers put their purchases on hold waiting for the program to launch. Once consumers could start cashing in on July 24, showrooms were flooded and government servers were overwhelmed as the backlog of buyers finalized their purchases.
Secondly, on July 27, Edmunds.com published an analysis showing that in any given month 60,000 to 70,000 “clunker-like” deals happen with no government program in place. The 200,000-plus deals the government was originally prepared to fund through the program’s Nov. 1 end date were about the “natural” clunker trade-in rate.
Let’s hope we can be saved from additional “stimulus” proposals which do far more to waste money than spur the economy.