Cash for Clunkers and its Critics

Andrew Sullivan thinks Republicans hate the cash-for-clunkers program, wherein the government gives people up to $4500 of taxpayer money to trade in their cars for newer ones that get slightly better gas mileage, out of “emotional reaction to the end of the far right’s dominance of American discourse.”

[C]ash-for-clunkers is one example of the government actually doing something right, helpful and popular. It’s the kind of pragmatic experimentation that FDR tried repeatedly. So you have a practical, targeted measure that seems to have helped abate a deeper recession in the auto industry, and the right is obsessed with the ideological abstraction of “government.”

What conservatives have to do, in my view, is not demonize government, but to champion limited government. If government can do tangible practical things that help everyone, while balancing its budget, it’s doing what conservatives think it should. Smart, practical initiatives that address problems that the private sector has failed at: what else is government for? The rest is ideology – and it seems to be all the Republicans have left.

My word, how can one simultaneously champion limited government and defend this program?!

Of course it’s popular. As Dave Schuler notes, “Free money always is.” The problem is that “this money isn’t free, the program doesn’t help the environment, it doesn’t necessarily help U. S. automakers, it isn’t targeted at people in need, and it doesn’t help the economy.”

But isn’t the auto industry failing? And didn’t people rush out to buy new cars with this nifty, FDR-style innovatively awesome program of just the type Michael Oakeshott would have loved?  Edmunds CEO Jeremy Anwyl thinks not:

As we noted earlier in July, over 100,000 buyers had put their purchase on hold waiting for the Cash for Clunkers to launch. Is it any wonder that showrooms filled and the government servers crashed when this backlog of buyers rushed to finalize their purchase?

Secondly, last week we published an analysis showing that in any given month 60,000 to 70,000 “clunkerlike” deals happen with no government program in place. In other words, the 200,000-plus deals the government was originally prepared to fund were barely above the “natural” clunker trade-in rate.

So, the program was destined to sell out quickly. As word of this spread around the Internet, any consumer with any interest at all, rushed into their local dealership so as to not be left out.

Clearly, the sales frenzy of last week was inevitable. In fact, students of economic theory will quickly recognize the dynamics of a classic shortage. We have taken three to four months of normal activity and caused them to occur over a few days, as consumers rushed to not miss out.

Stan Collender worries that we’ve essentially created a new entitlement, with people conditioned to demand money from the government as incentive to take actions they were likely to take anyway.

The cynics at WSJ pile on:

The subsidy won’t add to net national wealth, since it merely transfers money to one taxpayer’s pocket from someone else’s, and merely pays that taxpayer to destroy a perfectly serviceable asset in return for something he might have bought anyway. By this logic, everyone should burn the sofa and dining room set and refurnish the homestead every couple of years.

Why not, they wonder, offer $4500 subsidies for everything?

Clearly, we spoilsports need an attitude adjustment to Washington’s new economics. And since money is no object, let’s give everyone a $4,500 voucher for other consumer goods. Let’s have taxpayers subsidize the purchase of kitchen appliances, women’s clothing, the latest Big Bertha driver—our Taylor-made is certainly a clunker—and new fishing boats. These are hardly less deserving of subsidies than cars, and as long as everyone thinks we can conjure wealth out of $4,500 giveaways, let’s go all the way.

Piggybacking on WSJ’s point, it strikes me that the “clunkers” aspect of this arrangement is morally dubious.  Glenn Reynolds‘ 2004 Mazda RX-8 is a clunker that, were he so inclined, he would be eligible to trade to the government (indirectly) for $4500.  It would then be scrapped.  Doesn’t this remove a perfectly good used car from the market that some person of modest means could otherwise have purchased, either upgrading from an older, less reliable vehicle or none at all?  And doesn’t doing that mean the price of other used cars will increase accordingly?

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James Joyner
About James Joyner
James Joyner is a Security Studies professor at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Dave Schuler says:

    I think that Andrew is playing the shell game. This

    seems to have helped abate a deeper recession in the auto industry

    is misdirection. Does the program really seem “to have helped abate a deeper recession in the auto industry”? Or is it merely time-shifting purchases forward and backward? I haven’t seen any data that would support the notion that it’s doing what he claims it is.

    My opposition to the program isn’t ideological, at least not in the sense he seems to mean. I don’t have an objection to a federally-subsidized program incentivizing consumers to do this or that. But why automobiles? And why (other than political reasons) with such meager requirements? I’d have rather seen subsidies for solar or wind energy.

    And why not subsidies for transferring newer used vehicles to people in lower economic sectors rather than new cars to middle (and upper middle) income people?

    The possibilities are practically endless and this program is just dumb. Above all we shouldn’t be incentivizing manufacturing more cars.

  2. Steve Plunk says:

    Some say the best defense is a good offense. Attacking Republicans has become the standard daily regimen for Dems in order to stamp out criticism of their programs. Rather than defend the program outright why not just smear conservatives? Make them out to be petty and somewhat wacko (Birthers). I’m betting Rahm likes these tactics.

    The Clunkers program is turning into a complete failure and the Dems have no defense. Dave S. laid out why it’s bad quite nicely but the Libs would rather blame it on bitter conservatives hanging to their Buicks and emotional insecurities.

  3. E.D. Kain says:

    I think I’m going to sell my crappy minivan and buy a used Subaru. In the end, that’s still a lot more economically sensible for someone like me. This program is better than just giving money directly to the automakers, but it still stinks. Maybe next we can go trade in our old laptops for newer, more energy-efficient ones on the government’s dime.

  4. Hoodlumman says:

    Dave, recently the gov’t became an active player in the automobile industry.

    Just throwing that out there.

  5. PD Shaw says:

    I would have supported some sort of program, but not this one. I listed some of my provisions for such a program in the comments at the Glittering Eye, so I won’t repeat them here. I disagree with Sully that the government is doing something right, when it gives $3,500 for 1 mpg increases in fuel efficiency or for trashing a 2004 vehicle, or it subsidizes the new car-buying habits of the middle-to-upper class.

    In fact, I’d be even more interested in a government means-tested program that found a way to get some of the auto inventory it purchased to the working poor who need a car to get to a job.

  6. Steve Verdon says:

    Sullivan needs to stop writing about economics. Now. Dave (Schuler) got it right, this is really nothing more than a variant on the broken window fallacy. Its a stupid program and a waste of money.

    Dave, recently the gov’t became an active player in the automobile industry.

    Just throwing that out there.

    Yes, and as I pointed at the time out the public choice school of economic thought would argue that the government would then do things good for that industry that are highly inefficient.

    Suppose the government takes over Pepsi, would it be shocking if Coca-Cola was then outlawed? No. Why not create a monopoly for the pet “private” corporation.

    Basic rule of politics: never let a good serious crisis go to waste. That is how you can expand your power, and as that Lord Acton guy said, “…power tends to corrupt….”

  7. odograph says:

    I’ve always hated Cash For Clunkers, even though I work tangentially in the auto business and benefit from it. (Hummer and Cadillac sales help pay my bills.)

    For me it does derive from a basic philosophy – we shouldn’t be bribing ourselves to do the right thing. As you say, “Why not, they wonder, offer $4500 subsidies for everything?”

    … but I really think my call for a voluntary move to higher MPG cars fell on deaf ears. “We can afford our SUVs and deserve them” I was told, right up until those SUV drivers had to be cashed out … for SUVs nearly as unsustainable (on a personal and national level).

  8. John Burgess says:

    I’m driving a 13-yr-old Mercury Sable, but no cash for me… not ‘clunker’ enough! Boo Hoo.

    I’d certainly like $4,500 to apply toward a new car. Or to apply to nearly anything else, in fact. I’m still watching TV on a TV set!

    Arguably, a $4,500 donation to me would be spread more widely than the current program allows. Right now, it goes to carmakers who might not be around in a year’s time.

  9. Mark says:

    Why not subsidies for “everything”?

    Isn’t that essentially what the rebate checks were? What tax cuts are? What stimulus spending is?

    Isn’t this just another form of that with the added benefit for a specific and ailing industry while at least getting a few low mileage cars off the road?

    Aren’t American automakers benefiting the most in these sales?

    Ford posted its first increase in sales in two years and this is just a statistical anomaly created by perverting consumer behavior into a smaller time space?

  10. Dave Schuler says:

    Aren’t American automakers benefiting the most in these sales?

    We don’t have enough information to draw a conclusion one way or another.

    As to Ford, I’m not sure how we’d go about disaggregating the effects of the C4C program from consumer preference for a company that isn’t in bankruptcy.

  11. Rick DeMent says:

    Yes but as we discover earlier, most car dealers are republican so don’t count on any principled stands from these champions of the free market when their own livelihoods are on the line. It’s going to be an all hogs to the trough hootenanny!

  12. Mark says:

    As to Ford, I’m not sure how we’d go about disaggregating the effects of the C4C program from consumer preference for a company that isn’t in bankruptcy

    Why would it matter? If sales are flat, and this program increases sales, if consumers pick Ford well, great!

    The point was – this program is as much a stimulus as the other things I mentioned. Why they pick a brand is irrelevant in terms of a driver for sales. Unless you’re saying that there’s the potential of this sales increase coinciding with a push in demand for Ford (while all other auto sales also rose) only because they aren’t in bankrupcy? That’s a pretty big stretch.

    http://news.prnewswire.com/DisplayReleaseContent.aspx?ACCT=104&STORY=/www/story/07-29-2009/0005068374&EDATE=

    “An unexpected trend is the sales to consumers who do not qualify for the government program. Chip King, from http://www.JerrysToyota.com, says that “over half the consumers who initially inquired about the program did not qualify but many of them bought a car anyway due to the unprecedented manufacturer and dealer incentive programs, “explains King. “We are having our best used vehicles sales month all year because consumers who don’t qualify for the program are buying certified pre-owned cars,” said Brian Benstock from http://www.ParagonCars.com. “For every vehicle sold to a consumer who is eligible for the government program we have sold another vehicle to consumers who did not qualify.”

  13. Dave Schuler says:

    Why would it matter?

    Because one thing preceding another does not mean that it caused the other. That matters when you’re trying to evaluate the effects of a policy.

  14. Mark says:

    Because one thing preceding another does not mean that it caused the other. That matters when you’re trying to evaluate the effects of a policy.

    I can see looking for validity in the notion that Ford sales increased more than others as a result of some consumer preference. But, that’s a sub-heading to the larger point, dontcha think?

  15. An Interested Party says:

    Some say the best defense is a good offense. Attacking Republicans has become the standard daily regimen for Dems in order to stamp out criticism of their programs. Rather than defend the program outright why not just smear conservatives? Make them out to be petty and somewhat wacko (Birthers). I’m betting Rahm likes these tactics.

    And what are Republicans doing? They attack, attack, attack the president, trying to paint him as a socialist and offering few, if any, alternatives of their own…rather than actually proposing an alternative healthcare plan or a plan to balance the budget, it apparently is far easier for them to trash the president and the Democrats…oh, any Republican who doesn’t denounce the Birthers (who are wacky, by the way), needs to answer why he won’t distance himself from this fringe movement…I’m betting Karl really likes these tactics…

  16. PD Shaw says:

    In terms of expectations, I would have thought Chrysler would have done better in this program. Some people thought this was a Chrysler program. I think this is because Chrysler seemed to have the most advertising surrounding it and were doubling the government rebate.

    Looking at the top 10 cars purchased in the program, only the Dodge Caliber is a Chrysler model. The Caliber invoices for $15,500, so with a $9,000 discount, it’s a $6,500 buy.

    I’m sure as long as automakers can sell cars for under five figures, the industry will do quite well.

  17. floyd says:

    This program is insulting to all the people who are struggling to make a living and must drive to work past the dealers who have collected cars to scrap that are far better than those they can afford to own.
    The very least they could do is allow the working poor to come in and, for free, switch his real clunker for one of the perfectly serviceable cars scheduled for destruction in the “program”!
    Besides, the fact is that the dealers are practically hemorrhaging from laughter at the fools in the government and off the street who think this benefits anything but dealer pocket linings.

  18. markm says:

    Aren’t American automakers benefiting the most in these sales?

    We don’t have enough information to draw a conclusion one way or another.

    And apparently the information on this program is currently being withheld for some reason. I’m just curious, when all is said and done if the numbers of vehicles sold times the $3,500/$4,500 from the Feds equals the price of the program.

  19. anjin-san says:

    Secondly, last week we published an analysis showing that in any given month 60,000 to 70,000 “clunkerlike” deals happen with no government program in place.

    In a normal economy sure. In this one, I think not.

  20. DavidL says:

    I realize that we don’t exactly have five hundred thirty-five rocket scienceits in Congrezs, but Cash for Clunker is dumb even by Congress’ standards.

    We are taking money from rransporation research, which could benefit all American and giving it to a select few motoorists that were essentially going to trade in their car anyhow. If C-f-C generates, ten percent new trad in, the taxpayer is on the hook or forty=five thousand dollars to get one clunker off the road.

    Even if C-f-C worked, the cost-benefit ratio would still make it a stupid idea.

  21. al bee says:

    How much can I get for thee clunker in the White House. As my wife said “It’s priceless”!

  22. An Interested Party says:

    I see that programs like this are nothing new…

  23. floyd says:

    “”Secondly, last week we published an analysis showing that in any given month 60,000 to 70,000 “clunkerlike” deals happen with no government program in place.””
    “”””””””””””””””””””””””””””””””””””””””””””””””””

    Those “clunkerlike” cars were still in the “food chain” and available for parts or resale….
    A very important difference to the working poor.

  24. anjin-san says:

    Worth noting that the Economist, hardly a liberal rag, give cash for clunkers a rave review…