Cash For Clunkers = stupid waste of money

August 1, 2009 · By

What do you get when you combine a naive environmentalist, a crooked crony capitalist banker, the American auto market and the power of the state? Answer: government subsidization of waste. Its current incarnation is the Cash For Clunkers joke.

Watching Americans rally around the perceived success of the Cash For Clunkers is better than what any situational comedy could ever be produced on American television. It is just astounding how stupid people can be. Some Canadians are duped about this too apparently.

If poor people need cars but can not afford the cars, the solution is simply to give them money and let them do as they will. There is no need to make things more complicated. Better yet, things can be even simpler: let consumers keep more of their own money by cutting their taxes.

The absurdity of Cash For Clunkers is beyond belief. The scheme is as intelligent as a caveman barter system yet less efficient. There is no need to take money away from people just to give it back to them again — unless, of course, the scheme is to foster somebody skimming off the top.

If you wish to think that fuel efficiency is the target of this nonsense, I suggest you learn something about the magic of markets: the fuel efficiency savings — assuming it actually exists — is already incorporated in the price of the new car. In other words, consumers of fuel efficient cars will be saving on future fuel costs anyway. The Cash For Clunkers is great for stupid people who can not use a calculator.

Malinvestment

Here is the sad part of the story: such nonsense government schemes provide a false market signal to entrepreneurs:

“It’s also brought in a lot of other traffic, sort of like a signal that it’s safe to come back into the marketplace.”

AutoNation, the largest new-vehicle retailer in the U.S., has done “just under” 3,000 cash-for-clunkers sales, Jackson said.

“Any doubt that the CARS program would jump-start auto sales is completely erased,” said Greg Martin, a GM spokesman. Detroit-based GM left a U.S.-backed bankruptcy on July 10, 39 days after predecessor General Motors Corp. filed for Chapter 11.

How is it safe to come into the market place again? This consumer activity exists ONLY as long as the government is doling out money — something that can stop suddenly any instant.

Gullible environmentalists

Here is the laughable part of the story: naive socialists can not see how they are being used to line the pockets of crony capitalists.

UPDATE: (Friday, August 7th, 2009)
Reuters offers an analysis that belongs in the garbage heap — qualifying the program as “successful” but then says that sales are down So, Mr. Reuters, what qualifies as a success? Is the number of carbon atoms floating in the air? or the amount of money spent? maybe a sudden financial bubble? what?

UPDATE #2

Hundreds of auto dealers in the New York area have withdrawn from the government’s Cash for Clunkers program, citing delays in getting reimbursed by the government, a dealership group said Wednesday.

NY dealers pull out of clunkers program

Comments

14 Responses to “Cash For Clunkers = stupid waste of money”

  1. dollops on August 1st, 2009 10:48 am [#]

    Cash/clunkers and mandatory vehicle insp. are auto prohibition for poor people. My 30+ years in towing and repair convince me that older cars are driven less often, more necessarily, and far more cautiously than new ones.

  2. c on August 1st, 2009 9:25 pm [#]

    “Here is the laughable part of the story: naive socialists can not see how they are being used to line the pockets of crony capitalists. ”

    Upon what basis are you differentiating between capitalists and socialists?

  3. brad maynard on August 3rd, 2009 6:11 pm [#]

    lets see, what are the long term implications of this scheme.
    less used vehicles on the market which will drive up the cost of said used vehicles as well as parts. i dont even need to touch upon the environmental aspects since its not been addressed at all in this plan. ( i dare a tree hugger to argue the merits of this program.)
    many of the vehicles that have been sold have not been manufactured in the US which means more money flowing OUT of the country than in.
    as posted, the market will undoubtedly misallocate resources to a false market indicator. this will have the effect of overproduction resulting in inventory buildup. it will also have the long term effect of removing future customers who would have otherwise purchased a vehicle sans government handout for the next 5 years. the only thing stimulated in this economy is another bubble. WHAT A MESS THEY HAVE CREATED!!!

  4. Charles Anthony on August 4th, 2009 6:03 am [#]

    Bubble? What bubble?

    Mr. C,
    In our current state of affairs, I do not differentiate between the two groups at all. It sounds like you are starting to understand my bias. I wish to dispel the fallacy that there is any objective difference between the two groups. You are all the same to me. Anybody who uses capital is a capitalist. Anybody who defends the coercive power of the state — in normative terms, that includes socializing costs or responsibilities — is a socialist. Alas, my argument against Cash For Clunkers and my contempt for all things statist do not depend on any distinction between the two groups.

    A person who chooses to identify himself as one of the groups may feel targeted and denigrated by my protests. I do not care. The best that I can do for the economically ignorant socialist or capitalist, is to offer an argument against Cash For Clunkers scheme so that they both might reject it.

    Please note: I said crony capitalist. That is important. There is nothing morally wrong with using capital and thus being a capitalist per se. Whereas, a crony capitalist is a hypocrite (be that a result of instinct, ignorance or pure dishonesty I care not which) who pretends to acquire wealth in a self-sufficient manner. In other words, the crony capitalist socializes his costs and hides it with devious market manipulation that most people never get to see. The common socialist does the same but in an overt manner.

    Mr. Dollops,
    You seem to have more common sense than most our politicians and regulators. I wish you a lot of luck in your business. I have driven through your part of the country a few times and it is strikingly beautiful.

    It encourages me to see that you recognize how poor people are systemically disadvantaged by this scheme and and other government regulations. The transportation costs for the poor are augmented and these subsidies help the rich.

    I see nothing wrong with people driving old clunkers. In fact, I drive one myself and I plan to drive it to the ground or until my maintenance costs get too high — whichever comes first. Any other habit is wasteful, in my opinion. I do not believe the old clunkers spew out more pollution than do the new ones.

  5. c on August 4th, 2009 7:43 am [#]

    “Here is the laughable part of the story: naive socialists can not see how they are being used to line the pockets of crony capitalists. ”
    ” I do not differentiate between the two groups at all.”
    “Alas, my argument against Cash For Clunkers and my contempt for all things statist do not depend on any distinction between the two groups. ”

    So… one group of people are being used (by themselves) to line their (own) pockets?

  6. Charles Anthony on August 4th, 2009 7:56 am [#]

    No.
    One group of people (who may identify themselves as socialists) are being used by an other group of people.

    They all just happen to share similar traits. They both use the infrastructure of the state as a means to an ends — to coerce their fellow citizens.

    I find that all very laughable, almost as laughable as your questions and feigned misinterpretations.

  7. c on August 4th, 2009 12:14 pm [#]

    “One group of people (who may identify themselves as socialists) are being used by an other group of people.

    They all just happen to share similar traits. They both use the infrastructure of the state as a means to an ends — to coerce their fellow citizens.

    I find that all very laughable, almost as laughable as your questions and feigned misinterpretations.”

    Upon what basis are you differentiating between the two groups of people?

  8. brad maynard on August 4th, 2009 8:38 pm [#]

    to charles anthony re bubble? what bubble.
    treasury bonds of course. though this scheme is cheap by obama standards, it is yet another expenditure on the heap of expenditures all in the name of necessity. the last few bond auctions have been just this side of embarassing lately and are a great cause for concern. what i am looking for in the next couple of months is to see whether we will see another inverted yield curve indicating banks pulling the purse strings on short term lending due to excessive risk (even by their lax-ass standards) and the steady depreciation on the US dollar index (currently sitting at under 77. it is truly funny to hear the lib left talkers like stephanie miller shout the merits of this program instead of seeing it as the massive broken window fallacy that it is.

  9. Sigh on August 8th, 2009 6:07 am [#]

    Do you often regurgitate reason.com articles like this?

  10. penny on August 10th, 2009 8:11 am [#]

    i heard that the people that purchase cars thru the cash for clunker program have the report the money on there income tax as income TR9

  11. Charles Anthony on August 11th, 2009 1:37 pm [#]

    In response to Stephanie on Facebook:

    Cash For Clunkers does not buy you a new car nor does it help people who can not pay the extra difference to buy a new car. Such people are the poorest of the poor. Everybody else is relatively rich.

    A rich person — who happens to have a clunker — can get money in exchange for the clunker. Yet, the poorest of the poor are forced to pay the taxes that subsidize the very program and that is not fair. I hope that clarifies the injustice of which I write in the article.

  12. Bob Smiley on August 20th, 2009 9:23 pm [#]

    I just wish you spelled it out in plainer english that folks who are not in the market for a new car … well, part of their tax money has just gone to help others buy a new car. I have an old car that qualifies as part of the Cash for Clunkers program. However, I don’t want to fritter away money on a new car right now when I could be buying up long-term investments for low price in the down market. However, I still pay taxes. And now I get to sleep easier at night knowing the government just doled out some of my tax money to folks so they could buy a new car. You’re correct in this being a false market indicator which will cause a new bubble. Some auto-manufacturers have re-hired layed-off staff to crank up production again…for what? For a spike in demand that was driven by government sponsorship. It’s just annoying any way you look at it. They need to quit “playing god” and just let financial darwinism take it’s course.

  13. Charles Anthony on August 21st, 2009 8:16 am [#]

    Bob,
    Your criticism is well taken. However, my intention was to demonstrate the inherent malinvestment spurred by the program. The incentives created and subsidized by the government creates an artificial bubble and at least that message got through. This is predictable and based on economic principle — something that socialists commonly lack.

    There are many reasons to object to government intervention in the markets, in my opinion and the injustice it creates is certainly first and foremost. Sadly, I also think that many government apologists do not care about the injustice they create. So, appealing to the injustice of a government program does not sway everybody. Some people just do not care. Others, in my opinion, actually want injustice.

    Nevertheless, by presenting this stupid Cash For Clunkers nonsense as the creation of an economic bubble, I hope that it will lead readers to reconsider practically all government interventions as potentially doing the same: the source of artificial market signals leading to unreliable investment.

    There is a huge rift in modern economic thought whereby the vast majority of economists try to explain business cycles with convoluted theory. Most of them get it all wrong because they would be biting the hand — i.e. the government — that feeds them. I also think that some of them have such a parasitic mentality that they can not even conceive of a life without government dependence. Our latest Nobel laureate, Paul Krugman, is a classic example of such nonsensonomics. Behind his feel-good rhetoric, you will find flip-flops and misrepresentation.

    On the other hand, honest economists never get a fair shake. Nobody wants to hear that the government is the instigator of false economic signals and recessionary market activity because that presents a descriptive (as opposed to a normative) condemnation of the very instrument — i.e. the government — that socialists think is the only solution. As you suggest, they would have to stop playing God.

  14. jack meoff on August 24th, 2009 2:35 am [#]

    Who had more power to mind control? Was it Obama or Charles Manson?
    Who did more damage to the American people, Obama or Manson?

    It would serve the dealers right if the government screwed them out of millions of dollars for these cars that they have blown up.
    I have a 94 F150 that has a 300cid engine with a stake bed and a auto crane on it and it get’s right around 7 mpg and I would never allow my truck to go threw the hell of getting Obamas deadly soft drink in to the crankcase.
    Obama will get a lot of mileage from this dumbass attack at the next election.
    All the car dealers that get screwed and the employees will remember why they lost their job’s and so will the people that traded in there cars and had to pay back the 35-$4,500.00
    When the deal falls threw and the dealer demands the cash from the car buyer.
    The person that turned in the so called clunker is not just out the time to pick up the new car but will also be out the so called clunker that they traded in and got nothing for it when the dealer takes back the car from them.