Hit-and-Run: How the Government's Billion-Dollar Cash for Clunkers Boondoggle Hurts the Poor

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Back in the recession of 1958, one solution offered by the car industry was this: “You auto buy now.” Get it? Auto. Ought to. Someone got paid a bonus for that slogan. There were others. Same theme: save the economy by buying a new car. Do your patriotic duty.

Back then, the government did not get involved. That was then. This is now.

The Federal government, co-owner of Chrysler and General Motors, wants to jump-start the new car market. It wants to get some money out of its bailouts. “How?” you may ask. By spending more money, you big silly. Lots more money.

This is not a hard sell to voters. Free money never is. But the spin-meisters had to come up with something, just to make the program seem economically legitimate. They came up with a $1 billion wealth-redistribution program to help the “little guy” buy a new car. He trades in his low-miles-per-gallon old car and gets a $3,500 to $4,500 rebate.

The rebates are called “vouchers.” Whenever you hear the word “voucher” in the same sentence as “government,” put your hand upon your wallet and your back against the wall.

If the new car gets 22 miles per gallon, and the old car gets 18 miles per gallon, the buyer gets a $3,500 rebate. If the difference is 10 miles per gallon, he gets $4,500. The rules are here.

There are other restrictions. You must have owned the clunker for a year. It must be a low-mileage vehicle. There are a few other rules.

There are rules governing the disposal of the clunkers. The engines must be destroyed. This reduces the supply of used cars.

Poor people buy used cars. (So do I.) They cannot afford to buy new cars. The longer the cash for clunkers program continues, the lower the supply of used cars. Prices will rise.

By ruining the most valuable part of the used car — the engine — the program subsidizes the scrap metal industry at the expense of the junk car industry. The supply of parts will be reduced. Junk car yards serve the poor and repair services aimed at the poor.

We are in a recession. Rising prices will exclude the poorest buyers. Rising repair costs will hinder them in trying to keep their clunkers going.

The law was heralded as a way to reduce gasoline consumption. Right. There are 250 million cars in the United States. Now, to replace (say) 100 million gas-guzzlers by way of a $3,500 to $4,500 rebate per vehicle would cost the government $350 billion to $450 billion.

Does anyone in his right mind believe that the marginal gasoline savings of as little as 4 miles per gallon per vehicle would be worth $350 billion? Only the voters, who are being told that gasoline savings are the reason for the law.

The billion bucks ran out in one month. So, on summer recess day, the House overwhelmingly voted another $2 billion. The Senate will vote this week.

Let’s see: if this bill passes, the government will have $447 billion to go.

This is lunacy. That is to say, the bill will probably pass.

There is no boondoggle too nutty for Congress to reject out of hand. The fiscal deficit is an estimated $1.8 trillion. Instead of watching every spending bill like hawks, Congress figures “What’s another $2 billion?” The magnitude of the deficits today is so great that there is now no resistance to further spending, all funded by government debt.

This is hit and run of the poor. It is also hit-and-run either for future taxpayers or future investors in Federal debt, who will be stiffed by mass inflation. Then the rest of us will lose.

There is no stopping Congress today. The last flickering traces of fiscal sanity ended in the election of 2004.

This will be hit-and-run of the dollar. We can see the headlights moving toward us.

Get out of the highway with your capital.

August 11, 2009

Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

Copyright © 2009 Gary North

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