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?