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Tuesday, August 4, 2009

Cash for Clunkers a.k.a. Democrat Welfare Spending to Fool the Public


'CLUNKER' DEBUNKER
PROGRAM'S ILLUSORY SUCCESS

WASHINGTON has finally found a runaway hit of a stimulus program: Paying people to buy cars.

The "Cash for Clunkers" program offering people a rebate worth as much as $4,500 to trade in an old car for a new one exhausted its first $1 billion -- meant to last four months -- in a mere week. Congress is scrambling to pony up another $2 billion. It's hard to say where the Clunkers program falls on the spectrum of Washington economic policies that, these days, run in a narrow span from the thoroughly asinine to the merely ill-considered.

Start with the focus on cars. What strange, narrow-minded obsession with the internal-combustion engine made Congress only pay people to buy new automobiles? Why aren't they paid to buy appliances, TVs and sofas? To go out to eat, and to buy business suits, bluejeans and lingerie? Are all of these consumer activities inherently less worthy than trading in a 1999 Dodge Caravan for a Chevy Cobalt?

Of course, car companies are politically connected, to say the least. The federal government owns one car company, and the United Auto Workers owns the federal government. So it's no coincidence that the industry's products benefit from Washington's retail bribery in a way those of J.C. Penney don't.

The fundamental mistake is to think that the government can magically induce economic activity with no countervailing downside. The Clunkers program is really just shifting around sales, creating the illusion of a demand for cars conjured out of nowhere. To the extent the program has enticed people to speed up or delay their purchases to take advantage of the rebate, it has borrowed demand from earlier this year or the future for a burst of sales in the summer of 2009.

The car-buying guide Edmunds.com reports that as many as 100,000 buyers delayed their purchases, waiting for the Clunkers program. And some of the roughly 60,000 trade-ins that take place in any month anyway were rushed to gobble up the rebate. "We have crammed three or four months of normal activity into just a few days," Edmunds.com CEO Jeremy Anwyl writes in The Wall Street Journal.

The Clunkers program is supposed to help save the planet by shelving gas guzzlers. To qualify for trade-in, an old vehicle has to get less than 18 miles per gallon. But the environmental upside shouldn't be exaggerated. If the trade-in wasn't driven much, a new car isn't necessarily a boon to the environment. Remember, the very act of manufacturing a new car is itself an energy-intensive process.

The Clunkers program demands that the old cars be disabled. In a ritual repeated in dealership lots across America, sodium silicate is being poured into car engines to kill them. Many of these cars have value and could be sold on the used market. They are being destroyed senselessly in a diktat reminiscent of Franklin Roosevelt's slaughter of livestock during the New Deal. Decades later, we still haven't learned that the wanton destruction of goods is scandalously wasteful economic policy.

The Clunker program is the ultimate expression of Obamanomics in all its spendthrift shortsightedness. Car sales plummeted from 17 million during their peak in 2005 to roughly 10 million a year now. At that pace, the fleet would take more than 20 years to turn over -- an outlandishly slow rate. Sales would eventually bounce back. What's true of the car market is true for the economy at large, which couldn't continue to plunge at the rate it did in the heart of the recession.

Once the financial system stabilized, what was needed were patience and a favorable environment for business and investment. Instead, the Obama administration has repeatedly mugged Peter to pay Paul. Who, pray tell, will pay for the soon-to-be $3 billion thrown into the Clunkers program? Ask that question hundreds of times over and it's clear why broad-based, growth-suppressing taxes are our inevitable future. Call it Clunkernomics.

Rich Lowry, NY Post, 8/4/09

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