On a completely unrelated note, I want to say a few words about the federal government's recent cash for clunkers program. Over the Summer, the program was hailed as the most successful of all the stimulus programs. Over the lifetime of the program (including when it was extended in late august) approximately 700,000 car buyers took advantage of the program where they traded in an old "clunker" for credit towards a new, more fuel efficient vehicle. Sounds great right? Old gas guzzlers off the roads, and it's a boost to American automakers at a time they really need it. Well guess what? Looking back it seems like the plan was all that environmentally beneficial, and in the long run it probably did more to hurt the U.S. economy than it did to help it.
U.S. auto sales plummeted in September, down 25% from 2008 (GM was down 45% and Chrysler 42%). And this is compared to September 2008, right when the banking meltdown was becoming apparent. Critics predicted that the cash for clunkers program would do little than cannibalize future auto sales that would have occurred anyway, and that seems to be the case. September sales are down because many people who would have bought in September simply bought while the program was in effect. Although the automakers may have gained a marginal amount of sales that would not have occurred, there is no way the boost was enough to justify the $3 billion cost of the program. Not to mention that dealers were forced to destroy all the cars traded in during the program. Instead of recycling perfectly capable vehicles, most likely at lower costs that middle and lower class Americans could afford, the feds mandated that we destroy these economic resources.
Additionally, the environmental benefits have been overstated. One study by Hudson Institute economist Irwin Stelzer found that at best the program would reduce oil consumption by 0.2% per year, which amounts to less than one days use of gasoline. Even despite future savings in fuel costs, the program still is very unstimulating. Two University of Delaware economists recently attempted to sum all the benefits and costs of the program (increased auto sales, reduced gas consumption, environmental improvements vs. cost of the program) and found that the benefits do not outweigh the costs, and the true cost to GDP is -$1.4 billion. So much for helping the tanking economy.
In short, the cash for clunkers program is nothing more than the federal government once again attempting to redistribute wealth. The fat cats in Washington spent over $3 billion of our money (adding to the national debt) in order to subsidize new car buyers, and attempt to subsidize car manufacturers. The sad part is that it seems as if they didn't even succeed in reaching their second goal. The editorial board of the Wall Street Journal said it best in their editorial Clunkers in Practice (*please also note that this article was the basis for my post and I used many of their statistics*):
The basic fallacy of cash for clunkers is that you can somehow create wealth by destroying existing assets that are still productive, in this case cars that still work. Under the program, auto dealers were required to destroy the car engines of trade-ins with a sodium silicate solution, then smash them and send them to the junk yard. As the journalist Henry Hazlitt wrote in his classic, "Economics in One Lesson," you can't raise living standards by breaking windows so some people can get jobs repairing them.
Too bad in Washington, having a simple and catchy slogan, regardless of whether the program itself has huge hidden costs, is the goal. Politicians make a living off misleading an uneducated and uniformed electorate, and nothing will change until we vote them ALL out of office.
Great comment about PSU and Cash for Clunkers - But what about the Philllies? When your team gets into the playoffs 3 years in a row savor it. It could be 5 to 10 years between world series runs so enjoy it.
ReplyDeleteThe Old Man